OUR PURPOSE To build, maintain and improve our customers’ operations through the reliable delivery of safe, cost-effective and customer-focused solutions. Our Vision 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. Our Values 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 Left: Monadelphous employees inspecting construction at Rio Tinto’s West Angelas Deposits C & D Project, Newman, Western Australia. Middle: A Monadelphous employee inspecting pipe installation plans at BHP’s Jimblebar mine site, Newman, Western Australia. Right: Woodside-operated North Rankin Complex, located 135 kilometres north-west of Karratha, Western Australia. Photo courtesy of Woodside. CONTENTS OVERVIEW About Monadelphous Our Services and Locations OPERATING AND FINANCIAL REVIEW 2020/21 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 Consolidated Financial Statements 5 6 8 10 12 14 16 20 22 24 30 36 48 52 65 70 71 76 Investor Information 122 About this Report 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 2021 financial year. References in this Report to ‘the year’, ‘the reporting period’ and ‘the period’ relate to the financial year 1 July 2020 to 30 June 2021, 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’, ‘we’, ‘its’, ‘us’ and ‘our’ refer to Monadelphous Group Limited and its subsidiaries. Annual General Meeting Shareholders are advised that the Monadelphous Group Limited 2021 Annual General Meeting will be held at The University Club, University of Western Australia, Crawley, Western Australia, and online via the Lumi software platform, on Tuesday, 23 November 2021 at 10am (AWST). Further details are included in the Notice of Meeting available on the Company’s website at www.monadelphous.com.au. The Monadelphous 2021 Annual Report has been printed on FSC Recycled certified paper as part of the Company’s environmental commitment to reducing waste. 4 ANNUAL REPORT 2021 Monadelphous employees on the newly constructed primary crusher at Rio Tinto’s West Angelas Deposits C & D Project, Newman, Western Australia. Image caption goes here OVERVIEW 5 ABOUT MONADELPHOUS 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 Our Operations 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 refocusing 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. Monadelphous has two operating divisions working predominately in Australia, with overseas operations in New Zealand, China, Papua New Guinea, Mongolia, the Philippines and Chile. Engineering Construction The Engineering Construction division provides large-scale multidisciplinary project management and construction services. These include fabrication, modularisation, procurement and installation of structural steel, tankage, mechanical and process equipment, piping, commissioning, demolition, heavy lift, electrical and instrumentation, 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, sustaining capital works, fixed plant maintenance services, access solutions, specialist coatings and rail maintenance services. 6 ANNUAL REPORT 2021 6 ANNUAL REPORT 2021 OUR SERVICES AND LOCATIONS Monadelphous operates predominantly in Australia, with overseas operations in New Zealand, China, Papua New Guinea, Mongolia, the Philippines and Chile. ENGINEERING CONSTRUCTION Market Sector Market Sector Australia Pacific LNG - Skids supply, fabrication and assembly Oil and Gas BHP - Olympic Dam - Multidisciplinary Construction Services Panel - SMPE&I Copper, Uranium, Gold 8 9 MARBL Lithium JV - SMP and piping works General Electric International - Murra Warra Stage II Wind Farm - BOP works Renewable Energy BHP - South Flank - SMPE&I works for inflow infrastructure Iron Ore 10 Rio Tinto - West Angelas Deposits C & D Project - SMPE&I BHP - South Flank - SMPE&I works for outflow infrastructure Iron Ore 11 Rio Tinto - Western Turner Syncline Phase 2 Mine - D&C BHP - WAIO Asset Projects Panel - SMPE&I Iron Ore 12 Talison Lithium - D&C tailings retreatment processing plant Lithium CWP Asset Management - Crudine Ridge Wind Farm - BOP works Renewable Energy 13 thyssenkrupp Industrial Solutions (Australia) - South Flank - Construction of reclaimer and stackers Iron Ore Fortescue Metals Group - Crane services Iron Ore MAINTENANCE AND INDUSTRIAL SERVICES Market Sector AGL Macquarie - Bayswater Fly Ash Plant refurbishment and slurry lines replacement Power 16 Minera Escondida - Escondida Copper Mine - Construction and assembly of communications tower Alcoa - Crusher relocation and recommissioning Anglogold - Maintenance services BHP - Maintenance and shutdowns Bauxite Gold Nickel BHP - Maintenance, shutdowns and sustaining capital works Iron Ore BHP - Mt Arthur Coal - Shutdown maintenance and minor projects Coal BHP - Olympic Dam - Maintenance and shutdowns Copper, Uranium, Gold BHP Mitsubishi Alliance - Maintenance and shutdown works Coal Codelco - Chuquicamata Mine - Underground maintenance services Copper 10 Codelco - El Teniente Mine - Maintenance services 11 Codelco - Radomiro Tomic Mine - Maintenance services 12 GNL Quintero - Maintenance works 13 Incitec Pivot - Turnarounds, general mechanical and maintenance services Copper Copper Oil and Gas Ammonia 17 Newcrest Mining - Maintenance works 18 Oil Search Limited - EPC services Oil and Gas 19 Queensland Alumina Limited - Maintenance and projects Alumina 20 Rio Tinto - Fixed plant maintenance, marine maintenance and sustaining capital works 21 Rio Tinto - Gove - Shutdown services 22 Rio Tinto - Maintenance services for rail network Iron Ore Bauxite Iron Ore 23 Rio Tinto - Yarwun Alumina Refinery - Maintenance services Alumina 24 Shell - Provision of services 25 Shell - Provision of services 26 27 South32 - Worsley Alumina Refinery - Shutdown and mechanical services Synergy - Muja Power Station and Collie Power Station - Infrastructure operation and maintenance Oil and Gas Oil and Gas Alumina Power 14 INPEX Operations Australia - Offshore maintenance services Oil and Gas 28 Woodside - Offshore and onshore maintenance services Oil and Gas 15 Minera Escondida - Coloso Port - Upgrade to conveyor system Copper Abbreviations: BOP - Balance of plant; D&C - Design and construct; EPC - Engineering, procurement and construction; SMP - Structural, mechanical and piping; SMPE&I - Structural, mechanical, piping, electrical and instrumentation; WAIO - Western Australia Iron Ore Lithium Iron Ore Iron Ore Market Sector Copper Gold 1 2 3 4 5 6 7 1 2 3 4 5 6 7 8 9 OPERATING AND FINANCIAL OVERVIEW 7 MONGOLIA MONGOLIA CHINA ULAANBAATAR BEIJING TIANJIN PHILIPPINES MANILA 17 18 PAPUA NEW GUINEA 9 11 15 16 12 10 CALAMA ANTOFAGASTA SANTIAGO RANCAGUA CHILE DARWIN 14 24 21 PORT HEDLAND PILBARA COASTAL AND NORTH-WEST REGION 3 10 11 13 5 4 7 5 20 22 28 KARRATHA TOM PRICE NEWMAN KALGOORLIE PERTH HEAD OFFICE 4 3 2 9 26 27 12 BUNBURY BIBRA LAKE 13 8 19 23 25 1 1 6 6 MACKAY GLADSTONE BRISBANE CHINCHILLA GUNNEDAH MUSWELLBROOK MT THORLEY RUTHERFORD NEWCASTLE SYDNEY MUDGEE AUSTRALIA 2 7 ROXBY DOWNS 8 MAJOR OFFICES & WORKSHOP LOCATIONS ENGINEERING CONSTRUCTION MAINTENANCE & INDUSTRIAL SERVICES NEW ZEALAND 8 ANNUAL REPORT 2021 2020/21 HIGHLIGHTS Monadelphous made good progress on its markets and growth strategy, despite the impacts and uncertainty caused by COVID-19. In total, the Company was awarded approximately $950 million of new contracts and contract extensions. Strong progress on resource construction projects The Engineering Construction division made significant execution progress on its large portfolio of major construction projects, including BHP’s US$3.6 billion South Flank, which achieved first production in May 2021, Rio Tinto’s West Angelas Deposits C and D and the Kemerton lithium hydroxide plant, which is owned 60 per cent by Albemarle in connection with its MARBL Lithium Joint Venture with Mineral Resources Limited. Mondium progressed significant EPC project Mondium made good progress on its strategically important $400 million contract with Rio Tinto for the Western Turner Syncline Phase 2 mine, located in the Pilbara region of Western Australia (WA). Outstanding safety performance Achieved a substantial improvement in safety performance, with a 39 per cent reduction in the Company’s total recordable injury frequency rate to 2.26 incidents per million hours worked. OPERATING AND FINANCIAL REVIEW 9 Strong demand for maintenance services Significant demand for maintenance, shutdown and sustaining capital services, particularly within the iron ore sector in the Pilbara. Expanded rail services Continued to grow its rail portfolio on the east coast of Australia, commenced providing underground rail maintenance services in South Australia and invested in plant and equipment to support customers. Multiple new contract awards in South America Buildtek awarded approximately $100 million of new maintenance and construction contracts in Chile with major copper producers, Codelco and Minera Escondida. Developed new diversity plans Supporting sustainable change, and in line with its commitment to diversity and inclusion, new Stretch Reconciliation Action and Gender Diversity and Inclusion plans were developed for launch in the 2022 financial year. Significant number of contracts secured in iron ore A large proportion of construction and maintenance contracts were secured with major iron ore producers during the year, including with BHP, Rio Tinto and Fortescue Metals Group. 10 ANNUAL REPORT 2021 PERFORMANCE AT A GLANCE Revenue1 Net profit after tax Earnings per share $1,953m $47.1m 49.7c 45.0c Contracts secured since beginning of 2021 financial year 2.26 $950m Full year dividend Total recordable injury frequency rate incidents per million hours worked Safety performance 6.00 4.00 2.00 0.00 2.26 TRIFR 0.27 LTIFR 2018 2019 2020 2021 1. Includes Monadelphous’ share of joint venture revenue. Refer to reconciliation on page 20. 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 76. Revenue1 Net profit after tax Earnings per share OPERATING AND FINANCIAL REVIEW 11 n o i l l i m $ 7 . 4 6 2 , 1 0 . 4 8 7 , 1 3 . 8 0 6 , 1 8 . 0 5 6 , 1 2 . 3 5 9 , 1 n o i l l i m $ . 6 7 5 . 5 1 7 . 6 0 5 . 5 6 3 1 . 7 4 . 4 1 6 . 1 6 7 . 7 3 5 . 7 8 3 7 . 9 4 s t n e C 17 18 19 20 21 17 18 19 20 21 17 18 19 20 21 Financial Year Financial Year Financial Year Dividends per share Cash Workforce numbers 7,545 7,091 6,532 7,791 5,689 s t n e C n o i l l i m $ e l p o e P . 0 4 5 . 0 2 6 . 0 8 4 . 0 5 3 0 . 5 4 . 9 1 4 2 . 8 8 0 2 . 0 4 6 1 . 3 8 0 2 7 . 5 7 1 4 6 1 , 6 8 2 8 , 5 2 4 9 , 5 9 7 5 , 5 9 5 5 , 7 17 18 19 20 21 17 18 19 20 21 17 18 19 20 21 Financial Year Financial Year Financial Year Direct Employees Subcontractors Revenue by geography Operations Revenue by end customer WA QLD INTERNATIONAL NSW NT SA VIC 74% 8% 6% 4% 3% 3% 2% · Demand for services increased as industry recovered from COVID-19. · Significantly progressed major construction projects. · Strong demand for maintenance services. · Unprecedented skilled resources shortage. · Secured approximately $950 million of new contracts and contract extensions. Safety and Wellbeing · 12-month total recordable injury frequency rate improved by 39 per cent to 2.26 incidents per million hours worked. · Initiatives implemented to reinforce line-of-fire fatal risk controls. · Continued focus on employee mental health and wellbeing. Iron ore Oil and gas Copper Coal Other minerals Lithium Infrastructure 53% 18% 7% 7% 6% 5% 4% People and Culture · Substantial increase in employee numbers. · Skilled labour supply impacted by very high industry activity levels and COVID-19 restrictions. · Enhanced employee development programs and reviewed employee benefits and rewards. · Formalised commitment to workplace flexibility. · Progressed Indigenous and gender diversity engagement initiatives. 12 ANNUAL REPORT 2021 MARKETS AND GROWTH STRATEGY Monadelphous will maximise growth and returns from its core markets, broaden its service offering, grow its presence in infrastructure markets and expand core services to overseas locations. Conveyor installed by Monadelphous at BHP’s US$3.6 billion South Flank Project, Pilbara, Western Australia. OPERATING AND FINANCIAL REVIEW 13 Car dumper refurbishment work undertaken by Monadelphous at BHP’s Nelson Point, Port Hedland operations, Western Australia. Maximise growth and returns from core markets Progress · Secured approximately $950 million of new contracts Priorities · Continue to capitalise on opportunities in iron ore, and extensions since the beginning of the financial year. copper and other resource commodities. · Significantly progressed work on major resource · Maximise fabrication opportunities and expand construction projects. heavy lift capability. · Delivered a high volume of maintenance, shutdown and sustaining capital services to the iron ore sector. · Grow position in engineering, procurement and construction market. · Focus on innovation and productivity to deliver value for Monadelphous and its customers. Broaden service offering Progress · Expanded rail services to include general rail maintenance on east coast of Australia and underground rail maintenance services in South Australia. · Invested in plant and equipment to support the growth of its industrial services and civil capabilities. · Strategic collaboration with Fagioli to increase heavy lift capacity and capability. Grow presence in infrastructure markets Progress · Zenviron secured its ninth wind farm contract, cementing its reputation as a market leader in the delivery of balance of plant works for wind farms. Expand core services overseas Progress · Buildtek secured $100 million of new contracts in the resources and energy sectors in Chile. · Continued to provide maintenance services to the resources and energy markets in Papua New Guinea. · SinoStruct established a new facility in Tianjin, China, enabling it to self-perform fabrication work. Priorities · Broaden service offering to existing customers. · Continue to pursue maintenance opportunities in light industrial and utilities sectors. · Deliver core services to new markets in Australia. Priorities · Continue to enhance Zenviron’s position in the Australian renewable energy market. Priorities · Grow operations in Chile and seek opportunities for expansion in Latin America. · Assess further opportunities at Oyu Tolgoi Project in Mongolia. · Expand construction offering in Papua New Guinea. 14 ANNUAL REPORT 2021 CHAIRMAN’S REPORT Demand for the Company’s services improved as the industry recovered from the delays and disruptions experienced during the initial phases of COVID-19, resulting in revenue for the year of $1,953 million1, an 18.3 per cent increase on the prior period. Earnings before interest, tax, depreciation and amortisation (EBITDA) was $108.7 million2, an improvement of 18 per cent on last year. capital levels. The average cash flow conversion rate for the two financial years ending 30 June 2020 and 30 June 2021 is a solid 87 per cent. Industry activity levels were very high during the year, significantly increasing the demand for labour, particularly in Western Australia (WA). Measures taken by state governments across the country to control the spread of the COVID-19 pandemic, including interstate border restrictions, impacted the industry’s ability to source the required levels of skilled labour, further exacerbating the already stretched labour market. The resultant shortfall of available skilled resources was unprecedented and resulted in labour cost and productivity pressures being experienced across the industry. Net profit after tax for the period was $47.1 million, an increase of 29 per cent on the prior period, representing earnings per share of 49.7 cents. The Board of Directors declared a final dividend of 21 cents per share, taking the full year dividend to 45 cents per share fully franked. This equates to a payout ratio of approximately 90 per cent of reported net profit after tax. The Monadelphous Group Limited Dividend Reinvestment Plan applied to both the interim and final dividend payments. Monadelphous ended the year with a strong cash balance of $175.7 million. The Company has experienced vastly different cash flow conversion rates over the last two financial years as a result of the initial impact of COVID-19 and the subsequent recovery therefrom, and the effects these events have had on the Company’s activity and working 1. Includes Monadelphous’ share of joint venture revenue. Refer to reconciliation on page 20. 2. EBITDA – refer to reconciliation on page 21. The materially reduced operating activity levels experienced in the months leading up to 30 June 2020, at the initial height of the COVID-19 pandemic, significantly reduced the working capital requirements of the business at that time, and delivered an unusually high cash flow conversion rate of 151 per cent for the financial year ended 30 June 2020. The improvement in the operating environment post 30 June 2020, and the consequent increase in working capital as the Company’s requirements returned to more normal levels, meant the cash flow conversion rate for the financial year ended 30 June 2021 was 35 per cent. The strength of Monadelphous’ balance sheet provides the Company with the financial capacity required to effectively deal with the unpredictable and volatile effects of the pandemic and take advantage of any potential investment opportunities that may arise. To show leadership support during the pandemic, and in response to the impact of COVID-19 on the Company’s business and operations, the Managing Director, Non- Executive Directors and I agreed to a 30 per cent salary and fee reduction for a six month period from May to October 2020, with the Executive and General Management teams agreeing to salary reductions of between 10 and 20 per cent for the same period. OPERATING AND FINANCIAL REVIEW 15 During August 2020, Monadelphous was notified that Rio Tinto had filed a Writ of Summons in the Supreme Court of Western Australia against one of Monadelphous’ wholly owned subsidiaries in respect of a fire incident which occurred at Rio Tinto’s iron ore processing facility at Cape Lambert, WA, in January 2019. In April 2021, the Company announced that a confidential out-of-court settlement had been reached in this matter, with the settlement being covered by the proceeds of insurance. Monadelphous made good progress on its markets and growth strategy during the year, despite the impacts and uncertainty caused by COVID-19. The Company was awarded approximately $950 million in new contracts and contract extensions across the resources, energy and infrastructure markets since the beginning of the financial year, including approximately $200 million subsequent to year end. A large proportion of the Company’s new work was secured in the iron ore sector, with Monadelphous awarded a significant number of sustaining capital work projects under panel agreements with both BHP and Rio Tinto, as well as a five-year crane services contract with Fortescue Metals Group. Monadelphous’ Chile based maintenance and construction services business, Buildtek, continued to perform strongly, securing approximately $100 million of new work. Monadelphous continued to grow its rail portfolio and, in addition to providing track resurfacing services in New South Wales, now provides general rail maintenance services to multiple customers on the east coast and in the Pilbara region of WA, as well as underground rail maintenance services in South Australia. The Company will continue to assess opportunities to achieve ongoing service and customer market diversification and support long-term sustainable growth. Monadelphous’ reputation as a leader in its markets and as an employer of choice, together with its longstanding commitment to the delivery of safe, reliable and cost competitive service solutions, places it in a strong position to capitalise on the opportunities and deal with the challenges ahead. In conclusion, I would like to take this opportunity to sincerely thank our loyal and talented team for their truly herculean efforts. Our team has worked incredibly hard to deal with extraordinary challenges and unprecedented constraints imposed on them throughout the COVID-19 pandemic. I also extend my appreciation to our shareholders, customers and other stakeholders for their ongoing support during these difficult and unusual times. Mondium, the Company’s engineering, procurement and construction (EPC) joint venture, made good progress on its largest ever contract, the Western Turner Syncline Phase 2 mine project for Rio Tinto. John Rubino Chairman 16 ANNUAL REPORT 2021 MANAGING DIRECTOR’S REPORT Reinforcing its leadership position, Monadelphous was awarded approximately $950 million in new contracts and contract extensions since the beginning of the 2021 financial year, with a large proportion of new work secured in the iron ore sector. Monadelphous experienced an increase in demand for its services during the year as the industry recovered from the delays and disruptions experienced during the initial phase of COVID-19. Significant progress was made on the Company’s large portfolio of major construction projects. Demand for maintenance services within the iron ore sector was particularly strong, with reduced levels of activity experienced in the oil and gas sector. Strong demand across the industry in an already tight labour market, combined with COVID-19 related travel restrictions and border closures, placed significant pressure on the Company’s ability to attract and retain labour. Monadelphous undertook a number of initiatives to bolster its employee engagement and attraction processes to ensure it can continue to retain and attract highly competent employees who are culturally aligned to its core values. These strong activity levels saw the Company’s direct employee numbers peak at over 7,600 employees during the period, its largest employee base since May 2013. The Company’s total recordable injury frequency rate improved by 39 per cent over the year to 2.26 incidents per million hours worked, a particularly pleasing result given the extraordinarily high levels of recruitment activity experienced. The improvement comes on the back of the implementation of a number of health and safety initiatives, including reinforcing controls around line-of-fire fatal risks, updating supervisor safety leadership and a focus on employee mental health and wellbeing. During the year, Monadelphous made significant progress on its gender diversity and Indigenous inclusion initiatives and continued to focus on the implementation of proven technologies to improve productivity and deliver value for customers. OPERATING AND FINANCIAL REVIEW 17 Monadelphous employees at BHP’s US$3.6 billion South Flank Project, Pilbara, Western Australia. 