Half Yearly Report and Accounts
2 February 2017
Company Announcements Office
ASX Limited
Exchange Centre
Level 4, 20 Bridge Street
SYDNEY NSW 2000
Dear Sir/Madam
Please find attached the following documents:
1. Appendix 4D – results for announcement to the market for the half-year ended
31 December 2016;
2. Condensed Consolidated Half-year Financial Report dated 31 December 2016;
3. Market release dated 2 February 2017; and
4. Investor Presentation.
Yours sincerely,
Downer EDI Limited
Peter Tompkins
Company Secretary
Downer EDI Limited
ABN 97 003 872 848
Triniti Business Campus
39 Delhi Road
North Ryde NSW 2113
1800 DOWNER
www.downergroup.com
Page 1 of 1
Results for announcement to the market
for the half-year ended 31 December 2016
Appendix 4D
31 Dec 2016
31 Dec 2015
change
$'m
$'m
%
Revenue from ordinary activities3,333.6 3,262.0
Other income1.0 2.6
Total revenue and other income from ordinary activities3,334.6 3,264.6 2.1%
Total revenue including joint ventures and other income 3,603.0 3,543.4 1.7%
120.8 113.2 6.7%
78.2 72.1 8.5%
31 Dec 2016
31 Dec 2015
change
cents
cents
%
Basic earnings per share 17.6 15.8 11.4%
Diluted earnings per share17.1 15.1 13.2%
Net tangible asset backing per ordinary share255.6 254.2 0.6%
Dividend31 Dec 201631 Dec 2015
InterimInterim
Dividend per share (cents)12.012.0
Franked amount per share (cents)12.012.0
Dividend record date16/02/201718/02/2016
Dividend payable date16/03/201717/03/2016
Redeemable Optionally Adjustable Distributing Securities (ROADS)
Dividend per ROADS (in Australian cents)2.17 2.40
New Zealand imputation credit percentage per ROADS 100%100%
ROADS payment dateQuarter 1Quarter 2
Instalment date FY201715/09/201615/12/2016
Instalment date FY201615/09/201515/12/2015
For commentary on the results for the period and revie
wofoperations, please refer to the Directors' Report and
separate media release attached.
Earnings before interest and tax
Profit from ordinary activities after tax attributable to members of
the parent entity
Downer EDI's Dividend Reinvestment Plan (DRP) has been suspended.
Condensed Consolidated
Half-year Financial Report
31 December 2016
Condensed Consolidated Financial Report
for the half-year ended 31 December 2016
Contents
Directors' Report
Page 2
Auditor's signed report
Page 17Auditor's Independence Declaration
Page 18Independent Auditor's Review Report
Financial Statements
Page 20Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income
Page 21Condensed Consolidated Statement of Financial Position
Page 22Condensed Consolidated Statement of Changes in Equity
Page 23Condensed Consolidated Statement of Cash Flows
ABCD
B1C1D1
B2C2D2
B3C3D3
B4C4D4
D5
Directors' Declaration
Page 39
Contingent liabilities
Other disclosuresCapital structure and
financing
Business performance
Profit from ordinary
activities
Financing facilitiesIntangible assets
Acquisition and
disposal of
businesses
Segment information Borrowings Property, plant and
equipment
DividendsSubsequent events
Earnings per share Issued capitalJoint arrangements
and associate
entities
Notes to the condensed consolidated financial report
Page 24Page 24-27Page 33-38Page 28-32
About this report
Page 1 of 39
DIRECTORS’ REPORT
For the half-year ended 31 December 2016
The Directors of Downer EDI Limited (Downer) submit the condensed consolidated financial report of the
Company for the half-year ended 31 December 2016. In accordance with the provisions of the Corporations
Act 2001 (Cth), the Directors' Report is set out below:
Directors
The names of the Directors of the Company during, or since the end of, the half-year are:
R M Harding (Chairman, Independent Non-executive Director)
G A Fenn (Managing Director and Chief Executive Officer)
S A Chaplain (Independent Non-executive Director)
P S Garling (Independent Non-executive Director)
T G Handicott
(Independent Non-executive Director) – appointed on 21 September 2016
E A Howell (Independent Non-executive Director)
J S Humphrey (Independent Non-executive Director) – retired on 3 November 2016
C G Thorne (Independent Non-executive Director)
REVIEW OF OPERATIONS
PRINCIPAL ACTIVITIES
Downer EDI Limited (Downer) is a leading provider of services to customers in markets including: Transport
Services; Technology and Communications Services; Utilities Services; Rail; Engineering, Construction and
Maintenance (EC&M); and Mining. Downer employs about 19,000 people, mostly in Australia and New
Zealand but also in the Asia-Pacific region, South America and Southern Africa. An outline of each service
line is set out below.
TRANSPORT SERVICES
Transport Services comprises Downer’s road, transport infrastructure, bridge, airport and port businesses. It
features a broad range of transport infrastructure services including earthworks, civil construction, asset
management, maintenance, surfacing and stabilisation, supply of bituminous products and logistics, open
space and facilities management a nd rail track signalling and electrification works.
Transport Services
1 Total revenue is a non-statutory disclosure and includes revenue, other income and notional revenue from joint ventures and other
alliances not proportionately consolidated. Due to rounding, divisional percentages do not add up precisely to 100%.
Page 2 of 39
Road Services
Downer offers one of the largest non-government owned road infrastructure services businesses in Australia
and New Zealand, maintaining more than 40,000 kilometres of road in Australia and more than 32,000
kilometres in New Zealand.
Downer delivers a wide range of tailored pavement treatments and traffic control services and also provides
high-level capabilities in strategic and tactical asset management, network planning and intelligent transport
systems. The Company continues to invest in state-of-the-art technology to drive innovation and
performance, including asphalt plants that use more recycled products and substantially less energy.
Downer is also a leading manufacturer and supplier of bitumen based products and a provider of soil and
pavement stabilisation, pressure injection stabilisation, pavement recycling, pavement profiling, spray sealing
and asset management.
In October 2016, Downer acquired RPQ Group (RPQ). The principal activities of RPQ include the supply of
asphalt, bitumen spray sealing, road milling and profiling, road maintenance, foam bitumen stabilisation,
mobile asphalt production, mobile crushing and equipment hire.
Downer’s Road Services customers include all of Australia’s State Road Authorities, the New Zealand
Transport Agency and the majority of local government councils and authorities in both countries.
Other Transport Infrastructure
Downer provides a range of transport infrastructure services to its customers including earthworks, civil and
rail track construction, design, construction and commissioning of facilities and signalling and electrification
works.
Downer also provides integrated services to its airport and port customers including pavement construction,
facilities maintenance, communications technologies, open space and asset management and turnkey
electrical and communication systems. It also provides whole-of-life asset solutions for associated
infrastructure such as roads, rail lines and car parks.
TECHNOLOGY AND COMMUNICATIONS SERVICES
Downer provides an end-to-end infrastructure service offering comprising feasibility, design, civil
construction, network construction, commissioning, testing, operations and maintenance across fibre, copper
and radio networks in