18 ANNUAL REPORT 2021 Engineering Construction The Engineering Construction division reported revenue of $979.0 million1, a 59 per cent increase on last year, reflecting the significant execution progress made on its large portfolio of major construction contracts during the period. In the Pilbara region of Western Australia (WA), the division completed its first package of work at BHP’s world-class US$3.6 billion South Flank Project, with two additional scopes of work on the project’s inflow and outflow infrastructure expected to be completed in the second half of 2021. Construction substantially progressed at Rio Tinto’s West Angelas Deposits C and D Project, as well as at the Kemerton lithium hydroxide plant, which is owned 60 per cent by Albemarle in connection with its MARBL Lithium Joint Venture with Mineral Resources Limited, in the south- west region of WA. The Company’s heavy lift business secured a five-year crane services contract with Fortescue Metals Group, and the division was awarded a number of packages of work under its BHP panel agreements for work in the Pilbara and at Olympic Dam copper mine in South Australia, as well as a construction contract at Rio Tinto’s Gudai-Darri iron ore project. Good progress was made on Mondium’s strategically important engineering, procurement and construction contract with Rio Tinto for the Western Turner Syncline Phase 2 mine, located in the Pilbara. Zenviron, the Company’s renewable energy joint venture, performed well, securing its ninth wind farm contract for works at the Murra Warra Stage II Wind Farm in regional Victoria, as well as completing the Dundonell Wind Farm and substantially progressing the Crudine Ridge Wind Farm. SinoStruct continued to provide services for major Monadelphous construction and maintenance projects, and delivered stand alone packages of work for customers in both Australia and Mongolia. Maintenance and Industrial Services The Maintenance and Industrial Services division reported revenue of $976.9 million, down 6.9 per cent on the prior corresponding period. A significant amount of work was undertaken in the iron ore sector, with customers seeking to optimise production levels and capitalise on the strong iron ore price, as well as manage a maintenance deficit created during the initial stages of COVID-19. Lower demand was experienced within the oil and gas sector, albeit improving steadily following the early impact of the pandemic. 1. Includes Monadelphous’ share of joint venture revenue. A significant number of sustaining capital projects were secured in the iron ore sector under panel agreements with BHP and Rio Tinto, contributing to a strong pipeline of work into next financial year. In the oil and gas sector, the division continued to provide services under its existing major onshore and offshore contracts, executing major turnarounds for both Woodside and INPEX, and commencing planning for major turnarounds scheduled across Woodside, Shell and INPEX- operated facilities over the next couple of years. The division continued to broaden its service offering, expanding its rail maintenance capability and investing in specialist equipment to support the growth of its industrial services and civil capabilities. Overseas, the Company’s Chile-based maintenance and construction services contractor, Buildtek, performed strongly, securing new work valued at approximately $100 million with major customers in the resources and energy sectors, including Codelco, Minera Escondida and GNL Quintero. Outlook The buoyant economic conditions forecast for the resources, energy and infrastructure sectors in coming years are expected to provide Monadelphous with a strong pipeline of opportunities. In the resources sector, the outlook for the Australian iron ore industry remains positive, with ongoing significant levels of capital and operating expenditures to sustain high levels of production driving strong demand. Maintenance activity is expected to grow steadily on the back of aging assets and customers deferring discretionary work in prior periods. Strong commodity prices are also contributing to a positive outlook for developments in lithium, gold, copper and nickel. These markets will continue to present opportunities for Monadelphous in Australia, as well as its international operations in South America, Mongolia and Papua New Guinea. After unprecedented demand disruption during the height of the pandemic, conditions in the oil and gas sector are improving with construction opportunities from the development of new liquefied natural gas projects expected to emerge in the next one or two years. Australia’s transition towards clean energy continues to gain momentum, with the portfolio of new wind farms coming to market in the next few years expected to provide opportunities for Zenviron, particularly as electrical grid OPERATING AND FINANCIAL REVIEW 19 A Monadelphous mechanic at BHP’s US$3.6 billion South Flank Project, Pilbara, Western Australia. access improves in New South Wales and Victoria. Rapid development of the hydrogen sector will also provide opportunities in the coming years. mobility of personnel due to unpredictable interstate border restrictions are impeding labour mobilisation and impacting operational productivity. The 2020/21 year has seen an extraordinary surge in construction activity after the initial impact of COVID-19. With several large construction projects all completing in the next six months, full year 2021/22 revenues are likely to be lower than the previous year due to the timing of award and commencement of new major projects. Construction activity is forecast to be stronger in the 2022/23 financial year. The performance of the business will be dependent on the unpredictable and uncertain nature of the COVID-19 pandemic and its impact on the Company’s operations. The shortage of skilled labour will continue to be the major challenge for the Company’s operations in Australia. High levels of industry activity and the prolonged effects of COVID-19 international border restrictions limiting skilled migration are major contributing factors. The impacts are particularly acute for fly-in fly-out construction work in the resources and energy sectors where restrictions in the In response, Monadelphous will strategically target new work opportunities that best utilise the skills of its workforce, working collaboratively with customers in this regard. The Company will also focus on bolstering its employee attraction and retention practices, including performing a review of its variable remuneration practices to support the retention of key talent. Rob Velletri Managing Director 20 ANNUAL REPORT 2021 COMPANY PERFORMANCE A review of the Company’s performance over the last five years is as follows: 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) Net tangible asset backing per share Total equity and reserves attributable to equity holders of the parent Depreciation Debt to equity ratio Return on equity EBITDA margin 2021 $’000 1,754,242 108,696 70,372 21,906 47,060 49.70c 24.00c 21.00c 2020 $’000 1,488,749 92,077 55,086 17,860 36,483 38.65c 22.00c 13.00c 2019 $’000 1,479,737 106,791 83,426 31,313 50,565 53.72c 25.00c 23.00c 2018 $’000 1,737,632 2017 $’000 1,249,085 119,046 102,845 30,570 71,479 76.11c 30.00c 32.00c 98,184 82,664 24,144 57,563 61.41c 24.00c 30.00c 413.31c 402.43c 413.93c 415.86c 398.23c 395,572 384,433 393,436 394,481 377,393 32,476 10.1% 11.9% 5.6% 30,570 11.9% 9.5% 5.6% 19,490 17,222 17,892 9.7% 12.9% 6.6% 5.3% 18.1% 6.7% 3.6% 15.3% 7.8% Revenue including joint ventures is a non-IFRS measure which does not have any standardised meaning prescribed by IFRS and therefore may not be comparable to revenue presented by other companies. This measure, which is unaudited, is important to management when used as an additional means to evaluate the Company’s performance. Reconciliation of Total Revenue from Contracts with Customers including Joint Ventures to Statutory Revenue from Contracts with Customers (unaudited): Total revenue from contracts with customers including joint ventures Share of revenue from joint ventures 1 Statutory revenue from contracts with customers 2021 $’000 2020 $’000 1,953,180 1,650,768 (199,442) (163,375) 1,753,738 1,487,393 1. Represents Monadelphous’ proportionate share of the revenue from joint ventures accounted for using the equity method. OPERATING AND FINANCIAL REVIEW 21 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, which is unaudited, 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 on loans and hire purchase finance charges Interest expense on other lease liabilities Interest revenue Depreciation of owned and hire purchase assets Depreciation of right of use assets Amortisation expense Share of interest, depreciation, amortisation and tax of joint ventures2 EBITDA 2021 $’000 70,372 1,476 1,598 (414) 23,542 8,934 445 2,743 108,696 2020 $’000 55,086 1,753 1,941 (1,171) 22,608 7,962 644 3,254 92,077 2. Represents Monadelphous’ proportionate share of the interest, depreciation, amortisation and tax of joint ventures accounted for using the equity method. Monadelphous employees at a prestart meeting at Rio Tinto’s West Angelas mine, Newman, Western Australia. 22 ANNUAL REPORT 2021 BOARD OF DIRECTORS Left to right: Helen Gillies, Dietmar Voss, John Rubino, Chris Michelmore, Rob Velletri, Peter Dempsey, Sue Murphy AO. John Rubino Chairman 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 55 years of experience in the construction and engineering services industry. John is also Chair of the Company’s Nomination Committee. Rob Velletri Managing Director 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 42 years of experience in the construction and engineering services industry and is a Member of the Institution of Engineers Australia. OPERATING AND FINANCIAL REVIEW 23 Peter Dempsey Deputy Chair and Lead Independent Non-Executive Director 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 49 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. Peter is a member of the Company’s Audit and Nomination committees. Peter is also currently a Director of Service Stream Limited (ASX: SSM). Helen Gillies Independent Non-Executive Director 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 25 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. Helen is the Chair of the Company’s Audit Committee, and a member of its Remuneration and Nomination committees. Helen is also currently a Director of Yancoal Australia Limited (ASX: YAL) and Aurelia Metals Limited (ASX: AMI). Chris Michelmore 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 49 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. Chris is the Chair of the Company’s Remuneration Committee and a member of its Nomination Committee. Sue Murphy AO Independent Non-Executive Director Sue was appointed to the Board on 11 June 2019. During her 25 year engineering career at Clough, she held a wide range of operational and leadership roles before being appointed to the Board as a Director in 1998. Sue joined the Water Corporation of Western Australia in 2004 as General Manager of Planning and Infrastructure, before being appointed as Chief Executive Officer, a role she held for over a decade. Sue has 42 years of experience in the resources and infrastructure industries. She holds a Bachelor of Civil Engineering and is an Honorary Fellow of the Institution of Engineers Australia. Sue is a member of the Company’s Audit, Remuneration and Nomination committees. Sue is also currently a Director of MMA Offshore Limited (ASX: MRM). Dietmar Voss Independent Non-Executive Director 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 47 years of experience in the oil and gas, and mining and minerals industries. Dietmar holds a Master of Business Administration in addition to chemical engineering and law degrees and is a member of the Australian Institute of Company Directors. Dietmar is a member of the Company’s Audit, Remuneration and Nomination committees. ENGINEERING CONSTRUCTION Our Progress Recorded revenue of $979 million, up 59 per cent. Significant progress on major resource construction projects. Awarded $480 million of new construction contracts in resources, energy and infrastructure sectors. Good progress on Mondium’s significant EPC contract. Zenviron performed strongly in the renewable energy market. Monadelphous employees completing inspections at BHP’s US$3.6 billion South Flank Project, Pilbara, Western Australia. OPERATING AND FINANCIAL OVERVIEW 25 ANNUAL REPORT 2021 26 ANNUAL REPORT 2021 The Engineering Construction division provides large-scale multidisciplinary project management and construction services. The division reported revenue of $979.0 million1, a 59 per cent increase on the previous corresponding period. The result reflected the significant execution progress made during the year on the division’s large portfolio of major construction contracts. completing a significant amount of work in its core resources market, continuing to build on its engineering, procurement and construction (EPC) delivery through Mondium and securing additional work in the renewable energy sector through Zenviron. Since the beginning of the financial year, the division secured new construction contracts within the resources, energy and infrastructure sectors totalling approximately $480 million. The Engineering Construction division continued to contribute to the Company’s markets and growth strategy, The division’s consistent and proactive approach to safety saw initiatives such as a new supervisor competency development program, which includes one-on-one coaching for all supervisors, and a new construction training workshop designed for new employees, implemented during the period. A Monadelphous employee at Rio Tinto’s West Angelas mine, Newman, Western Australia. 1. Includes Monadelphous’ share of joint venture revenue. OPERATING AND FINANCIAL REVIEW 27 CASE STUDY RIO TINTO WEST ANGELAS DEPOSITS C AND D The West Angelas open-pit iron ore mine is located in the Pilbara region of Western Australia (WA). It is owned by Robe River, a joint venture between Rio Tinto, Mitsui Iron Ore Development and Nippon Steel Australia Pty Ltd. Deposits C and D are currently being developed to sustain production at the existing West Angelas iron ore operations. In August 2019, Monadelphous was awarded a major construction contract by Rio Tinto at West Angelas, associated with the Deposits C and D Project. The contract, which is valued at in excess of $100 million, includes the supply and installation of structural, mechanical, piping and electrical and instrumentation works associated with the construction of new iron ore facilities, as well as modifications to existing plant. The Company’s scope of work has subsequently been expanded and is expected to be completed in 2021. Resources During the year, the division secured a number of packages of work under its BHP Western Australia Iron Ore (WAIO) Panel Agreement across various sites in the Pilbara, including for the provision of multidisciplinary brownfield modification works at Nelson Point and Finucane Island, structural, mechanical and electrical upgrades at the Newman Hub, and dewatering of surplus water and fabrication of the train loadout rectification works at Jimblebar mine site. The division continued to provide construction services on its three packages of work at BHP’s US$3.6 billion South Flank Project. The structural, mechanical, piping and electrical instrumentation work on the project’s inflow and outflow infrastructure is expected to be completed in the second half of 2021, with the division having completed the installation and construction of the world’s largest rail mounted stockyard machines for thyssenkrupp Industrial Solutions (Australia) during the period. The division also completed a number of other packages of work for BHP secured under the WAIO Panel Agreement. Construction activities substantially progressed at Rio Tinto’s West Angelas Deposits C and D Project, located in the Pilbara. The fully integrated project, which includes structural, mechanical, piping, electrical and instrumentation works associated with new iron ore facilities, as well as the supply and erection of fabricated products provided by SinoStruct, is expected to be completed in the second half of 2021. Work also continued on the structural, mechanical and piping package associated with the pyromet plant at the Kemerton lithium hydroxide plant, which is owned 60 per cent by Albemarle in connection with its MARBL Lithium Joint Venture with Mineral Resources Limited, in the south- west of WA. Monadelphous was awarded a construction contract at Rio Tinto’s Gudai-Darri iron ore project in the Pilbara during the period. The scope includes construction and support services and is expected to be completed by the end of 2021, ready for the mine to commence production in 2022. During the year, the division secured a contract for the supply and construction of acid storage tanks and smelter campaign maintenance works at BHP’s Olympic Dam copper mine in South Australia. Olympic Dam will continue to provide Monadelphous with construction opportunities in years to come. 28 ANNUAL REPORT 2021 Mondium Heavy Lift Mondium, the Company’s EPC joint venture with Lycopodium, continued to advance its position within the Australian minerals processing sector. The Mondium EPC delivery model encompasses full project development and direct execution, significantly reducing interface risks between EPC disciplines and providing a more cost-effective solution to customers. During the year, Mondium made good progress on its strategically important $400 million design and construct contract with Rio Tinto for the Western Turner Syncline Phase 2 mine, located in the Pilbara. The project is due to be completed in 2021. The joint venture also recommenced works at Talison Lithium’s Greenbushes mine in the south-west region of WA. Work on the tailings retreatment processing plant, which includes engineering, procurement and management of subcontractors, is expected to be completed by the end of 2021. The Company’s specialist heavy lift business continued to perform well, providing services to both external customers and internal projects. During the year, the Company was awarded a five-year crane services contract with Fortescue Metals Group (Fortescue), valued at approximately $150 million in total. The contract is for the provision of crane services supporting general repairs, maintenance and shutdown activities to Fortescue’s Solomon and Eliwana operations in the Pilbara. In addition, Monadelphous, in collaboration with global heavy lifting services company Fagioli, secured a contract with NMT International (Australia) to deliver lifting and haulage services at Fortescue’s Iron Bridge Magnetite Project in the Pilbara. The strategic collaboration with Fagioli enables the heavy lift business to offer increased capacity and broadened capability within the Australian resources and energy markets. Heat exchanger module being lifted into position by Monadelphous at the Woodside-operated Pluto Liquefied Natural Gas Plant, Karratha, Western Australia. The heavy lift business continued to provide specialist heavy lift support and equipment to major Monadelphous construction projects, as well as on the Maintenance and Industrial Services division’s contracts with Woodside at its Karratha-based operations and Alcoa. Fabrication Services SinoStruct, the Company’s fabrication business, established its own fabrication facility in Tianjin, China, enabling it to support customers through the self-performance of selected fabrication and assembly work. In addition to securing several new contracts, the business delivered stand-alone packages of work for Origin and Rio Tinto, in both Australia and Mongolia, as well as for major Monadelphous construction and maintenance projects, including for Newcrest Mining Limited in Papua New Guinea. The business also provided professional services in South America for the first time. Subsequent to year end, SinoStruct secured a new four- year agreement to supply wellsite equipment to Origin. The packaged equipment is used to separate, meter and control coal seam gas for the Australia Pacific LNG project in Queensland. SinoStruct has been supplying packaged and modularised equipment to Origin since 2015. Infrastructure Zenviron Zenviron performed well during the year, completing its work at the Dundonnell Wind Farm in regional Victoria for Vestas – Australian Wind Technology and significantly progressing work on the Crudine Ridge Wind Farm for CWP Renewables in regional New South Wales (NSW). Highlighting its reputation as a leader in the market, Zenviron was awarded, and commenced, the balance of plant work on the Murra Warra Stage II Wind Farm in regional Victoria for General Electric International. In total, since its establishment five years ago, Zenviron has constructed 387 wind turbines, with an additional 38 currently under construction. OPERATING AND FINANCIAL REVIEW 29 Outlook The resources sector is expected to continue to provide the Company with a solid pipeline of construction opportunities over years to come. Developments overseas in South America, Papua New Guinea and Mongolia are also expected to provide ongoing prospects for Monadelphous. After unprecedented demand disruption during the early part of the pandemic, conditions in the oil and gas sector are improving with new construction opportunities expected to emerge in the next few years. Mondium’s growing experience and strong performance to date, as well as backing from its joint venture partners, ensures it is well placed to capitalise on EPC opportunities within its core markets as they arise. The long-term outlook for the renewable energy sector is positive with a number of large wind farm projects expected to come to market. Construction of a wind turbine foundation at the Murra Warra Stage II Wind Farm, Horsham, Victoria. 30 ANNUAL REPORT 2021 MAINTENANCE AND INDUSTRIAL SERVICES Our Progress Recorded revenue of $976.9 million. Strong demand for maintenance services in the iron ore sector. Secured $470 million in new contracts and extensions. Significant number of sustaining capital project awards. Buildtek performed strongly, securing new work in Chile. Growth in rail portfolio. OPERATING AND FINANCIAL OVERVIEW 31 A Monadelphous engineer conducting quality conformance on pipe installation at BHP’s Jimblebar mine site, Newman, Western Australia. 32 ANNUAL REPORT 2021 The Maintenance and Industrial Services division specialises in the planning, management and execution of multidisciplinary maintenance services, sustaining capital works and turnarounds. The division reported revenue of $976.9 million, down 6.9 per cent on the prior corresponding period. The result reflects the significant amount of work undertaken in the iron ore sector with customers seeking to optimise production levels and capitalise on the strong iron ore price, as well as manage a maintenance deficit created during the initial stages of COVID-19. The division experienced lower levels of demand for maintenance and turnaround services within the oil and gas sector, albeit improving steadily following the early impact of the pandemic. The division secured approximately $470 million in new contracts and contract extensions. A significant portion of this work was within the resources sector with major, long- term customers, aligning to the Company’s markets and growth strategy of maximising returns from its core markets. The division continued to invest in plant and equipment to support growth within its rail, civil and industrial services portfolios, providing further opportunities across the Company’s existing major, long-term contracts, as well as with new customers in the resources and oil and gas sectors. In line with its strategy of expanding its core services overseas, the Company’s Chile-based maintenance and construction services business, Buildtek, was awarded a number of new contracts. In safety, the division continued to invest in robust safety initiatives, including its safety behaviour framework, Delivering the Safe Way. During the period, a safety cultural survey was conducted as a means for collecting employee feedback regarding safety behaviours across the division. The results will shape and influence the division’s safety focus and initiatives into the future. CASE STUDY BHP Nelson Point Car Dumper 3 Refurbishment Project During the year, Monadelphous was engaged to remove, refurbish and reinstall two car dumper cells at BHP’s Nelson Point in Port Hedland, Western Australia (WA). The scope included civil, mechanical, structural, electrical and blast and paint work. Completing the complex, multidisciplinary project to a high standard and on time was essential given car dumpers are an integral part of the site’s inflow infrastructure and have a direct impact on production. The project, which required a comprehensive planning process and collaborative approach with the customer, was successfully and safely executed over a five-month period. The work adds to the Company’s existing car dumper experience and positions Monadelphous as a leader in car dumper refurbishment. OPERATING AND FINANCIAL REVIEW 33 A Monadelphous employee commissioning a newly installed switchboard at BHP’s Newman Operations, Newman, Western Australia. Resources The division continued to strengthen its long-term relationships with major customers in the iron ore sector in the Pilbara region of WA and secured a number of new contracts. Major contracts awarded to the Company within the iron ore sector included three three-year master services contracts with Rio Tinto for the delivery of sustaining capital projects across various mine sites and port operations, as well as contracts with BHP under its existing Western Australian Iron Ore (WAIO) Site Engineering Panel Framework Agreement. The division successfully completed a number of packages of work under these contracts during the period, including supplying and installing the Jimblebar Transfer Station and completing the Car Dumper 3 Mega Shut at Nelson Point, both for BHP. A number of other major shutdowns were also completed under these contracts with both BHP and Rio Tinto. Outside of the iron ore sector, the division was awarded a 12-month extension to its existing mechanical and electrical maintenance, shutdown and project services contract across BHP’s WA nickel operations, as well as a three-year contract with Rio Tinto to provide mechanical, electrical and access maintenance services for fixed plant shutdowns at its Gove operations in the Northern Territory. The division was also awarded a two-year extension to its existing maintenance services contract at BHP’s Olympic Dam mine in Roxby Downs, South Australia (SA), which includes civil, structural, mechanical, building maintenance and electrical services, as well as underground rail maintenance services. This was in addition to a contract to undertake a major dragline shutdown for BHP Mitsubishi Alliance at its Saraji Mine in Queensland and a multidisciplinary contract with AGL Macquarie for the Bayswater Fly Ash Plant Refurbishment and Slurry Lines Replacement project near Muswellbrook in New South Wales (NSW). Subsequent to year end, the Company announced the award of a number of new contracts, including a new three-year contract with Queensland Alumina Limited to continue to provide general mechanical maintenance services at its operations in Gladstone, and a 10-month extension to its existing contract with BHP Mitsubishi Alliance for the provision of dragline shutdown and maintenance services to its operations in the Bowen Basin, both in Queensland. Subsequent to year end, Buildtek secured a further contract with Codelco for construction associated with the development of a new underground section of the El Teniente mine. Leveraging Monadelphous’ experience within the LNG sector, Buildtek secured its most significant LNG contract to date with GNL Quintero for the removal and replacement of five LNG discharge arms, three of which have been replaced to date. The Company remains committed to strengthening its position in South America and is currently reviewing further growth opportunities. Rail Adding to its track resurfacing capability in NSW, the division commenced providing general rail maintenance services to multiple customers on the east coast of Australia, as well as underground rail maintenance services at BHP’s Olympic Dam mine site in Roxby Downs, SA. In the Pilbara, dedicated equipment was purchased to support the Company’s strategically important rail services contract with Rio Tinto, and the team was the recipient of a number of customer safety awards. Outlook Activity in the maintenance sector is expected to grow with stronger demand in the longer-term driven by aging assets and customers deferring non-essential work in prior periods, including throughout the early stages of the COVID-19 pandemic. The availability of skilled labour will remain a challenge for the division. 34 ANNUAL REPORT 2021 Energy Within the oil and gas sector, demand for maintenance services improved steadily throughout the year, with the division continuing to provide services under its existing, major onshore and offshore contracts at the Woodside- operated gas production facilities and on the INPEX- operated Ichthys liquefied natural gas (LNG) offshore processing facilities, both in WA. The division continued to provide EPC services, in joint venture with Worley, to Oil Search at the oil and gas production and support facilities in the Highland region of Papua New Guinea. Services were also provided to Shell in both Queensland and WA. During the period, significant turnarounds were executed for both Woodside and INPEX. Planning also commenced on a major program of turnarounds scheduled across Woodside, Shell and INPEX-operated facilities, which will be completed in the next couple of years. The division continued to invest in plant and equipment to support the growth of its specialist oil and gas fabric maintenance capability, purchasing its sixth ultra-high pressure (UHP) pump. The oil and gas business now provides fabric maintenance services across its entire customer portfolio. South America Buildtek, the Company’s Chile-based maintenance and construction services business, continued to perform strongly, securing new work valued at approximately $100 million, despite operating in an environment which continues to be impacted significantly by COVID-19. Capitalising on strong copper prices, the business secured and progressed several contracts in the Antofagasta region with major operator, Minera Escondida, which is majority owned by BHP. The contracts included the construction of modularised pump stations and associated infrastructure, and the relocation, construction and assembly of a communications tower and associated infrastructure at the Escondida copper mine in Coloso, as well as a contract for an upgrade to the conveyor system feeding the Filter Plant Warehouse at Coloso Port. In addition, Buildtek was awarded a number of contracts with its long-term customer, Codelco, including a three- year contract for the operations and maintenance of water infrastructure at the Chuquicamata underground mine in Calama and two new contracts for maintenance activities associated with the concentrator plant at El Teniente mine in Rancagua. OPERATING AND FINANCIAL REVIEW 35 Woodside-operated Karratha Gas Plant, Karratha, Western Australia. Photo courtesy of Woodside. 36 ANNUAL REPORT 2021 SUSTAINABILITY Our Progress Strong safety performance, with a 39 per cent improvement in total recordable injury frequency rate. Substantial increase in total workforce numbers. Enhanced employee development initiatives and reviewed employee benefit and reward programs. Progressed strategic attraction initiatives and launched updated employer brand program. Progressed Indigenous and gender diversity engagement initiatives. OPERATING AND FINANCIAL OVERVIEW 37 A Monadelphous shipping container painted by local Indigenous artist, Patricia Coleman, in Gladstone, Queensland. 38 ANNUAL REPORT 2021 Monadelphous is committed to the long-term sustainability of its business and recognises the important roles played by its people, its customers and the communities in which it operates. For the Company, this means retaining and attracting a values-aligned and highly competent workforce, and ensuring their safety and wellbeing, continuing to build on its customer relationships, being environmentally responsible and leaving a positive legacy within the communities local to its operations. People Monadelphous’ strong reputation and success, built over nearly 50 years, is attributed to the collective experience, knowledge and behaviour of its people. Its unique, values- based culture influences the way things are done and how decisions are made, and contributes to the Company being able to ‘deliver what we promise’. Monadelphous’ direct employee numbers peaked at more than 7,600 employees during the period, its largest employee base since May 2013. It ended the year with a total workforce, including subcontractors, of 7,791 representing an increase of 37 per cent from 12 months prior. High levels of industry activity in an already tight labour market, combined with COVID-19 related travel restrictions and border closures, placed significant pressure on the Company’s ability to attract and retain labour. During the period, Monadelphous undertook a number of initiatives to bolster its employee engagement and attraction processes to ensure it continues to retain and attract highly competent employees who are culturally aligned to the Company’s core values. Safety and wellbeing The Company’s total recordable injury frequency rate (TRIFR) improved by 39 per cent over the year to 2.26 incidents per million hours worked, which was a very pleasing result given the extraordinarily high levels of recruitment activity. A number of health and safety initiatives were implemented, including the introduction of a new Fatal Risk Standard and Life Saving Rule relating to the use of mobile plant and equipment, the release of the Company’s revised and updated supervisor safety leadership program and further training in relation to the Delivering the Safe Way behaviour framework. The Company continued to maintain focus on the mental health and wellbeing of its employees, implementing and participating in a range of initiatives relating to resilience development and improving mental health awareness. Monadelphous remains committed to its goal of zero harm, executing work in line with its safety philosophy of ‘The Safe Way is the Only Way’. Retention of talent The continued retention and development of key talent is critical to Monadelphous’ ongoing growth and success. The Company’s culture of leadership and talent development, supported by retention initiatives that foster an ‘owner’s mindset’, are vital to the delivery of outstanding service and the provision of superior returns to its shareholders. During the year, the Company strengthened its employee development programs with a focus on performance management and succession planning processes to ensure the pipeline of key talent is provided with challenging and rewarding career opportunities. Some of its highest achieving future leaders were also invited to participate in the Company’s Emerging Leaders and Group Mentoring programs during the year. In addition, the Company performed a review of its benefit and reward programs to ensure that remuneration and employee benefits remain competitive. To support its commitment to attracting and retaining a diverse workforce and acknowledging the important role workplace flexibility plays in improving employee wellbeing and job satisfaction, Monadelphous formalised its Workplace Flexibility Policy and implemented further improvements to its existing Parental Leave Policy. OPERATING AND FINANCIAL REVIEW 39 CASE STUDY Smart Conveyor Module Assembly System To support Monadelphous’ safety and innovation culture, Managing Director, Rob Velletri, launched an annual Safety Innovation Award back in 2017. The award recognises outstanding safety innovations which eliminate and control hazards and reduce risk. This year, the recipient was Monadelphous’ Smart Conveyor Module Assembly System at the BHP South Flank Inflow Project which was used to install 22 kilometres of overland conveyor. To reduce the risks associated with repetitive movements, lifting heavy loads in often awkward positions and hot conditions, the assembly methodology was modified to incorporate a production line approach with rail mounted mobile assembly frames, specially designed module assembly jigs with lifting aids and shaded workspaces. The innovation enabled the onsite pre-assembly of more than 3,500 conveyor modules and is highly effective in reducing the risk associated with multiple safety hazards, as well as improving quality and productivity. Importantly, the concept is transferrable to other Monadelphous projects. Developing our people Employee Development Centre The Company’s Employee Development Centre, a registered training organisation (RTO 52582) based in Bibra Lake, Western Australia (WA), delivered over 7,000 high quality training interactions for trades personnel throughout the year, up almost 50 per cent on the prior corresponding period, including high risk work licence training accreditation and verification of competency for the Company’s workforce. Certificate IV and Diploma of Project Management Introduced at Monadelphous in early 2019, these courses provide a sound theoretical knowledge base for current and aspiring project managers who are looking to further their range of specialised technical and managerial competencies. During the year, 12 employees completed either their Certificate IV or Diploma of Project Management. Live the Behaviours The Live the Behaviours Program enables participants to learn about, and ultimately ‘live’, the key leadership behaviours critical to success at Monadelphous. The program afforded almost 50 employees the opportunity to practice, learn and acquire key leadership behaviours in an immersive learning environment. Emerging Leaders Program The Emerging Leaders Program, which centres on behavioural leadership, provides the foundation for high- performing individuals who are new to, or on the cusp of, leadership roles, to develop their leadership capabilities to match the requirements of the business. During the year, 17 emerging leaders participated in the program. Group Mentoring Program This highly effective internal mentoring program matched Monadelphous leaders with Monadelphous high performing employees. Using a guided and structured mentoring framework, mentees were encouraged to leverage off the knowledge and experiences of some of the Company’s most senior leaders, while having the opportunity to expand their professional network across the business. 40 ANNUAL REPORT 2021 A Monadelphous trainee working in Newman, Western Australia. Attraction of future talent Throughout the year, Monadelphous progressed a number of strategic attraction initiatives, including launching its updated employer branding program, advancing the implementation of its new and improved recruitment, onboarding and talent management system, and reviewing its approach to alumni relations with the view to winning back departed talent. These initiatives focus on optimising the sourcing, selection and mobilisation of new talent across the business. In addition, the Monadelphous recruitment team grew by more than 40 per cent as demand for sourcing, selecting and mobilising new talent increased significantly across the business. Graduate Development Program The Monadelphous Graduate Development Program provides graduates with a variety of career pathways through rotations and additional learning and development opportunities. During the year, 75 graduates were engaged on the program across various disciplines, including engineering, construction management, human resources, accounting and health, safety, environment and quality. Almost 25 per cent of participants were female. Apprenticeship program This year, Monadelphous’ approach to apprenticeship recruitment, onboarding, mentoring, training and performance management was realigned to a more centralised model, ensuring apprentices across the business are better supported on their journey to becoming fully qualified boilermakers, mechanical fitters, electricians and heavy-duty mechanics. Monadelphous is currently supporting more than 50 apprentices. Over 20 per cent of these apprentices are female and almost 15 per cent are Indigenous. Strategic sourcing With a tightened labour market, the business continued to implement a number of strategic sourcing initiatives, including the use of its dedicated, in-house resourcing team to identify talent for specialist, strategic and senior roles across its business. Technological workforce attraction and engagement solutions Project Phoenix, which commenced last financial year, aims to improve Monadelphous’ recruitment and talent management system to continue to source, select and mobilise new talent efficiently and effectively, while delivering enhanced line-of-sight to internal talent, enabling improved redeployment and development opportunities. During the year, the project moved from design phase through to configuration phase, with the system expected to go live in the 2022 financial year. OPERATING AND FINANCIAL REVIEW 41 Diversity and inclusion Monadelphous remains committed to retaining and attracting a workforce where people of all backgrounds, skills and cultures are able to work together collaboratively and contribute equally, inspiring them to reach their full potential and contribute to the long-term success of the business. Indigenous engagement Monadelphous recognises and respects the traditional owners of the lands where it operates and considers culture and heritage an important part of its business. The Company continued to make significant progress on its reconciliation journey, underpinned by its Stretch Reconciliation Action Plan for 2017 – 2020. Monadelphous is proud to have once again reached Indigenous ‘Employment Parity’, achieving its goal of more than three per cent Indigenous employment. In late 2018, Monadelphous became a signatory to the Employment Parity Initiative and committed to creating 200 new roles for Aboriginal and Torres Strait Islander jobseekers by 2022. Pleasingly, the Company has now employed more than 190 Indigenous jobseekers, and upskilled in excess of 50 Aboriginal and Torres Strait Islander members of its workforce. Monadelphous was proud to launch a three-year Indigenous Employment Pathways Program, in partnership with Rio Tinto, showcasing our joint commitment to creating meaningful and sustainable employment for Aboriginal and Torres Strait Islander peoples. Supported by dedicated coaching and mentoring, the program aims to increase the number of skilled and tertiary qualified Aboriginal and Torres Strait Islander peoples in the resources industry. It will be open to prospective apprentices, trainees and tertiary cadets in a variety of fields including mechanical fitting, electrical, boiler making and welding, civil construction, business administration and health, safety and environment. In addition, the Company commenced its first Pre- employment Upskilling Program for Aboriginal and Torres Strait Islander jobseekers in WA in May 2021. The program, which is in collaboration with APM Employment Services and Footprints, assists candidates to obtain their intermediate rigging ticket, expanding their employment opportunities. As a means for better articulating the broad range of career pathways available to Aboriginal and Torres Strait Islander jobseekers at Monadelphous, the Company participated in and hosted more than 20 career information sessions this financial year across Australia. Monadelphous’ commitment to developing sustainable relationships with new and existing Aboriginal and Torres Strait Islander businesses and community groups continued with a 45 per cent increase in Indigenous business spend during the period. In addition, the business continued its partnership with the Graham (Polly) Farmer Foundation supporting Aboriginal and Torres Strait Islander high school students in the Follow the Dream program and alumni students as they enter the workforce via the Living the Dream program. Throughout the period, the Company continued to provide cultural awareness training for its employees. The training aims to improve understanding and recognition of Aboriginal and Torres Strait Islander cultures, histories, knowledge and rights, promoting respect for Aboriginal and Torres Strait Islander communities. During the year, the Company developed its fourth Reconciliation Action Plan 2021 – 2024, which will come into effect in the first half of the 2022 financial year. The plan, which was informed by consultation with Aboriginal and Torres Islander employees and the broader workforce, places a renewed emphasis on engagement with Indigenous businesses to increase opportunities for business spend, maintaining a minimum of three per cent Indigenous employment, and improving mentoring and support for existing and new Aboriginal and Torres Strait Islander employees. It demonstrates Monadelphous’ continued commitment toward achieving reconciliation within its business, and its sincere desire to make a positive contribution toward Australia’s Aboriginal and Torres Strait Islander community. CASE STUDY Monadelphous Yallarm STEM Camp In May 2021, Monadelphous sponsored the second Yallarm science, technology, engineering and mathematics (STEM) camp for Aboriginal and Torres Strait Islander high school students from the Gladstone region in Queensland. The four-day camp aims to help close a key education gap by enhancing Indigenous students’ engagement with STEM subjects. Featuring a range of inspiring speakers, and utilising the latest hands-on technology at CQUniversity’s STEM Central, students were challenged to expand their understanding of STEM in the real world and learn more about STEM career pathways. This important event is a product of Monadelphous’ partnership with CQUniversity and Boyne Island Environmental Education Centre, who share the Company’s interests in STEM, innovation, education and diversity. 42 ANNUAL REPORT 2021 Gender diversity and inclusion In keeping with its ongoing commitment to gender diversity and inclusion, the Company successfully retained more than 90 per cent of its key female talent and announced the appointment of its first female operational General Manager. To support sustainable and meaningful change, the Company rolled out a number of training initiatives across its workforce relating to unconscious bias and equal employment opportunities. In addition, Monadelphous employees presented at, and participated in, a number of events focused on positively challenging perceptions around gender diversity, including the Women in Mining and Resources Leadership Summit and an in-house International Women’s Day panel discussion, viewed online by almost 1,000 Monadelphous employees. During the year, the Company commenced the consultation process for its second Gender Diversity and Inclusion Plan 2021 – 2023, which will focus on ensuring a safe working environment for women, removing gender-based barriers, offering opportunities for women to enter trade roles, and extending targets for female candidates in the Company’s Vacation and Graduate programs. The plan will be launched in the first half of the 2022 financial year. Monadelphous submitted its 2020/21 Workplace Gender Equality Report to the Workplace Gender Equality Agency and a copy of the report is available on the Company’s website. Monadelphous scaffolders at BHP’s US$3.6 billion South Flank Project, Pilbara, Western Australia. Productivity and innovation Monadelphous continues to develop and implement improved operational and support methodologies, practices and processes to enhance its competitive position in the market and deliver high quality, safe, value-adding services. The Company continues to focus on the implementation of proven technologies to improve productivity and deliver value for its customers. During the year, further progress was made on systems optimisation and the digitalisation of data capture and processing, as an enabler of future initiatives focused on data analytics and automation. In-field productivity remains a priority for Monadelphous, ensuring employees are equipped with the tools and technology to efficiently and safely execute their work. A number of technology trials were conducted during the period, including robotic process automation and asset tracking. Different hardware and software technologies were also evaluated to determine their compatibility with Monadelphous’ processes, and to assess suitability for widespread replication across the business. The use of drone technology increased for both videography and survey purposes, as well as equipment installation on customer sites. OPERATING AND FINANCIAL REVIEW 43 Engineering Makes Sense group at Queensland University of Technology in Brisbane. Across its operations, the Company also hosted and participated in initiatives supporting Beyond Blue, Fight Cancer Foundation, White Ribbon Day, RUOK? Day, Movember, International Women’s Day and the Royal Flying Doctors Service. Environment Monadelphous understands the importance of the natural environment in which it operates and is committed to environmental sustainability through the diligent management of the activities it undertakes, including the identification and mitigation of risks to the natural environment. This is achieved through leadership, resources, processes, education and a demonstrable commitment to the Company’s environmental policy. Ensuring compliance with customer requirements and environmental legislation and regulation is critical to maintaining a reputation as a contractor of choice. The Company’s history of zero serious environmental incidents continued this year, in line with its commitment to zero harm. As part of its commitment to the environment, the Company encourages its team to identify and implement initiatives which are beneficial to the environment. During the period, some of these initiatives included using solar power as an alternative to diesel for lighting, using a surface miner for the removal of non-rippable material instead of blasting preventing potential impacts to heritage sites, developing a purpose-built jig to reduce spillage when mixing grout, introducing disposable earplug waste buckets to ensure polyurethane foam earplugs are captured for recycling, returning empty pallets to the supplier for reuse, using sealable drums for the disposal of concrete to minimise silica dust also ensuring this specific waste is segregated, developing an auto-close feature on a gas release valve to stop leaks, and printing the annual report on FSC Recycled certified paper. These initiatives reduce the potential for uncontrolled emissions and impacts to the atmosphere, minimise waste to landfill, prevent ground and water pollution and remove potential impacts to heritage sites associated with the Company’s works. The 2021 Work Health and Safety Excellence Awards finalist, the Davit Arm, in operation at the Woodside-operated Pluto Liquefied Natural Gas Plant, Karratha, Western Australia. The self-propelled modular transporter was designed and constructed by the Monadelphous Heavy Lift team. Coupled with an internal focus on improving efficiency, Monadelphous recognises the benefits of open innovation activities that seek to drive innovation at an industry level. During the year, Monadelphous employees participated in several open innovation challenges hosted by customers. The initiatives provided the Company with greater insight into operational challenges faced by customers and provided Monadelphous with an opportunity to build on its reputation as a collaborative partner with an innovative approach to problem solving. Employee engagement with the Company’s internal collaboration platform, the Ideas Hub, increased during the period following the addition of new functionality. Community Monadelphous is committed to making a positive contribution to the communities in which it operates and focuses its efforts in the key strategic areas of diversity, community support and education. During the year, the Company participated in almost 70 community events and initiatives, including commencing a three-year Indigenous Employment Pathways Program, in partnership with Rio Tinto, and extending its partnership with the Graham (Polly) Farmer Foundation. Sponsorships, donations and employee volunteering opportunities in WA included supporting the Monadelphous Mechanical Mob in Newman, the Explore the Goldfields Community Expo in Kalgoorlie, the Welcome to Hedland Community Expo in Port Hedland and the Shift Youth Festival in Bunbury, and in Queensland, the Monadelphous Yallarm STEM Camp in Gladstone and the Gender Equity in 44 ANNUAL REPORT 2021 The move towards a low-carbon economy continues to influence change in a number of industries within which the Company operates. Monadelphous remains committed to the ongoing monitoring of its environmental risk profile, taking into consideration the impacts of climate change on its business and strategy, maintaining an ability to adapt to customer and market shifts, and developing innovative climate change solutions in an effort to reduce emissions and energy consumption within its operations and those of its customers. The Company continues to review its exposure to climate change risks by reference to the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD). The Company reports its material risks and the management of those risks in its Corporate Governance Statement. As Australia’s transition towards clean energy continues to gain momentum, Monadelphous continued to grow its footprint in the renewable energy sector through Zenviron. Since its establishment, Zenviron has been involved in the construction of nine wind farms, comprising a total of 425 wind turbines with generation capacity of 1,601 MW. This represents power for 927,000 homes and the displacement of 5.1 million tonnes of carbon dioxide each year. To date, 387 turbines are complete and in operation, with 38 turbines under construction. Rapid development of the hydrogen sector will also provide opportunities for Monadelphous in the coming years. Carbon footprint Monadelphous recognises the need to conduct its operations in an environmentally responsible manner. The Company’s overall carbon footprint is deemed small but it continues to look for ways to reduce its emissions, which have been relatively stable for the last few years. Carbon emissions data is monitored for environmental planning, legislative requirements and sustainability reporting purposes. This involves the collection of data relating to fuel use, energy consumption and indirect emissions. The Company continues to undertake greenhouse gas reporting to monitor its emissions and reduce its overall carbon footprint. Energy usage is predominantly in the areas of gases utilised in welding processes, fuel used in vehicles and plant and equipment required for execution of services. Monadelphous undertakes greenhouse and energy reporting under the National Greenhouse and Energy Reporting (NGER) Act. During the year, reportable scope 1 and 2 carbon emissions (CO2e) were equivalent to 17,463 tonnes, significantly below the legislative reporting threshold of 50,000 tonnes CO2e. Total emissions were 22,283 tonnes CO2e. The Company triggers the energy consumption threshold of 200 Terajoules (TJ) under the NGER Act and annually reports this information to the Clean Energy Regulator. The total energy consumption for the 2020/21 period was 254 TJ. The Company 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). Governance The Board of Directors of Monadelphous Group Limited is responsible for establishing the Company’s corporate governance framework with regard to the ASX Corporate Governance Council Principles and Recommendations. The Board guides and monitors the business and affairs of Monadelphous on behalf of its 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. These risks, and the Company’s approach to their management, are disclosed in the Company’s Corporate Governance Statement which is available on its website. Monadelphous has been certified to ISO 9001 quality management systems, and AS/NZS 4801 and ISO 45001 for occupational health and safety management systems. Mitigation of environmental risks includes the maintenance and implementation of a certified environmental management system (ISO 14001) to ensure sustainable work practices and monitoring and minimising environmental impacts as far as practicable. OPERATING AND FINANCIAL REVIEW 45 Code of Conduct The Monadelphous values form the foundation of a way of life that stands the Company apart from all others. They represent what the Company stands for and provide a basis for appropriate standards of behaviour. The Company’s Code of Conduct is underpinned by the Company values and provides guidance on the expected behaviour of all employees, so that decisions and actions reflect the highest standards of conduct. During the year, the Company commenced a process to review and refresh its Code of Conduct and supporting human resources policies with the aim of supporting inclusion and reinforcing acceptable workplace standards. The Company submitted its first Modern Slavery Statement during the year, in accordance with the requirements of the Australian Modern Slavery Act, and continues to evolve its processes to ensure identification and mitigation of modern slavery risks in the Company’s operations and supply chain. The Company has an integrity hotline service, facilitated by an independent professional services provider, where employees, contractors and members of the public can report instances of actual or suspected unethical or unlawful conduct associated with Monadelphous operations. The Crudine Ridge Wind Farm constructed by Zenviron, Mudgee, New South Wales. 46 ANNUAL REPORT 2021 FINANCIAL REPORT Directors’ Report Independent Audit 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 48 65 70 71 72 73 74 75 76 A Monadelphous employee reviewing engineering plans for a major lift at BHP’s US$3.6 billion South Flank Project, Pilbara, Western Australia. FINANCIAL REPORT 47 48 ANNUAL REPORT 2021 DIRECTORS’ REPORT Your directors submit their report for the year ended 30 June 2021. 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 55 years experience in the construction and engineering services industry Robert Velletri Managing Director Peter John Dempsey Deputy Chair and Lead Independent Non-Executive Director Appointed 26 August 1992 Mechanical Engineer, Member of Engineers Australia Appointed as Managing Director on 30 May 2003 42 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 49 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 Susan Lee Murphy AO Independent Non-Executive Director 49 years experience in the construction and engineering services industry Appointed 10 March 2014 Chemical Engineer, Member of the Australian Institute of Company Directors 47 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 25 years experience in the construction and engineering services industry Also a non-executive director of the following other publicly listed entities, Yancoal Australia Limited (ASX: YAL) – appointed 30 January 2018 Aurelia Metals Limited (ASX: AMI) – appointed 21 January 2021 Appointed 11 June 2019 42 years experience in the resources and infrastructure industries Civil Engineer, Honorary Fellow of Engineers Australia Also a non-executive director of the following other publicly listed entity, MMA Offshore Limited (ASX: MRM) – appointed 30 April 2021 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 21 years experience in the construction and engineering services industry Appointed 8 December 2014 Chartered Accountant, Member of Chartered Accountants Australia and New Zealand 16 years experience in the construction and engineering services industry FINANCIAL REPORT 49 DIRECTORS’ REPORT INTERESTS IN THE SHARES AND OPTIONS OF THE COMPANY AND RELATED BODIES CORPORATE As at the date of this report, the interests of the directors in the shares and options of Monadelphous Group Limited were: C. G. B. Rubino R. Velletri P. J. Dempsey C. P. Michelmore D. R. Voss H. J. Gillies S. L. Murphy AO 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 2020 – on ordinary shares CORPORATE INFORMATION Corporate structure Ordinary Shares 1,022,653 2,132,884 78,000 50,000 32,910 8,865 Nil Performance Rights over Ordinary Shares Options over Ordinary Shares Nil 6,437 Nil 300,000 Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Cents 49.70 49.45 Cents $’000 21.00 19,933 24.00 22,724 13.00 12,303 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 22 in the financial report). The registered office of Monadelphous Group Limited is located at: 59 Albany Highway Victoria Park Western Australia 6100 50 ANNUAL REPORT 2021 DIRECTORS’ REPORT CORPORATE INFORMATION (continued) Nature of operations and principal activities Engineering Services Monadelphous is a diversified services company operating in the resources, energy and infrastructure industry sector. Services provided include: • 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 • Engineering, procurement and construction services • Process and non-process maintenance services • Front-end scoping, shutdown planning, management and execution • Water and waste water asset construction and maintenance • 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 • Specialist coatings • Rail maintenance services General Monadelphous operates from major offices in Perth and Brisbane, with regional offices in Sydney, Newcastle, Beijing (China), Ulaanbaatar (Mongolia), Manila (Philippines) and Santiago (Chile), and a network of workshop facilities in Kalgoorlie, Karratha, Port Hedland, Newman, Tom Price, Darwin, Roxby Downs, Gladstone, Hunter Valley, Mackay, Bibra Lake, Bunbury, Chinchilla, Mudgee, Rutherford and Tianjin (China). 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 7,559 employees as of 30 June 2021 (2020: 5,579 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. Operating results for the year Revenue from contracts with customers Profit after income tax expense attributable to equity holders of the parent 2021 $’000 2020 $’000 1,753,738 1,487,393 47,060 36,483 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 REPORT 51 DIRECTORS’ REPORT SIGNIFICANT EVENTS AFTER REPORTING PERIOD Dividends declared On 23 August 2021, the directors of Monadelphous Group Limited declared a final dividend on ordinary shares in respect of the 2021 financial year. The total amount of the dividend is $19,932,509 which represents a fully franked final dividend of 21 cents per share. This dividend has not been provided for in the 30 June 2021 financial statements. The Monadelphous Group Limited Dividend Reinvestment Plan will apply to the dividend. LIKELY DEVELOPMENTS AND EXPECTED RESULTS Refer to the Operating and Financial Review section 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 79,980 performance rights and 5,530,000 options on issue as follows: • 79,980 performance rights to take up one ordinary share in Monadelphous Group Limited. The performance rights have a vesting date 1 July 2022 • 652,500 options to take up one ordinary share in Monadelphous Group Limited. The options have a vesting date 1 September 2021 • 1,382,500 options to take up one ordinary share in Monadelphous Group Limited. The options have a vesting date 1 September 2022 • 2,035,000 options to take up one ordinary share in Monadelphous Group Limited. The options have a vesting date 1 September 2023 • 1,460,000 options to take up one ordinary share in Monadelphous Group Limited. The options have a vesting date 1 September 2024 Performance rights and options holders do not have any right, by virtue of the performance right or option, to participate in any share issue of the Company or any related body corporate or in the interest of any other registered Scheme. Shares issued as a result of the exercise of options On 1 July 2020, 161,250 performance rights vested and were exercised. On 1 July 2021, 155,556 performance rights vested and were exercised. 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 and officers 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. 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. 52 ANNUAL REPORT 2021 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) The Remuneration Report for the year ended 30 June 2021 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 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 R. Velletri P. J. Dempsey Chairman Managing Director Deputy Chair and Lead Independent Non-Executive Director C. P. Michelmore Independent Non-Executive Director D. R. Voss H. J. Gillies S. L. Murphy (ii) Senior executives D. Foti Z. Bebic P. Trueman Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director Executive General Manager, Engineering Construction Executive General Manager, Maintenance & Industrial Services 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 reviewing and recommending 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 recommending 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 REPORT 53 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (continued) Executive 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. 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. From time to time, the Company reviews the structure and composition of variable remuneration to ensure it remains relevant and market competitive. Remuneration Element Individual Components Purpose Link to Performance Fixed Remuneration Comprises base salary, superannuation and other benefits. Variable Remuneration – Combined Reward Plan Comprises cash payment, and/or performance rights issued under the Monadelphous Group Limited Performance Rights Plan. 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. 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. 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 58 and 59 of this report detail the proportion of fixed and variable remuneration for each of the executive directors and the senior executives of the Company. 54 ANNUAL REPORT 2021 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (continued) Fixed remuneration Objective 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 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 58 and 59 of this report. Variable remuneration – Combined Reward 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 combines short and long term incentive elements and rewards performance of both the Company and the employee. The equity component of the award is subject to service vesting conditions and disposal restrictions, encouraging employee retention and linking rewards to the creation of shareholder value through long term share ownership, with employee and shareholder alike benefitting from the long term growth in the share price. Structure Under the CR Plan, the Board has the discretion to make awards on an annual basis subject to Company and individual performance. Awards may be delivered in the form of a combination of cash and/or Performance Rights. For the years ended 30 June 2020 and 2021, the Board determined that no award would be made under the CR Plan. 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 underperformance, gross negligence, material lack of compliance, significant personal underperformance or behaviour that is likely to damage the Company’s reputation, would likely result in a clawback of unvested Performance Rights. FINANCIAL REPORT 55 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (continued) Variable remuneration – Combined Reward Plan (continued) 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 2021, 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. 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 Company regards the performance targets and the actual result as confidential and commercially sensitive in nature and if disclosed, would provide an unfair advantage to competitors. The Board has reviewed the financial performance for the year ended 30 June 2021 and determined that no award would be made under the CR Plan. Tables 1 and 2 on pages 58 and 59 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 years ended 30 June 2021 and 30 June 2020. The deferred performance right component of the awards relating to the years ended 30 June 2018 and 2019 are being amortised over three and four years respectively. On 1 July 2020, 161,250 performance rights representing the first tranche of the award under the terms of the CR Plan for the year ended 30 June 2019 and the second tranche of the award under the terms of the CR Plan for the year ended 30 June 2018 vested and were exercised into Monadelphous Group Limited ordinary shares. On 1 July 2021, 155,556 performance rights representing the second tranche of the award under the terms of the CR Plan for the year ended 30 June 2019 and the third tranche of the award under the terms of the CR Plan for the year ended 30 June 2018 vested and were exercised into Monadelphous Group Limited ordinary shares. 56 ANNUAL REPORT 2021 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (continued) 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. 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. On 24 November 2020, following shareholder approval at the Company’s Annual General Meeting, 300,000 options were issued to the Managing Director under the terms of the 2019 award of the Monadelphous Group Limited Employee Option Plan and subject to the Monadelphous Group Limited Employee Option Plan Rules. On 4 December 2020, a further 560,000 options were issued to Key Management Personnel under the terms of the 2020 award of the Monadelphous Group Limited Employee Option Plan and subject to the Monadelphous Group Limited Employee Option Plan Rules. In accordance with the terms of the offer and the rules of the Monadelphous Group Limited Employee Option Plan, the options can only be exercised in specified window periods (or at the discretion of the Board in particular circumstances) and are subject to the financial performance of the Company during the option vesting period (measurement period). Earnings Per Share (EPS) growth is the means for measuring the performance of the Company over the measurement period. In respect of the 2019 award of options, in order for 100 per cent of the options to be exercisable EPS growth of 10 per cent per annum (compounded over the measurement period) is required. If EPS growth of 5 per cent per annum (compounded) is achieved, 50 per cent of the options will be exercisable and if EPS growth of between 5 per cent and 10 per cent per annum (compounded) is achieved, a pro-rata number of options will be exercisable. In respect of the 2020 award of options, in order for 100 per cent of the options to be exercisable EPS growth of 8 per cent per annum (compounded over the measurement period) is required. If EPS growth of 4 per cent per annum (compounded) is achieved, 50 per cent of the options will be exercisable and if EPS growth of between 4 per cent and 8 per cent per annum (compounded) is achieved, a pro-rata number of options will be exercisable. In subsequent window periods, performance will be re-tested and any options that were incapable of exercise in earlier window periods will become available for exercise to the extent that EPS performance has ‘caught up’ and the EPS growth hurdle is met over the longer measurement period. At the end of the final window period, any options remaining that are not capable of exercise, as a result of the performance hurdle not being achieved, will be forfeited. No options will be exercisable if an EPS growth rate is achieved that is less than 5 per cent per annum (compounded) for the 2019 award of options and 4 per cent per annum (compounded) for the 2020 award of options. Subject to the satisfaction of the EPS performance hurdle, the 2020 award of options may be exercised in the following window periods: • Up to a maximum of 25% during the window period commencing 1 September 2022; • Up to a maximum of 25%, plus any options rolled over from the previous window period, during the window period commencing 1 September 2023; and • Up to a maximum of 50%, plus any options rolled over from the previous window period, during the window commencing 1 September 2024. Subject to the satisfaction of the EPS performance hurdle, the 2019 award of options may be exercised in the following window periods: • Up to a maximum of 25% during the window period commencing 1 September 2021; • Up to a maximum of 25%, plus any options rolled over from the previous window period, during the window period commencing 1 September 2022; and • Up to a maximum of 50%, plus any options rolled over from the previous window period, during the window commencing 1 September 2023. Hedging of equity awards 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. FINANCIAL REPORT 57 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (continued) 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 19 November 2019 when shareholders approved an aggregate remuneration of $850,000 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. 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. In March 2020, the Directors agreed to a 30 per cent salary and fee reduction for a six month period to support the cost reduction measures implemented by the Company in response to COVID-19. The table below summarises Board and Committee fees payable to non-executive directors for the financial year ended 30 June 2021 (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 Annualised Fee Applicable July 2020 to September 2020 $ Annualised Fee Applicable October 2020 to June 2021 $ 82,600 20,000 15,000 15,000 * 118,000 20,000 15,000 15,000 * *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 ending 30 June 2021 is detailed in Table 1 on page 58 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: 2021 $’000 2020 $’000 2019 $’000 2018 $’000 2017 $’000 Profit after income tax expense attributable to equity holders of the parent Basic earnings per share Share price as at 30 June 47,060 49.70c $10.45 36,483 38.65c 50,565 53.72c 71,479 76.11c 57,563 61.41c $10.82 $18.81 $15.06 $13.99 A review of the Company’s performance and returns to shareholders over the last five years has been provided on page 20 of this report. 58 ANNUAL REPORT 2021 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (continued) Remuneration of Key Management Personnel Table 1: Remuneration for the year ended 30 June 2021 In March 2020, the Board agreed to a 30 per cent salary and fee reduction for a six month period in response to the impact of COVID-19 on the Company’s business and operations, with the Executive and General Management teams agreeing to salary reductions of between 10 and 20 per cent for the same period. Short Term Benefits Post Employment Long Term Benefits Share-Based Payments3 Salary & Fees $ Leave1 $ Non- Monetary2 $ Cash Award $ Superannuation $ Leave $ Performance Rights and Options $ Total Performance Related % Total $ Total Performance Rights and Options Related % Non-Executive Directors P. J. Dempsey 118,504 C. P. Michelmore 111,514 D. R. Voss 97,815 H. J. Gillies 109,090 S. L. Murphy 97,815 Subtotal Non-Executive Directors 534,738 Executive Directors - - - - - - C. G. B. Rubino 373,969 38,843 - - - - - - - R. Velletri 915,243 5,204 11,380 Subtotal Executive Directors 1,289,212 44,047 11,380 Other Key Management Personnel D. Foti Z. Bebic 739,867 12,793 637,680 44,548 P. Trueman 486,360 8,737 5,385 9,905 8,379 Subtotal Other Key Management Personnel 1,863,907 66,078 23,669 Total 3,687,857 110,125 35,049 - - - - - - - - - - - - - - 11,258 10,594 9,292 10,364 9,292 50,800 - - - - - - 21,694 7,819 - - - - - - - 129,762 122,108 107,107 119,454 107,107 585,538 442,325 - - - - - - - - - - - - - - 21,694 (12,403) 224,713 1,165,831 19.27 19.27 43,388 (4,584) 224,713 1,608,156 13.97 13.97 21,694 (2,882) 140,542 917,399 21,694 12,117 139,751 865,695 21,694 9,194 110,004 644,368 15.32 16.14 17.07 15.32 16.14 17.07 65,082 18,429 390,297 2,427,462 16.08 16.08 159,270 13,845 615,010 4,621,156 13.31 13.31 1. Leave reflects annual leave accrual less annual leave taken. 2. Non-monetary benefits consist of Life and Salary Continuance insurance premiums. 3. Relates to both the 2018 and 2019 awards under the CR Plan and 2019 and 2020 awards under the Options Plan. FINANCIAL REPORT 59 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (continued) Remuneration of Key Management Personnel (continued) Table 2: Remuneration for the year ended 30 June 2020 Short Term Benefits Post Employment Long Term Benefits Share-Based Payments3 Salary & Fees $ Leave1 $ Non- Monetary2 $ Cash Award $ Superannuation $ Performance Rights $ Leave $ Total Performance Related % Total $ Total Performance Rights Related % Non-Executive Directors P. J. Dempsey 133,509 C. P. Michelmore 115,244 D. R. Voss H. J. Gillies S. L. Murphy 101,545 101,545 101,545 Subtotal Non-Executive Directors 553,388 Executive Directors - - - - - - C. G. B. Rubino 388,231 35,097 - - - - - - - R. Velletri 946,494 24,444 17,850 Subtotal Executive Directors 1,334,725 59,541 17,850 Other Key Management Personnel D. Foti Z. Bebic 756,731 18,057 7,965 652,500 31,419 15,270 P. Trueman 494,550 8,176 12,690 Subtotal Other Key Management Personnel 1,903,781 57,652 35,925 Total 3,791,894 117,193 53,775 - - - - - - - - - - - - - - 12,683 10,948 9,647 9,647 9,647 52,572 - - - - - - 21,003 8,095 - - - - - - - 146,192 126,192 111,192 111,192 111,192 605,960 452,426 - - - - - - - - - - - - - - 21,003 22,669 176,236 1,208,696 14.58 14.58 42,006 30,764 176,236 1,661,122 10.61 10.61 21,003 30,487 99,309 933,552 21,003 29,865 96,554 846,611 21,003 (10,616) 73,442 599,245 10.64 11.40 12.26 10.64 11.40 12.26 63,009 49,736 269,305 2,379,408 11.32 11.32 157,587 80,500 445,541 4,646,490 9.59 9.59 1. Leave reflects annual leave accrual less annual leave taken. 2. Non-monetary benefits consist of Life and Salary Continuance insurance premiums. 3. Relates to both the 2018 and 2019 awards under the CR Plan. Table 3: Performance Rights: Granted during the year ended 30 June 2021 No performance rights were granted during the year ended 30 June 2021. 60 ANNUAL REPORT 2021 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (continued) Remuneration of Key Management Personnel (continued) Table 4: Options: Granted during the year ended 30 June 2021 Terms and Conditions for Each Grant Granted Number Grant Date Weighted Average Fair Value per Right at Grant Date Exercise Price per Right Expiry Date First Exercise Date Last Exercise Date 300,000 24/11/2020 $2.12 $14.84 14/9/2023 1/9/2021 14/9/2023 200,000 5/11/2020 200,000 5/11/2020 160,000 5/11/2020 $2.07 $2.07 $2.07 $9.30 14/9/2024 1/9/2022 14/9/2024 $9.30 14/9/2024 1/9/2022 14/9/2024 $9.30 14/9/2024 1/9/2022 14/9/2024 860,000 Executive Directors R. Velletri Other Key Management Personnel D. Foti Z. Bebic P. Trueman Total Table 5: Shares issued on exercise of performance rights during the year ended 30 June 2021 Performance Rights Vested Performance Rights Excercised Shares Issued Paid Per Share $ Directors R. Velletri^ Executives D. Foti^ Z. Bebic^ P. Trueman^ Total 13,106 7,357 7,194 5,478 33,135 13,106 7,357 7,194 5,478 33,135 13,106 7,357 7,194 5,478 33,135 Nil Nil Nil Nil ^ On 1 July 2020, the date of exercise of the above performance rights, the closing share price was $10.81. Additional disclosures relating to options and shares Table 6: Performance rights holdings of Key Management Personnel Performance Rights held in Monadelphous Group Limited Balance at Beginning of Period 1 July 2020 Granted as Remuneration Rights Exercised and Lapsed Net Change Other Balance at End of Period 30 June 2021 Directors C. G. B. Rubino R. Velletri P. J. Dempsey C. P. Michelmore D. R. Voss H. J. Gillies S. L. Murphy Executives D. Foti Z. Bebic P. Trueman Total - 32,651 - - - - - 18,071 17,789 13,526 82,037 - - - - - - - - - - - - (13,106) - - - - - (7,357) (7,194) (5,478) (33,135) - - - - - - - - - - - - 19,545 - - - - - 10,714 10,595 8,048 48,902 DIRECTORS’ REPORT REMUNERATION REPORT (AUDITED) (continued) Additional disclosures relating to options and shares (continued) Table 7: Options holdings of Key Management Personnel Options held in Monadelphous Group Limited Balance at Beginning of Period 1 July 2020 Granted as Remuneration Options Exercised and Lapsed Net Change Other Directors C. G. B. Rubino R. Velletri P. J. Dempsey C. P. Michelmore D. R. Voss H. J. Gillies S. L. Murphy Executives D. Foti Z. Bebic P. Trueman Total - - - - - - - 200,000 200,000 160,000 560,000 - 300,000 - - - - - 200,000 200,000 160,000 860,000 - - - - - - - - - - - - - - - - - - - - - - FINANCIAL REPORT 61 Balance at End of Period 30 June 2021 - 300,000 - - - - - 400,000 400,000 320,000 1,420,000 Table 8: Shareholdings of Key Management Personnel Shares held in Monadelphous Group Limited Balance at Beginning of Period 1 July 2020 Granted as Remuneration On Exercise of Performance Rights Net Change Other Balance at End of Period 30 June 2021 Directors C. G. B. Rubino R. Velletri P. J. Dempsey C. P. Michelmore D. R. Voss H. J. Gillies S. L. Murphy Executives D. Foti Z. Bebic P. Trueman Total 1,022,653 2,106,670 78,000 50,000 2,852 8,571 - 58,316 3,793 2,911 3,333,766 - - - - - - - - - - - - 13,106 - - - - - 7,357 7,194 5,478 33,135 - - - - 30,058 294 - - - - 1,022,653 2,119,776 78,000 50,000 32,910 8,865 - 65,673 10,987 8,389 30,352 3,397,253 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 62 ANNUAL REPORT 2021 DIRECTORS’ REPORT DIRECTORS’ MEETINGS 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 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 S. L. Murphy COMMITTEE MEMBERSHIP 17 17 17 16 17 17 17 17 8 - - 8 - 8 8 8 5 - - - 5 5 5 5 2 2 - 2 1 2 2 2 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 H. J. Gillies (c) P. J. Dempsey D. R. Voss S. L. Murphy Remuneration C. P. Michelmore (c) D. R. Voss H. J. Gillies S. L. Murphy Nomination C. G. B. Rubino (c) C. P. Michelmore P. J. Dempsey H. J. Gillies D. R. Voss S. L. Murphy Note: (c) Designates the chair of the committee. H. J. Gillies was appointed chair of the audit committee from 1 September 2020, replacing P. J. Dempsey. ROUNDING 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 REPORT 63 DIRECTORS’ REPORT AUDITOR INDEPENDENCE AND NON-AUDIT SERVICES The directors have received an independence declaration from the auditor of Monadelphous Group Limited, as shown on page 64. 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 Other agreed upon procedures services Signed in accordance with a resolution of the directors. $ 67,807 122,567 190,374 C. G. B. Rubino Chairman Perth, 23 August 2021 64 ANNUAL REPORT 2021 AUDITOR’S INDEPENDENCE DECLARATION 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 Auditor’s independence declaration to the directors of Monadelphous Group Limited As lead auditor for the audit of the financial report of Monadelphous Group Limited for the financial year ended 30 June 2021, 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. This declaration is in respect of Monadelphous Group Limited and the entities it controlled during the financial year. Ernst & Young D S Lewsen Partner 23 August 2021 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation DL:AJ:MND:003 INDEPENDENT AUDIT REPORT FINANCIAL REPORT 65 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 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 2021, 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 2021 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 (including Independence Standards) (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 judgment, 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:AJ:MND:002 66 ANNUAL REPORT 2021 INDEPENDENT AUDIT REPORT Recognition of revenues and profits on long-term contracts 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 a sample of key contracts and held discussions with Group key executives to understand the specific terms and risks of those contracts to assess the revenue recognition policies adopted by the Group. We assessed the operating effectiveness of controls over the recording of revenue recognised in the financial report, including controls relating to: ► ► ► Determine the transaction price under the customer contract Assess the total contract costs Measure the Group’s progress towards the complete satisfaction of the performance obligations under the customer contract ► Appropriately provide for onerous 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 Contract Assets of the financial report. ► ► ► Contract reviews performed by the Group that included estimating total costs, stage of completion of contracts and contract profitability, including consideration of historical estimation accuracy Revenue recording and billing processes Contract cost recording processes including the purchases, payments and payroll processes. For a sample of contracts in progress at 30 June 2021, we performed the following additional procedures: ► ► ► ► Understood the performance and status of the contracts through enquiries with the key executives with oversight over the various contract portfolios Assessed the contract status through the examination of external evidence, such as approved variations and customer correspondence Analysed the Group’s estimates of total contract costs and forecast costs to complete For projects with known disputes, sighted claim documentation, met with the Group’s internal General Counsel and reviewed supporting documentation in relation to the status, entitlement, obligations and disclosure of these matters We assessed the provisions for onerous contracts and whether these appropriately reflected the expected contractual positions We assessed the Group’s accounting policies and the adequacy of its related disclosures in the financial report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation INDEPENDENT AUDIT REPORT FINANCIAL REPORT 67 Information other than the financial report and auditor’s report thereon The directors are responsible for the other information. The other information comprises the information included in the Company’s 2021 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 judgment 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. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 68 ANNUAL REPORT 2021 INDEPENDENT AUDIT REPORT ► ► ► ► ► 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. 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, actions taken to eliminate threats or safeguards applied. 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. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation INDEPENDENT AUDIT REPORT FINANCIAL REPORT 69 Report on the audit of the Remuneration Report Opinion on the Remuneration Report We have audited the Remuneration Report included within the directors' report for the year ended 30 June 2021. In our opinion, the Remuneration Report of Monadelphous Group Limited for the year ended 30 June 2021, complies with section 300A of the Corporations Act 2001. Responsibilities The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. Ernst & Young D S Lewsen Partner Perth 23 August 2021 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation 70 ANNUAL REPORT 2021 DIRECTORS’ DECLARATION 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 2021 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 76. 2) This declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295A of the Corporations Act 2001 for the year ended 30 June 2021. 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 22 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, 23 August 2021 CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30 JUNE 2021 Continuing Operations REVENUE Cost of services rendered GROSS PROFIT Other income Business development and tender expenses Occupancy expenses Administrative expenses Finance costs Share of profit from joint ventures 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) FINANCIAL REPORT 71 Notes 2021 $’000 2020 $’000 1 1 2 11 3 4 4 1,754,242 1,488,749 (1,641,572) (1,386,327) 112,670 102,422 11,195 (16,845) (3,935) (32,645) (3,074) 3,006 4,778 (17,196) (3,663) (32,493) (3,694) 4,932 70,372 55,086 (21,906) (17,860) 48,466 37,226 47,060 1,406 48,466 49.70 49.45 36,483 743 37,226 38.65 38.52 72 ANNUAL REPORT 2021 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2021 NET PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME Items that may be reclassified subsequently to profit or loss: Foreign currency translation Items that will not be reclassified subsequently to profit or loss: Net gain/(loss) on equity instruments designated at fair value through other comprehensive income Income tax effect OTHER COMPREHENSIVE LOSS FOR THE YEAR, NET OF TAX 2021 $’000 2020 $’000 48,466 37,226 (796) (1,244) 386 (116) 270 (526) (48) 13 (35) (1,279) TOTAL COMPREHENSIVE INCOME FOR THE YEAR, NET OF TAX 47,940 35,947 ATTRIBUTABLE TO: EQUITY HOLDERS OF THE PARENT NON-CONTROLLING INTERESTS 46,534 1,406 47,940 35,204 743 35,947 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2021 FINANCIAL REPORT 73 Notes 2021 $’000 2020 $’000 ASSETS Current assets Cash and cash equivalents Trade and other receivables Contract assets Inventories Total current assets Non-current assets Property, plant and equipment Contract assets Intangible assets and goodwill Investment in joint venture Deferred tax assets Other receivables Other non-current assets Total non-current assets TOTAL ASSETS LIABILITIES Current liabilities Trade and other payables Interest bearing loans and borrowings Lease liabilities Income tax payable Provisions Total current liabilities Non-current liabilities Interest bearing loans and borrowings Lease liabilities Provisions Other financial liability 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 5 6 7 8 9 7 10 11 3 6 12 13 14 15 3 16 14 15 16 17 3 20 21 21 175,708 318,648 59,685 3,600 557,641 208,292 262,437 27,379 4,786 502,894 162,891 163,666 - 3,917 11,904 31,455 6,000 3,259 219,426 124 4,181 11,649 28,775 - 2,873 211,268 777,067 714,162 168,117 165,752 900 21,978 22,093 77,016 1,580 18,733 3,766 59,365 290,104 249,196 - 74,710 6,521 10,151 - 91,382 1,943 69,636 4,340 4,480 125 80,524 381,486 329,720 395,581 384,442 132,608 30,867 232,097 131,307 33,062 220,064 395,572 384,433 9 9 395,581 384,442 74 ANNUAL REPORT 2021 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2021 Attributable to equity holders Share- Based Payment Reserve $’000 Foreign Currency Translation Reserve $’000 Non- controlling Interests $’000 Fair Value Reserve for Financial Assets $’000 Retained Earnings $’000 Issued Capital $’000 At 1 July 2020 131,307 34,810 (1,160) 220,064 Other comprehensive income Profit for the period Total comprehensive income for the period Transactions with owners in their capacity as owners Reclassification of non-controlling interest to liabilities Remeasurement of financial liability Share-based payments Adjustment to deferred tax asset recognised on employee share trust - - - - - - - Dividend reinvestment plan 1,301 Dividends paid Foreign currency movements - - - - - - - 2,538 (11) - - - 9 - (796) - - 47,060 1,406 (796) 47,060 1,406 - - - - - - - - - - - - (35,027) - (1,406) - - - - - - Equity Reserve $’000 Total $’000 (1,455) 384,442 - - - (526) 48,466 47,940 1,406 - (5,671) (5,671) - - - - 2,538 (11) 1,301 (35,027) 69 69 867 270 - 270 - - - - - - - At 30 June 2021 132,608 37,337 (1,956) 232,097 9 1,137 (5,651) 395,581 Attributable to equity holders Share- Based Payment Reserve $’000 Foreign Currency Translation Reserve $’000 Non- controlling Interests $’000 Fair Value Reserve for Financial Assets $’000 Retained Earnings $’000 Issued Capital $’000 Equity Reserve $’000 At 1 July 2019 128,723 32,721 84 226,036 1,245 Other comprehensive income Profit for the period Total comprehensive income for the period Transactions with owners in their capacity as owners Recognition of non-controlling interest at the date of acquisition of controlled entities Reclassification of non-controlling interest to liabilities Share-based payments Adjustment to deferred tax asset recognised on employee share trust - - - - - - - Dividend reinvestment plan 2,584 Dividends paid Foreign currency movements - - - - - - - 2,186 (97) - - - (1,244) - - 36,483 (1,244) 36,483 - 743 743 - - - - - - - - - - - - 2,831 (3,026) - - - (42,455) (1,650) - (134) 902 (35) - (35) - - - - - - - Total $’000 389,711 (1,279) 37,226 35,947 2,831 - - - - - (1,455) (4,481) - - - - - 2,186 (97) 2,584 (44,105) (134) At 30 June 2020 131,307 34,810 (1,160) 220,064 9 867 (1,455) 384,442 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2021 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers (inclusive of GST) Payments to suppliers and employees (inclusive of GST) Interest received Finance costs paid Other income Income tax paid Dividends received FINANCIAL REPORT 75 Notes 2021 $’000 2020 $’000 1,786,360 1,734,620 (1,756,244) (1,610,556) 414 (3,074) 3,252 (6,813) 2,840 1,171 (3,694) 2,306 (4,954) 185 NET CASH FLOWS FROM OPERATING ACTIVITIES 5 26,735 119,078 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment Purchase of property, plant and equipment (Payment)/repayment of loans to joint ventures Purchase of intangible assets Acquisition of controlled entities 11,206 (8,191) (6,000) - - 3,770 (12,126) 1,230 (460) (681) NET CASH FLOWS USED IN INVESTING ACTIVITIES (2,985) (8,267) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid Proceeds from borrowings Repayment of borrowings Payment of principal portion of hire purchase liabilities Payment of principal portion of other lease liabilities (33,726) (41,521) 540 (2,625) (13,017) (5,501) 594 (6,256) (12,398) (7,322) NET CASH FLOWS USED IN FINANCING ACTIVITIES (54,329) (66,903) NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS Net foreign exchange differences Cash and cash equivalents at beginning of period (30,579) (2,005) 208,292 43,908 342 164,042 CASH AND CASH EQUIVALENTS AT END OF PERIOD 5 175,708 208,292 76 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GENERAL INFORMATION FOR THE YEAR ENDED 30 JUNE 2021 GENERAL INFORMATION The consolidated financial report of Monadelphous Group Limited (the Group) and its subsidiaries for the year ended 30 June 2021 was authorised for issue in accordance with a resolution of directors on 23 August 2021. 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 certain financial assets that have been measured 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 2020 (Refer to note 33). • 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 2021. 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 22. 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). The functional currency of the Chilean subsidiaries (Monadelphous Chile SpA, Buildtek SpA and MAQ Rent SpA) is Chilean Pesos (CLP). FINANCIAL REPORT 77 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GENERAL INFORMATION FOR THE YEAR ENDED 30 JUNE 2021 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 33. 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: Accounting for contracts with customers The Group accounts for construction contracts in accordance with AASB 15 Revenue from Contracts with Customers. Accounting for construction contracts involves the continuous use of estimates based on a number of detailed assumptions. Construction contracts can span accounting periods, requiring estimates and assumptions to be updated on a regular basis. Accounting estimates resulting from judgements in relation to individual projects may be materially different to actual results due to the size, scale and complexity of projects. Revenue Where performance obligations are satisfied over time, revenue is recognised in the consolidated income statement by reference to the progress towards complete satisfaction of each performance obligation. For construction contracts, revenue is recognised using an output method based on work certified to date which the Group believes depicts the transfer of goods and services as it is based on completed work as agreed by our customers. Fundamental to this calculation is a reliable estimate of the transaction price (total contract revenue). In determining the transaction price, variable consideration including claims and certain contract variations are only included to the extent it is highly probable that a significant reversal in revenue will not occur in the future. Where a variation in scope has been agreed with the customer but the corresponding change in the transaction price has not been agreed the variation is accounted for as variable consideration. The estimate of variable consideration is determined using the expected value approach taking into account the facts and circumstances of each individual contract and the historical experience of the Group and is reassessed throughout the life of the contract. There are a number of factors considered in assessing variable consideration including status of negotiations with the customer, outcomes of previous negotiations and legal evidence that provides a basis for entitlement. Forecast Costs Forecast costs to complete construction contracts are regularly updated and are based on costs expected to be incurred when the related activity is undertaken. Key assumptions regarding costs to complete contracts include estimation of labour costs, technical costs, impact of delays and productivity. Construction contracts may incur additional costs in excess of original cost estimates. Liability for such costs may rest with the customer if considered to be a change to the original scope of works. Any additional contractual obligations, including liquidated damages, are also assessed to the extent these are due and payable under the contract. When it is considered probable that total contract costs will exceed total contract revenue, the contract is considered onerous and the present obligation under the contract is recognised immediately as a provision. 78 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GENERAL INFORMATION FOR THE YEAR ENDED 30 JUNE 2021 GENERAL INFORMATION (continued) Key judgements and estimates (continued) Contract claims and disputes Claims arising out of construction contracts may be made by or against the Group in the ordinary course of business, some of which may involve litigation or arbitration. Estimates and assumptions regarding the likely outcome of these claims are made and recognised in the carrying value of contract assets and liabilities. In making these estimates and assumptions, legal opinions are obtained as appropriate. The Directors do not consider the outcome of these claims to have a material adverse effect on the financial position of the Group, however uncertainty remains until the final outcome is determined. 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 6 and 9 for details. Workers’ Compensation Refer to note 16 for details. Determination of the lease term of contracts with renewal options Refer to note 15 for details. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2021 1. REVENUE AND OTHER INCOME Revenue from contracts with customers Services revenue Construction revenue Finance revenue Dividends received Net gains on disposal of property, plant and equipment Other income Disaggregation of revenue from contracts with customers by end customer industry: Iron ore Other minerals Oil and gas Infrastructure Less share of revenue from joint ventures accounted for using the equity method FINANCIAL REPORT 79 2021 $’000 2020 $’000 976,921 776,817 1,049,801 437,592 1,753,738 1,487,393 414 90 1,171 185 1,754,242 1,488,749 7,943 3,252 11,195 1,034,104 489,621 349,449 80,006 2,472 2,306 4,778 528,397 479,619 460,915 181,837 1,953,180 1,650,768 (199,442) (163,375) 1,753,738 1,487,393 The following amounts are included in revenue from contracts with customers: Revenue recognised as a contract liability in the prior period Revenue from performance obligations satisfied in prior periods 61,322 11,978 11,988 10,944 Unsatisfied performance obligations Transaction price expected to be recognised in future years for unsatisfied performance obligations at 30 June 2021: Services revenue Construction revenue Total 1,176,689 1,607,339 177,331 384,544 1,354,020 1,991,883 In line with the Group’s accounting policy described following, the transaction price expected to be recognised in future years excludes variable consideration that is constrained. The average duration of contracts is given below, however some contracts will vary from these typical lengths. Revenue is typically earned over these varying timeframes. Services: 1 to 5 years Construction: 1 to 2 years 80 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2021 1. REVENUE AND OTHER INCOME (continued) Recognition and measurement Revenue from contracts with customers The Group is in the business of providing construction and maintenance services. Revenue from contracts with customers is recognised when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group is expected to be entitled in exchange for those goods or services. The Group has generally concluded that it is the principal in its revenue arrangements because it typically controls the goods and services before transferring them to the customer. Construction services Construction contracts are assessed to identify the performance obligations contained in the contract. The total transaction price is allocated to each individual performance obligation. Typically, the Group’s construction contracts contain a single performance obligation. Work is performed on assets that are controlled by the customer or on assets that have no alternative use to the Group, with the Group having right to payment for performance to date. As performance obligations are satisfied over time, revenue is recognised over time using an output method based on work certified to date. Customers are typically invoiced on a monthly basis and invoices are paid on normal commercial terms. Services contracts Contracts for performance of maintenance activities cover servicing of assets and involve various activities. These activities tend to be substantially the same with the same pattern of consumption by the customer. Where this is the case, which is the majority of the services contracts, these services are taken to be one performance obligation and the total transaction price is allocated to the performance obligation identified. Performance obligations are fulfilled over time as the Group largely performs maintenance over the assets which the customer controls. Customers are typically invoiced monthly for an amount that is calculated on either a schedule of rates or a cost plus basis. For these contracts, the transaction price is determined as an estimate of this variable consideration. Variable consideration If the consideration in the contract includes a variable amount, the Group estimates the amount of the consideration to which it is entitled in exchange for transferring the goods and services to the customer. The Group includes some or all of this variable consideration in the transaction price only to the extent it is highly probable that a significant reversal of the cumulative revenue recognised will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Certain contracts are subject to claims which are enforceable under the contract. If the claim does not result in any additional goods or services, the transaction price is updated and the claim accounted for as variable consideration. Significant financing component Using the practical expedient in AASB 15, the Group does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer or the promised good or service to the customer and when the customer pays for that good or service will be one year or less. Interest income Revenue is recognised as interest accrues using the effective interest method. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2021 2. EXPENSES Finance costs Loans and overdrafts Finance charges payable under hire purchase contracts Interest on other lease liabilities Depreciation and amortisation Depreciation expense of owned property, plant and equipment Depreciation expense of right of use hire purchase assets Depreciation expense of right of use assets Amortisation of intangible assets Amortisation of deferred contract fulfilment costs Employee benefits expense Employee benefits expense Defined contribution superannuation expense Lease payments and other expenses Expense relating to short-term leases and low value leases (included in cost of sales) Government Grants - JobKeeper FINANCIAL REPORT 81 2021 $’000 2020 $’000 87 1,389 1,598 3,074 14,000 9,542 8,934 280 165 254 1,499 1,941 3,694 15,589 7,019 7,962 479 165 32,921 31,214 895,104 60,310 955,414 801,907 56,479 858,386 1,464 2,318 Certain Monadelphous subsidiaries received wage subsidy support under the Australian Government’s JobKeeper scheme during the year totalling $7,143,000. The Company utilised the JobKeeper subsidy to pay employees placed on stand down, provide temporary uplifts for those eligible under the scheme, and to maintain, where possible, employment levels. 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 9 and 10 for details on depreciation and amortisation. Employee benefits expense Refer to note 16 for employee benefits expense and note 28 for share-based payments expense. Contributions to defined contribution superannuation plans are recognised as an expense as they become payable. Lease payments Refer to note 15 for details on lease payments. Government grants Government grants are recognised where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset. 82 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2021 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 Adjustments in respect of previous years 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/(loss) on equity instrument designated at fair value through other comprehensive income Amounts credited directly to equity Share-based payment Income tax expense reported in equity 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% (2020: 30%) - Share-based payment expense - Other Aggregate income tax expense 2021 $’000 2020 $’000 24,518 211 (2,133) (690) 21,906 116 116 11 11 70,372 21,112 289 505 11,704 (2,779) 5,728 3,207 17,860 (13) (13) 97 97 55,086 16,526 382 952 21,906 17,860 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2021 FINANCIAL REPORT 83 2021 $’000 Current Income Tax 2021 $’000 Deferred Income Tax 2020 $’000 Current Income Tax 2020 $’000 Deferred Income Tax 3. INCOME TAX (continued) Recognised deferred tax assets and liabilities Opening balance Acquisition of subsidiaries Charged to income Charged to equity Other / payments Closing balance Amounts recognised on the consolidated statement of financial position: Deferred tax assets Deferred tax liabilities (3,766) 28,650 - (24,729) - 6,402 (22,093) - 2,823 (127) 109 31,455 31,455 - 31,455 Deferred income tax at 30 June relates to the following: Deferred tax assets Employee provisions Provisions for doubtful debts Other provisions Lease assets and lease liabilities 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 205 - (8,925) - 4,954 (3,766) 2021 $’000 36,154 1,667 (8,935) (84) (152) 28,650 28,775 (125) 28,650 2020 $’000 26,172 19,075 748 1,530 3,127 3,641 35,218 (3,763) 31,455 (3,276) (487) (3,763) 3,763 - 1,041 2,407 2,345 6,346 31,214 (2,439) 28,775 (1,097) (1,467) (2,564) 2,439 (125) 84 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2021 3. INCOME TAX (continued) Unrecognised temporary differences At 30 June 2021, there are no unrecognised temporary differences associated with the Group’s investments in subsidiaries. Research and Development tax incentives refund In 2019, the Company received Notices of Amended Assessments (NOAAs) from the Australian Taxation Office (ATO) for research and development tax incentives claimed in previous years which were determined to be ineligible, and consequently included a one-off provision of $6.5 million in the 2019 financial year. The NOAAs were issued by the ATO to give effect to adverse findings made by Innovation and Science Australia, which determined that the activities undertaken were ineligible for such incentives. Monadelphous applied for an internal review of these findings and, prior to issuing the NOAAs, the ATO advised the Company in writing that if the finding was subsequently set aside then the Commissioner would make further amendments to accord with such findings. In December 2020, the Company was notified that, upon review, the original findings had been set aside in full, and the research and development activities conducted by the Company were in fact eligible activities. As a consequence, and based on the earlier advice provided by the ATO, the Company reversed the provision made in the 2019 financial year in its half-year results for the period ended 31 December 2020, and commenced the process to obtain a refund of the amounts paid to the ATO. Subsequent to 30 June 2021, the Company has been informed by the ATO that the amended assessments required to facilitate the refund will not be issued. Monadelphous has lodged Notices of Objection with the ATO in respect of this matter. The Company has reinstated the provision, which was reversed earlier in the reporting period, until the matter is finalised. 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. 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: PERFORMANCE FOR THE YEAR ENDED 30 JUNE 2021 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 FINANCIAL REPORT 85 2021 $’000 2020 $’000 47,060 47,060 36,483 36,483 Number Number Number of shares Weighted average number of ordinary shares on issue used in the calculation of basic earnings per share 94,692,124 94,383,189 Effect of dilutive securities Performance rights and options Adjusted weighted average number of ordinary shares used in calculating diluted earnings per share Conversions, calls, subscriptions or issues after 30 June 2021: On 1 July 2021, 155,556 performance rights vested and were exercised. Calculation of earnings per share 476,763 321,459 95,168,887 94,704,648 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. 86 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2021 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 of intangible assets and fulfilment costs Net profit on sale of property, plant and equipment Share-based payment expense Unrealised foreign exchange (gain)/loss Share of profits from joint ventures Dividends from joint ventures Other Changes in assets and liabilities Decrease/(increase) in receivables Decrease/(increase) in inventories Decrease/(increase) in contract assets Decrease/(increase) in deferred tax assets (Decrease)/increase in payables (Decrease)/increase in provisions (Decrease)/increase in income tax payable (Decrease)/increase in deferred tax liabilities Net cash flows from operating activities 2021 $’000 2020 $’000 167,663 8,045 175,708 178,292 30,000 208,292 48,466 37,226 32,476 445 (7,943) 2,538 (1) (3,006) 2,750 749 (56,211) 1,186 (32,306) (2,807) 2,365 19,832 18,327 (125) 26,735 30,570 644 (2,472) 2,186 142 (4,932) - (474) 73,708 (179) 1,870 9,102 (26,068) (6,201) 3,971 (15) 119,078 Non-cash financing and investing activities Hire purchase transactions: During the year, the consolidated entity acquired right of use plant and equipment assets by means of hire purchase agreements with an aggregate fair market value of $9,710,911 (2020: $18,470,751). Reconciliation of liabilities arising from financing activities Non-cash changes New leases/ terminations $’000 9,711 17,184 - 26,895 Cash flows $’000 (12,477) (5,501) (2,625) (20,603) 2020 $ ’000 42,326 46,043 3,523 91,892 Other $’000 (533) (65) 2 (596) 2021 $’000 39,027 57,661 900 97,588 Hire purchase liabilities Other lease liabilities Loan Recognition and measurement 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2021 FINANCIAL REPORT 87 6. TRADE AND OTHER RECEIVABLES CURRENT Trade receivables Less allowance account for expected credit losses Other debtors Less allowance account for expected credit losses NON-CURRENT Other debtors Trade receivables generally have 30 to 60 days terms. Allowance account for trade receivables impairment losses Movements in loss allowance based on lifetime ECL: Balance at the beginning of the year Decrease in loss allowance Balance at the end of the year Recognition and measurement Trade receivables Refer to accounting policies of financial assets in note 33. Notes 2021 $’000 2020 $’000 225,861 (2,504) 223,357 96,181 (890) 191,105 (3,581) 187,524 75,369 (456) 318,648 262,437 30 6,000 - 3,581 (1,077) 2,504 3,634 (53) 3,581 Other debtors Other debtors include contract assets that are unconditional (see note 7). These assets are reclassified to trade receivables when invoiced. 88 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2021 7. CONTRACT ASSETS CURRENT Contract assets NON-CURRENT Contract assets 2021 $’000 2020 $’000 59,685 27,379 - 124 Contract assets are net of expected credit losses of $275,803. Included in contract assets are deferred project fulfilment costs of $124,022. Recognition and measurement Contract assets A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group transfers goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration. If the Group’s right to an amount of consideration is unconditional (other than the passage of time), the contract asset is classified as a receivable. Refer to accounting policies of revenue from contracts with customers in note 1. Project fulfilment costs If project fulfilment costs are within the scope of AASB 15, the Group recognises these costs as an asset only if the costs relate directly to a contract, the costs generate or enhance resources and the costs are expected to be recovered. These costs are amortised on a systematic basis that is consistent with the transfer of goods and services under the contract. If not capitalised, project fulfilment costs are expensed as incurred. 8. INVENTORIES Raw materials and consumables Recognition and measurement Raw materials and consumables Raw materials and consumables are stated at the lower of cost and net realisable value. 2021 $’000 2020 $’000 3,600 4,786 FINANCIAL REPORT 89 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2021 9. PROPERTY, PLANT AND EQUIPMENT Reconciliation of carrying amounts at the beginning and end of the period Right of Use Assets Freehold Land $’000 Buildings $’000 Plant and Equipment $’000 Plant and Equipment Under Hire Purchase $’000 Land and Buildings $’000 Plant and Equipment $’000 Total $’000 Year ended 30 June 2021 Net carrying amount at 1 July 2020 14,811 16,500 44,108 49,905 Additions Assets transferred Disposals Depreciation charge Exchange differences - - - - - 428 - 7,763 1,334 9,711 (1,334) (11) (3,066) (140) 37,756 16,814 - - 586 370 - 163,666 35,086 - (46) (3,263) (1,515) (12,485) (9,542) (8,397) (537) (32,476) (7) (198) 74 - 9 (122) Net carrying amount at 30 June 2021 14,811 15,395 37,456 48,674 46,173 382 162,891 At 30 June 2021 Gross carrying amount – at cost 14,811 27,732 146,027 67,810 61,366 1,404 319,150 Accumulated depreciation - (12,337) (108,571) (19,136) (15,193) (1,022) (156,259) Net carrying amount 14,811 15,395 37,456 48,674 46,173 382 162,891 Right of Use Assets Freehold Land $’000 Buildings $’000 Plant and Equipment $’000 Plant and Equipment Under Hire Purchase $’000 Land and Buildings $’000 Plant and Equipment $’000 Total $’000 Year ended 30 June 2020 Net carrying amount at 1 July 2019 14,811 17,611 Additions Additions through business combinations Assets transferred Disposals Depreciation charge Exchange differences - - - - - - 41,062 12,062 41,953 18,471 38,940 6,528 64 - - 1,822 4,910 1,663 (4,910) 981 - (940) (112) (1,186) - (1,063) (14,526) (7,019) (7,477) 1,221 155,598 - - - 37,125 4,466 - (150) (485) (2,388) (30,570) - (36) (253) (276) - (565) Net carrying amount at 30 June 2020 14,811 16,500 44,108 49,905 37,756 586 163,666 At 30 June 2020 Gross carrying amount – at cost 14,811 28,340 170,819 62,498 44,972 1,071 322,511 Accumulated depreciation - (11,840) (126,711) (12,593) (7,216) (485) (158,845) Net carrying amount 14,811 16,500 44,108 49,905 37,756 586 163,666 90 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2021 9. 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. Right of use assets The Group recognises lease assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Lease assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of lease assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. 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. FINANCIAL REPORT 91 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2021 10. INTANGIBLE ASSETS AND GOODWILL Intangible Assets $’000 Goodwill $’000 Total $’000 Year ended 30 June 2021 At 1 July 2020 Amortisation Exchange differences At 30 June 2021 Year ended 30 June 2020 At 1 July 2019 On business combination Purchased Amortisation Exchange differences At 30 June 2020 280 (280) - - - - 759 (479) - 280 3,901 - 16 3,917 3,120 815 - - (34) 3,901 4,181 (280) 16 3,917 3,120 815 759 (479) (34) 4,181 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, the entity R.I.G. Installations (Newcastle) Pty Ltd and the entity Buildtek SpA. 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 year period and applying a pre-tax 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 individual CGUs exceeding their 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. 92 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2021 11. INTEREST IN JOINT VENTURES Mondium Pty Ltd On 21 October 2016, an Australian 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. The Group considers that it has joint control with its respective joint venture partner over Mondium Pty Ltd as relevant decisions at a Board and Shareholder level require unanimous agreement. Zenviron Pty Ltd On 26 July 2016, a joint venture company, Zenviron Pty Ltd was formed between Monadelphous and ZEM Energy Investments Pty Ltd. The Group has a 55% ownership interest in the joint venture and a 50% interest in the voting rights. The principal activity of Zenviron is to deliver multi-disciplinary construction services in the renewable energy market in Australia and New Zealand. The Group considers that it has joint control with its respective joint venture partner over Zenviron Pty Ltd as relevant decisions at a Board and Shareholder level require unanimous agreement. The aggregated results, assets and liabilities of Zenviron Pty Ltd and Mondium Pty Ltd are as follows: Group’s share of net assets of joint ventures Group’s share of profit after tax from continuing operations Group’s share of profit and total comprehensive income 2021 $’000 11,904 3,006 3,006 2020 $’000 11,649 4,932 4,932 Commitments and contingent liabilities relating to Joint Ventures The Group’s share of insurance bond guarantees issued by Joint Ventures at 30 June 2021 was $52,716,995 (2020: $92,033,477). Joint ventures had no capital commitments at 30 June 2021 (2020: $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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2021 12. OTHER NON-CURRENT ASSETS Other non-current assets Other non-current assets consist of investments as follows: FINANCIAL REPORT 93 2021 $’000 2020 $’000 3,259 2,873 Ordinary shares at fair value in Lycopodium Limited (ASX Code: LYL). The investment is classified as a financial asset at fair value through other comprehensive income. Fair value is calculated using quoted prices in active markets. 13. TRADE AND OTHER PAYABLES CURRENT Trade payables Contract liabilities Sundry creditors and accruals Recognition and measurement 2021 $’000 2020 $’000 119,652 22,617 25,848 73,640 61,322 30,790 168,117 165,752 Trade and other payables 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 30 days. Contract liability A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognised when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract. 94 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2021 14. INTEREST BEARING LOANS AND BORROWINGS CURRENT Loan – secured NON-CURRENT Loan – secured Defaults and breaches 2021 $’000 2020 $’000 900 1,580 - 1,943 During the current and prior year, there were no defaults and 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 a 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2021 15. LEASE LIABILITIES CURRENT Hire purchase lease liabilities Other lease liabilities NON-CURRENT Hire purchase lease liabilities Other lease liabilities Carrying amount at the beginning of the financial year Additions through business combinations Additions Accretion of interest Payments Other Carrying amount at the end of the financial year Terms and conditions FINANCIAL REPORT 95 2021 $’000 2020 $’000 14,091 7,887 21,978 24,936 49,774 74,710 88,369 - 26,895 2,987 12,535 6,198 18,733 29,791 39,845 69,636 82,190 1,889 24,999 3,440 (20,965) (22,566) (598) 96,688 (1,583) 88,369 Hire purchase agreements have an average term of three years. The average discount rate implicit in the hire purchase liability is 2.9% (2020: 3.1%). Other lease liabilities have an average term of 1.3 years. The average discount rate implicit in the other lease liability is 3.8% (2020: 3.9%). The maturity analysis of lease liabilities is set out in note 24. Recognition and measurement The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Group as a lessee The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and lease assets representing the right to use the underlying assets. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognised lease assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets as follows: • Property 1 to 8 years • Plant and equipment 1 to 10 years If ownership of leases assets transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. Lease assets are subject to impairment. 96 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2021 15. LEASE LIABILITIES (continued) Recognition and measurement (continued) Lease liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate. In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset. Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption for those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option. It also applies the lease of low-value assets recognition exemption to leases of plant and equipment that are considered of low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term. Significant judgement in determining the lease term of contracts with renewal options The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. The Group has the option, under some of its leases to lease the assets for additional terms of one to five years. The Group applies judgement in evaluating whether it is reasonably certain to exercise the option to renew and considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2021 16. PROVISIONS CURRENT Employee benefits Workers’ compensation Other NON-CURRENT Employee benefits – long service leave Other 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 FINANCIAL REPORT 97 2021 $’000 2020 $’000 63,555 11,938 1,523 77,016 5,145 1,376 6,521 9,349 11,285 (8,696) 11,938 46,869 9,349 3,147 59,365 4,340 - 4,340 18,363 635 (9,649) 9,349 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. 98 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OPERATING ASSETS AND LIABILITIES FOR THE YEAR ENDED 30 JUNE 2021 16. PROVISIONS (continued) Recognition and measurement (continued) 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 year 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. 17. OTHER FINANCIAL LIABILITY In November 2019, Monadelphous Group Limited acquired 75% of Chile-based construction and maintenance services contractor, Buildtek SpA (“Buildtek”) and plant and equipment hire company, MAQ Rent SpA (“MAQ Rent”). At the date of acquisition, the Group obtained an option to acquire the remaining 25% of the shares on issue of Buildtek and MAQ Rent in three years’ time. Similarly, the existing holders of the remaining 25% have the option to require the Group to purchase the remaining shares on the same terms and conditions as the option held by the Group. In relation to the option held by the minority shareholders, the Group has made an accounting policy choice to reclassify the non- controlling interest in these controlled entities as a liability at each reporting date until such time as the option is exercised or expires. The financial liability, representing the minority put and call option, has been recognised on the balance sheet with a corresponding adjustment to equity. Subsequent to initial recognition, changes to the carrying amount of the financial liability are also recognised directly in equity. The financial liability was initially measured at fair value, being the present value of the estimated amount payable in three years’ time. The amount payable will be determined based on a multiple of the average annual earnings for the three years ending 31 December 2022. At 30 June 2021, the financial liability associated with the option held by the minority shareholders was $10,150,590 (2020: $4,480,811). FINANCIAL REPORT 99 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: CAPITAL STRUCTURE FOR THE YEAR ENDED 30 JUNE 2021 18. 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 2021, the Group is in a net cash position of $135,781,000 (2020: $162,443,000 ) and has a debt to equity ratio of 10.1% (2020: 11.9%) which is within the Group’s net cash and debt to equity target levels. During the year ended 30 June 2021, management paid dividends of $35,027,000. 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. The capital of the Company is considered to be contributed equity. 2021 $’000 2020 $’000 19. DIVIDENDS PAID AND PROPOSED Declared and paid during the year Current year interim Interim franked dividend for 2021 (24 cents per share) (2020: 22 cents per share) 22,724 20,767 Previous year final Final franked dividend for 2020 (13 cents per share) (2019: 23 cents per share) 12,303 21,688 Unrecognised amounts Current year final Final franked dividend for 2021 (21 cents per share) (2020: 13 cents per share) 19,933 12,303 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 44,961 40,475 (8,543) 36,418 (5,273) 35,202 Tax rates The tax rate at which paid dividends have been franked is 30% (2020: 30%). Dividends payable will be franked at the rate of 30% (2020: 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. 100 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: CAPITAL STRUCTURE FOR THE YEAR ENDED 30 JUNE 2021 20. CONTRIBUTED EQUITY Ordinary shares – Issued and fully paid Reserved shares Ordinary shares 2021 $’000 2020 $’000 133,877 132,576 (1,269) (1,269) 132,608 131,307 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. 2021 2020 Number of Shares $’000 Number of Shares $’000 Beginning of the financial year 94,489,833 132,576 94,294,487 Dividend reinvestment plan Exercise of performance rights 119,673 151,646 1,301 195,346 - - 129,992 2,584 - End of the financial year 94,761,152 133,877 94,489,833 132,576 During the year ended 30 June 2021, 9,604 performance rights were exercised through the issue of reserved shares. Reserved shares Beginning of the financial year Conversion of performance rights End of the financial year Recognition and measurement 2021 2020 Number of Shares $’000 Number of Shares $’000 9,604 (9,604) - (1,269) - (1,269) 92,375 (82,771) 9,604 (1,269) - (1,269) Contributed equity 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. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: CAPITAL STRUCTURE FOR THE YEAR ENDED 30 JUNE 2021 21. RESERVES AND RETAINED EARNINGS Foreign currency translation reserve Share-based payment reserve Fair value reserve for financial assets Equity reserve Retained earnings Nature and purpose of reserves FINANCIAL REPORT 101 2021 $’000 2020 $’000 (1,956) 37,337 1,137 (5,651) 30,867 (1,160) 34,810 867 (1,455) 33,062 232,097 220,064 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 28 for further details of these plans. Fair value reserve financial assets The fair value reserve for financial assets is used to record the movement in fair value of financial assets. Equity reserve The equity reserve is used to record the changes in the carrying amount of the financial liability representing the minority put and call option over the remaining 25% of the shares on issue of Buildtek SpA and MAQ Rent SpA. 102 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GROUP STRUCTURE FOR THE YEAR ENDED 30 JUNE 2021 22. 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 R.I.G. Installations (Newcastle) Pty Ltd R E & M Services Pty Ltd Pilbara Rail Services Pty Ltd EC Projects Pty Ltd Monadelphous PNG Ltd Moway International Limited Moway AustAsia Steel Structures Trading (Beijing) Company Limited SinoStruct Engineering & Fabrication (Tianjin) Co. Ltd* Monadelphous Singapore Pte Ltd Monadelphous Mongolia LLC Monadelphous Inc. Monadelphous Marcellus LLC Monadelphous Engineering NZ Pty Ltd Monadelphous Chile SpA MAQ Rent SpA Buildtek SpA Monadelphous Sdn Bhd Percentage Held by Consolidated Entity Country of Incorporation 2021 % 2020 % Australia 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 China Singapore Mongolia USA USA New Zealand Chile Chile Chile 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 75 75 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 70 ^ 100 100 100 100 100 100 100 100 100 100 100 100 100 - 100 100 100 100 100 100 75 75 100 # Controlled entities subject to the Class Order (Refer to note 32) * ^ The Group considers that it controls this company as it has a casting vote at Board Meetings. Incorporated during the year 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 REPORT 103 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: GROUP STRUCTURE FOR THE YEAR ENDED 30 JUNE 2021 23. INTEREST IN JOINT OPERATIONS Joint operations interests The Group’s interests in joint operations are as follows: Joint Arrangement Principal Activity Group Interest Principal Place of Business 2021 % 2020 % Monadelphous Worley JV PNG Engineering, Procurement and Construction & Maintenance Support Work in PNG PNG Monadelphous Worley JV Engineering, Procurement and Construction & Maintenance Support Work Brisbane, QLD 65 65 65 65 Commitments and contingent liabilities relating to joint operations There were no capital commitments or contingent liabilities relating to the joint operations at 30 June 2021 (2020: $nil). Impairment There were no assets employed in the joint operations during the year ended 30 June 2021 (2020: $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. 104 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED 30 JUNE 2021 24. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES The Group’s principal financial instruments comprise receivables, payables, loans, leases and hire purchase contracts, cash and short- term deposits. 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, 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. The policies in place for managing the financial risks encountered by the Group are summarised below. Risk exposures and responses Interest rate risk The Group’s exposure to variable interest rates is as follows: Financial assets/liabilities Cash and cash equivalents Loan - secured Net exposure Notes 2021 $’000 2020 $’000 5 175,708 208,292 (900) (2,100) 174,808 206,192 The Group utilises a number of financial institutions to obtain the best interest rate possible and to manage its risk. The Group does not enter into interest rate hedges. At 30 June 2021, reasonably possible movements in variable interest rates, based on a review of historical movements and forward rate curves for forward rates would not have had a material impact on the Group. FINANCIAL REPORT 105 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED 30 JUNE 2021 24. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Risk exposures and responses (continued) Foreign currency risk As a result of operations in the USA, Papua New Guinea, China, Mongolia, New Zealand and Chile the Group’s Statement of Financial Position can be affected by movements in the US$/A$, PGK/A$, RMB/A$, MNT/A$, NZ$/A$ and CLP/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 2021, 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 2021, the Group had the following exposure to foreign currency: Year ended 30 June 2021 Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Net exposure Year ended 30 June 2020 Financial assets Cash and cash equivalents Trade and other receivables Financial liabilities Trade and other payables Net exposure PGK AUD $’000 USD AUD $’000 13,008 9,454 (2,710) 19,752 6,825 6,684 (872) 12,637 15,086 774 (268) 15,592 26,088 11,439 (2,218) 35,309 At 30 June 2021, reasonably possible movements in PGK foreign exchange rates, based on a review of historical movements, would not have had a material impact on the Group. At 30 June 2021, 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% (2020: +5%) -5% (2020: -5%) Post Tax Profit Higher/(Lower) Other Comprehensive Income Higher/(Lower) 2021 $’000 (546) 546 2020 $’000 (1,236) 1,236 2021 $’000 - - 2020 $’000 - - The reasonably possible movements have been based on review of historical movements. 106 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED 30 JUNE 2021 24. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Risk exposures and responses (continued) Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments. The Group’s maximum exposure to credit risk is its cash, trade and other receivables and contract assets representing $554,041,000 at 30 June 2021 (2020: $498,232,000). Following the adoption of AASB 9, the Group considers the probability of default upon initial recognition of a financial asset and whether there has been a significant increase in credit risk on an ongoing basis throughout the reporting period. Except for trade receivables, contract assets and other short-term receivables (see below), expected credit losses (ECL’s) are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12 months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL). To assess whether there is a significant increase in credit risk the Group compares the risk of a default occurring on the asset as at the reporting date with the risk of default as at the date of initial recognition. In making this assessment, the Group considers information that is reasonable and supportable, including historical experience and forward-looking information. Forward-looking information considered includes consideration of external sources of economic information. In particular, the Group takes into account the counterparties external credit rating (as far as available), actual or expected significant changes in the operating results of the counterparty and macroeconomic indicators when assessing significant movements in credit risk. In the prior period, impairment losses were recognised when there was objective evidence of impairment. Trade receivables and contract assets 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 and contract assets 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. Since the Group trades with recognised third parties, there is no requirement for collateral. FINANCIAL REPORT 107 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED 30 JUNE 2021 24. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Risk exposures and responses (continued) Credit risk (continued) The Group applies a simplified approach in calculating ECLs for trade receivables and contract assets. Therefore, the Group does not track changes in credit risk, but instead recognises a loss allowance based on lifetime ECLs at each reporting date. An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates are based on days past due ageing for groupings of various customer segments with similar loss patterns. The calculation reflects the probability- weighted outcome, the time value of money and reasonable and supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. A receivable is considered to be credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows have occurred. Evidence that a receivable is credit-impaired includes observable data about significant financial difficulty of the debtor or a breach of contract, such as a default or past due event. Set out below is the information about the credit risk exposure on the Group’s trade receivables and contract assets, for which lifetime expected credit losses are recognised, using a provision matrix: Trade receivables Days past due Contract assets Current <31 days 31-60 days 61-90 days >91 days Total 30 June 2021 Expected credit loss rate 0.5% 0.5% 0.7% 1.7% 5.0% 21.3% Total estimated gross carrying amount at default ($’000) 59,685 194,324 20,963 Expected credit loss ($’000) 276 947 143 2,961 50 1,603 80 6,010 1,284 225,861 2,504 Trade receivables Days past due Contract assets Current <31 days 31-60 days 61-90 days >91 days Total 30 June 2020 Expected credit loss rate 0.55% 0.52% 0.74% 1.60% 4.55% 23.8% Total estimated gross carrying amount at default ($’000) 27,503 142,695 30,532 Expected credit loss ($’000) 152 749 225 5,305 85 2,459 112 10,114 191,105 2,410 3,581 Other balances within trade and other receivables did not contain impaired assets and were not past due. It was expected that these other balances would be received when due. Financial instruments and cash deposits 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. Term deposits typically have an original maturity of three months or less and other bank deposits are on call. These financial assets are considered to have low credit risk. Write off policy The Group writes off a financial asset when there is information indicating that the counterparty is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when the counterparty has been placed under liquidation or entered into bankruptcy proceedings. Financial assets written off may still be subject to enforcement activities under the Group’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are recognised in profit or loss. 108 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED 30 JUNE 2021 24. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Risk exposures and responses (continued) Liquidity risk Financing facilities available 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 2021 $’000 2020 $’000 440,000 102,648 542,648 218,331 39,927 258,258 221,669 62,721 284,390 490,000 96,112 586,112 229,388 45,849 275,237 260,612 50,263 310,875 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. Nature of revolving credit The revolving credit includes hire purchase/leasing facilities. Refer to note 14 and 15 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 has financing facilities in the form of hire purchase liabilities, secured loans and a receivable facility. The liquidity of the Group is managed by the Group’s Finance and Accounting department. FINANCIAL REPORT 109 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: FINANCIAL RISK MANAGEMENT FOR THE YEAR ENDED 30 JUNE 2021 24. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (continued) Risk exposures and responses (continued) Liquidity risk (continued) The table below reflects all contractually fixed pay-offs, repayments and interest resulting from financial liabilities as of 30 June 2021. Maturity analysis of financial liabilities: 6 months or less $’000 6 months to 1 year $’000 1 year to 5 years $’000 5 years or more $’000 Total Contractual Cash Flows $’000 Total Carrying Amount $’000 Year ended 30 June 2021 Financial liabilities Trade and other payables 168,117 Hire purchase liabilities Other lease liabilities Bank loans Other financial liability 7,680 4,761 608 - - 7,283 4,644 302 - Net maturity 181,166 12,229 - 25,727 33,250 - 10,644 69,621 - - 21,245 - - 168,117 168,117 40,690 63,900 910 39,027 57,661 900 10,644 10,151 21,245 284,261 275,856 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 Year ended 30 June 2020 Financial liabilities Trade and other payables 165,752 Hire purchase liabilities Other lease liabilities Bank loans Other financial liability 6,640 4,100 911 - - 7,129 3,842 904 - Net maturity 177,403 11,875 Net fair values of financial assets and liabilities - 165,752 165,752 31,213 45,646 2,220 4,848 83,927 44,982 53,588 4,035 4,848 42,326 46,043 3,523 4,480 273,205 262,124 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. Listed equity investments measured at fair value through other comprehensive income. The carrying amount is equal to the fair value calculated using quoted prices in active markets (level 1 – see below). 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. 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). 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 2021 or 30 June 2020. 110 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: UNRECOGNISED ITEMS FOR THE YEAR ENDED 30 JUNE 2021 25. COMMITMENTS AND CONTINGENCIES Capital commitments The consolidated group has capital commitments of $8,988,277 at 30 June 2021 (2020: $1,436,867). Guarantees 2021 $’000 2020 $’000 Guarantees given to various clients for satisfactory contract performance 218,331 229,388 Monadelphous Group Limited and all controlled entities marked # in note 22 have entered into a deed of cross guarantee. Refer to note 32 for details. Contingent liabilities On 31 July 2020, Monadelphous was notified that Rio Tinto had filed a Writ of Summons in the Supreme Court of Western Australia against one of Monadelphous’ wholly owned subsidiaries, Monadelphous Engineering Associates. The claim was made by Robe River Mining Co Pty Ltd and Pilbara Iron Pty Ltd (on behalf of the Robe River joint venture) in respect of a fire incident which occurred at Rio Tinto’s iron ore processing facility at Cape Lambert, Western Australia on 10 January 2019. On 16 April 2021, Monadelphous announced that a confidential settlement had been reached in respect of this matter, with the settlement being covered by the proceeds of insurance. The parties consider the matter has been concluded. The Group is subject to various other 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 based on information currently available there is no material exposure to the Group arising from these various actual and pending claims. 26. SUBSEQUENT EVENTS Dividends declared On 23 August 2021, the directors of Monadelphous Group Limited declared a final dividend on ordinary shares in respect of the 2021 financial year. The total amount of the dividend is $19,932,509 which represents a fully franked final dividend of 21 cents per share. This dividend has not been provided for in the 30 June 2021 financial statements. The Monadelphous Group Limited Dividend Reinvestment Plan will apply to the dividend. FINANCIAL REPORT 111 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2021 27. PARENT ENTITY INFORMATION Information relating to Monadelphous Group Limited parent entity Notes 2021 $’000 2020 $’000 Current assets Total assets Current liabilities Total liabilities Net assets Contributed equity Share-based payment reserve Fair value reserve for financial asset at FVOCI Retained earnings Total equity Profit after tax Total comprehensive income of the parent entity Contingent liabilities Guarantees 127,283 929,001 173,899 2,597,568 (670,348) (2,335,491) (728,926) (2,405,409) 200,075 192,159 132,608 35,335 1,137 30,995 200,075 38,727 38,727 131,307 32,690 867 27,295 192,159 43,311 43,276 25 218,331 229,388 Guarantees entered into by the Group are via the parent entity. Details are contained in note 25. Capital commitments The parent entity has capital commitments of $nil at 30 June 2021 (2020: $nil). 112 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2021 28. SHARE-BASED PAYMENT EXPENSE The share-based payment expense for the year ended 30 June 2021 was $2,537,803 (2020: $2,186,390) for the consolidated entity. Performance Rights No performance rights were granted during the year ended 30 June 2021. The following table illustrates the number and weighted average exercise prices of and movements in performance rights granted, exercised and forfeited during the year. 2021 2020 Number of Performance Rights Weighted Average Exercise Price $ Number of Performance Rights Weighted Average Exercise Price $ 406,142 - (161,250) (8,699) 236,193 155,556 nil nil nil nil nil nil 248,407 265,438 (82,771) (24,932) 406,142 161,250 nil nil nil nil nil nil Balance at the beginning of the year Issued during the year Exercised during the year Forfeited during the year Balance at the end of the year Exercisable during the next year Options In November 2020, 300,000 options, which had been offered to the Company’s Managing Director in October 2019, were approved to be granted at the Company’s Annual General Meeting at an exercise price of $14.84. The exercise price of the options granted under the Employee Option Plan was calculated as the average closing market price of the shares for the five trading days prior to the invitation date to apply for the options of 14 October 2019. The fair value of each option issued during the year was estimated on the date of grant using a Binomial option-pricing model. In November 2020, a total of 2,950,000 options were granted by Monadelphous Group Limited under the Employee Option Plan at an exercise price of $9.30. A further 300,000 options have been offered to the Company’s Managing Director, with the issue of these options being subject to shareholder approval. The exercise price of the options granted under the Employee Option Plan was calculated as the average closing market price of the shares for the five trading days prior to the invitation date to apply for the options of 5 November 2020. The fair value of each option issued during the year was estimated on the date of grant using a Binomial option- pricing model. The following weighted average assumptions were used for grants during the year: Dividend yield Volatility 3.66% 40.0% Risk-free interest rate 0.09% - 0.16% Expected life of option 25% - 2 years 25% - 3 years 50% - 4 years The dividend yield reflects an analysis of past dividends and future dividend expectations. The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which also may not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value. FINANCIAL REPORT 113 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2021 28. SHARE-BASED PAYMENT EXPENSE (continued) Options (continued) The resulting weighted average fair values for options outstanding at 30 June 2021 are: Number 585,000 585,000 1,170,000 75,000 75,000 150,000 737,500 737,500 1,475,000 Grant Date 14/10/2019 14/10/2019 14/10/2019 24/11/2020 24/11/2020 24/11/2020 05/11/2020 05/11/2020 05/11/2020 Final Vesting Date Fair Value Per Option at Grant Date 14/09/2023 14/09/2023 14/09/2023 14/09/2023 14/09/2023 14/09/2023 14/09/2024 14/09/2024 14/09/2024 $1.84 $2.10 $2.27 $1.84 $2.10 $2.27 $1.77 $2.04 $2.23 The following table illustrates the number and weighted average exercise prices of and movements in options granted, exercised and forfeited during the year. 2021 2020 Number of Options 2,400,000 3,250,000 (60,000) 5,590,000 660,000 Weighted Average Exercise Price $ 14.84 9.81 14.84 11.92 14.84 Number of Options - 2,450,000 (50,000) 2,400,000 - Weighted Average Exercise Price $ - 14.84 14.84 14.84 - Balance at the beginning of the year Granted during the year Forfeited during the year Balance at the end of the year Exercisable during the next year No options were exercised during the period. 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 Combined Reward Plan and 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. 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. 114 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2021 29. 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 - other agreed upon procedure services where there is discretion as to whether the service is provided by the auditor or another firm Total fees to Ernst & Young (Australia) Amounts received or due and receivable by overseas member firms of Ernst & Young 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 Total fees to overseas member firms of Ernst & Young Total auditor’s remuneration 2021 $ 2020 $ 342,221 280,374 49,350 88,459 122,567 514,138 - 368,833 11,202 9,318 18,457 29,659 12,873 22,191 543,797 391,024 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. 30. RELATED PARTY DISCLOSURES Compensation of key management personnel Short term benefits Post-employment Long term benefits Share-based payments Total compensation Zenviron 2021 $ 2020 $ 3,833,031 3,962,862 159,270 13,845 615,010 157,587 80,500 445,541 4,621,156 4,646,490 The Group had sales to the joint venture during the year totalling $4,110,085 (2020: $8,285,352). Mondium At 30 June 2021, an amount totalling $6,000,000 (2020: $nil) had been loaned to Mondium Pty Ltd. The loan is included in the Statement of Financial Position within non-current other receivables. The Group had sales to the joint venture during the year totalling $102,607,792 (2020: $14,040,100). FINANCIAL REPORT 115 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2021 31. 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 2021, the Engineering Construction division contributed revenue of $979.0 million (2020: $615.9 million) and the Maintenance and Industrial Services division contributed revenue of $976.9 million (2020: $1,049.8 million). Included in these amounts is $2.8 million (2020: $14.9 million) of inter-entity revenue and $199.4 million (2020: $163.4 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 36% (2020: 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 Chile Mongolia Other overseas locations 2021 $’000 2020 $’000 1,631,457 1,324,475 5,183 55,998 13,679 47,421 20,328 30,339 46,490 65,761 1,753,738 1,487,393 116 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2021 32. DEED OF CROSS GUARANTEE 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 2021 $’000 2020 $’000 49,299 (17,448) 31,851 201,544 (35,027) 31,851 198,368 30,667 (9,673) 20,994 223,005 (42,455) 20,994 201,544 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2021 32. DEED OF CROSS GUARANTEE (continued) Consolidated Statement of Financial Position ASSETS Current assets Cash and cash equivalents Trade and other receivables Contract assets 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 Lease liabilities Income tax payable Provisions Total current liabilities Non-current liabilities Interest bearing loans and borrowings Lease liabilities Provisions Total non-current liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed equity Reserves Retained earnings TOTAL EQUITY FINANCIAL REPORT 117 2021 $’000 2020 $’000 115,082 287,623 59,685 462,390 17,345 152,549 20,723 3,120 3,259 196,996 659,386 169,005 316,057 16,287 501,349 17,179 150,415 22,144 3,400 2,872 196,010 697,359 124,531 198,277 900 20,584 21,466 44,683 212,164 - 73,899 5,874 79,773 1,200 17,189 438 41,775 258,879 900 67,477 3,695 72,072 291,937 330,951 367,449 366,408 132,608 36,473 198,368 367,449 131,307 33,557 201,544 366,408 118 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2021 33. OTHER ACCOUNTING STANDARDS Other accounting policies Financial assets Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through OCI, and fair value through profit or loss. With the exception of trade receivables, that do not have a significant financing component, the Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component are measured at the transaction price determined under AASB 15. Financial assets at amortised cost The Group measures financial assets at amortised cost where the objective is to hold financial assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets at amortised cost are subsequently measured using the effective interest rate (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group’s financial assets at amortised cost includes trade receivables. Financial assets at fair value For financial assets at fair value, gains and losses will either be reported in profit or loss or other comprehensive income. For investments in equity instruments that are not held for trading, this will depend on whether the Group has made an irrevocable election at the time of initial recognition to account for the equity instruments at fair value through OCI. Gains and losses on financial assets designated at fair value through OCI are not recycled to profit or loss. Dividends are recognised as other income in the statement of profit or loss when the right of payment has been established. Equity instruments designated at fair value through OCI are not subject to impairment assessment. Impairment of financial assets The Group recognises an allowance for ECLs for trade receivables, contract assets and other debt financial assets not held at fair value through profit or loss. ECLs are based on the difference between the contracted cash flows due in accordance with the contract and all the cash flows the Group expects to receive, discounted at an approximation of the original effective interest rate. For trade receivables and contract assets, the Group applies a simplified approach in calculating expected credit losses and recognises a loss allowance based on lifetime expected credit losses at each reporting date. The Group has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment. Definition of default The Group considers a financial asset to be in default when contractual payments are 90 days past due or when internal or external information indicates that the Group is unlikely to receive the outstanding contractual amounts in full. Write off policy A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. FINANCIAL REPORT 119 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2021 33. OTHER ACCOUNTING STANDARDS (continued) Goods and services tax (GST) Revenues, expenses and assets are recognised net of the amount of GST except: • 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. New and amended Accounting Standards and Interpretations 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 2020. Other revised Standards and Interpretations which apply from 1 July 2020 did not have any material effect on the financial position or performance of the Group. New accounting standards and interpretations issued but not yet effective 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 2021. Reference Summary AASB 2020-8 Amendments to Australian Accounting Standards – Interest Rate Benchmark The objective of the amendments is to minimise financial reporting consequences of a change in benchmark interest rates that Australian Accounting Standards may otherwise require, such as the derecognition or remeasurement of financial instruments, and the discontinuation of hedge accounting. Application date of standard Application date for Group 1 January 2021 1 July 2021 Provided that the interest rate will be substantially similar before and after the replacement, the amendments: • Require changes to future cash flows that are directly required by the IBOR reform to be treated as if they were changes to a floating interest rate. Applying this expedient would not affect the carrying amount of the financial instrument. It also relieves entities of the need to assess whether modification or derecognition accounting applies under AASB 9 and AASB 139. • Require changes to lease payments that are directly required by the IBOR reform to be accounted for as a remeasurement of lease liability using the original discount rate with a corresponding adjustment to the right-of-use asset. This expedient exempts entities from remeasuring the lease liability using a new discount rate under AASB 16. The IASB’s assessment of applying the revised definitions of assets and liabilities in the Conceptual Framework to business combinations showed that the problem of day 2 gains or losses would be significant only for liabilities that an acquirer accounts for after the acquisition date by applying IAS 37 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies. The Board updated IFRS 3 in May 2020 for the revised definitions of an asset and a liability and excluded the application of the Conceptual Framework to liabilities and contingent liabilities within the scope of IAS 37 or IFRIC 21. AASB 2020-3 Amendments to AASB 3 – Reference to the Conceptual Framework 1 January 2022 1 July 2022 120 ANNUAL REPORT 2021 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2021 33. OTHER ACCOUNTING STANDARDS (continued) New accounting standards and interpretations issued but not yet effective (continued) Reference Summary AASB 2020-3 Amendments to AASB 137 – Onerous Contracts – Cost of Fulfilling a Contract AASB 137 defines an onerous contract as a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. Unavoidable cost is the lower of the cost of fulfilling the contract and any compensation or penalties arising from failure to fulfil it. Application date of standard Application date for Group 1 January 2022 1 July 2022 AASB 137 does not specify which costs to include in determining the cost of fulfilling a contract. Consequently, AASB 137 was amended to clarify that when assessing whether a contract is onerous, the cost of fulfilling the contract comprises all costs that relate directly to the contract, which includes both the: • Incremental costs of fulfilling that contract (e.g., materials and labour); and • An allocation of other costs that relate directly to fulfilling contracts (e.g., depreciation of property, plant and equipment) An entity shall apply these amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments (the date of initial application). Comparative information is not restated. Instead, the cumulative effect of initially applying the amendments is recognised as an adjustment to the opening balance of retained earnings or other component of equity, as appropriate, at the date of initial application. Under AASB 116 Property, Plant and Equipment, net proceeds from selling items produced while constructing an item of property, plant and equipment are deducted from the cost of the asset. The IASB’s research indicated practical diversity in interpreting this requirement. As a result, AASB 116 was amended to prohibit an entity from deducting from the cost of an item of property, plant and equipment, the proceeds from selling items produced before that asset is available for use. An entity is also required to measure production costs of the sold items by applying AASB 112 Inventories. Proceeds from selling any such items, and the cost of those items, are recognised in profit or loss in accordance with applicable standards. These amendments are applied retrospectively, but only to items of property, plant and equipment that are ‘ready to use’ on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the amendments — ‘ready to use’ meaning the asset is in the location and condition necessary to be capable of operating in the manner intended by management. The amendments clarify that a full gain or loss is recognised when a transfer to an associate or joint venture involves a business as defined in AASB 3 Business Combinations. Any gain or loss resulting from the sale or contribution of assets that does not constitute a business, however, is recognised only to the extent of unrelated investors’ interests in the associate or joint venture. AASB 2020-3 Amendments to AASB 116 – Property, Plant and Equipment: Proceeds before Intended Use AASB 2014-10 Amendments to Australian Accounting Standards – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 1 January 2022 1 July 2022 1 January 2022 1 July 2022 FINANCIAL REPORT 121 Application date of standard Application date for Group 1 January 2023 1 July 2023 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS: OTHER FOR THE YEAR ENDED 30 JUNE 2021 33. OTHER ACCOUNTING STANDARDS (continued) New accounting standards and interpretations issued but not yet effective (continued) Reference Summary AASB 2020-1 Amendments to AASs – Classification of Liabilities as current or non-current A liability is classified as current if the entity has no right at the end of the reporting period to defer settlement for at least 12 months after the reporting period. The AASB recently issued amendments to AASB 101 to clarify the requirements for classifying liabilities as current or non-current. Specifically: • The amendments specify that the conditions which exist at the end of the reporting period are those which will be used to determine if a right to defer settlement of a liability exists. • Management intention or expectation does not affect classification of liabilities. • In cases where an instrument with a conversion option is classified as a liability, the transfer of equity instruments would constitute settlement of the liability for the purpose of classifying it as current or non-current. 122 ANNUAL REPORT 2021 INVESTOR INFORMATION FOR THE YEAR ENDED 30 JUNE 2021 Additional information required by the Australian Securities Exchange Limited and not shown elsewhere in this report is as follows. The information is current at 13 September 2021. 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 6,858 4,572 805 642 35 12,912 The number of shareholders holding less than marketable parcels is 501. b) Twenty largest shareholders The names of the twenty largest holders of quoted shares are: Rank Name HSBC Custody Nominees (Australia) Limited J P Morgan Nominees Australia Pty Limited Citicorp Nominees Pty Limited National Nominees Limited BNP Paribas Nominees Pty LtdVelham Nominees Pty Ltd Wilmar Enterprises Pty Ltd BNP Paribas Noms Pty Ltd Rubi Holdings Pty Ltd Citicorp Nominees Pty Limited BNP Paribas Nominees Pty Ltd Hub24 Custodial Serv Ltd Mr Arif Erdash HSBC Custody Nominees (Australia) Limited BNP Paribas Nominees Pty Ltd Six Sis Ltd HSBC Custody Nominees (Australia) Limited-GSCO ECA Borromini Pty Ltd Marsden Holdings (Canberra) Pty Ltd Corfam Pty Ltd Powerwrap Limited Latrobe Bond & Free Stores Pty Ltd 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Total Number of Ordinary Shares % of Issued Capital 3,201,393 10,980,499 6,069,926 15,604,230 59,062,778 94,918,826 3.37 11.57 6.39 16.44 62.23 100.00 Number of Ordinary Shares 21,190,732 % of Issued Capital 22.33 9,314,855 8,721,732 6,017,283 2,520,909 2,100,000 1,320,000 1,111,077 1,022,653 710,765 485,029 480,000 438,016 359,850 229,553 224,000 219,423 214,500 192,406 181,000 9.81 9.19 6.34 2.66 2.21 1.39 1.17 1.08 0.75 0.51 0.51 0.46 0.38 0.24 0.24 0.23 0.23 0.20 0.19 57,053,783 60.12 c) Substantial shareholders d) Voting rights 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 The Vanguard Group Inc. (and its subsidiaries) Ordinary Shares 6,748,209 % Held 7.11 4,955,614 5.22 Each ordinary shareholder present at a general meeting (whether in person, online, 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. FINANCIAL REPORT 123 INVESTOR INFORMATION FOR THE YEAR ENDED 30 JUNE 2021 ANNUAL GENERAL MEETING The Annual General Meeting will be held in person at The University Club, University of Western Australia, Crawley, WA, and online via the Lumi software platform, on Tuesday 23 November 2021 at 10.00am (AWST). Full details of the meeting are contained in the Notice of Annual General Meeting available on the Company’s website at www.monadelphous.com.au. 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) Email: Website: web.queries@computershare.com.au www.investorcentre.com 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. INFORMATION ABOUT MONADELPHOUS 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 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. MONADELPHOUS WEBSITE Further information about Monadelphous Group Limited is available on the Company’s website: www.monadelphous.com.au 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. 124 ANNUAL REPORT 2021 CORPORATE DIRECTORY DIRECTORS Calogero Giovanni Battista Rubino Chairman Robert Velletri Managing Director Peter John Dempsey Deputy Chair and 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 Susan Lee Murphy AO 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 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 EC Projects Pty Ltd Monadelphous Chile SpA MAQ Rent SpA Buildtek SpA SinoStruct Engineering & Fabrication (Tianjin) Co. Ltd Monadelphous RTW Pty Ltd (incorporated 7 July 2021) PERTH HEAD OFFICE BRISBANE OFFICE MONADELPHOUS.COM.AU 59 Albany Highway Victoria Park Western Australia 6100 PO Box 600 Victoria Park Western Australia 6979 Level 6, 19 Lang Parade Milton Queensland 4064 PO Box 1872 Milton Queensland 4064 T +61 8 9316 1255 F +61 8 9316 1950 T +61 7 3368 6700 F +61 7 3368 6777 Monadelphous Group Limited ABN 28 008 988 547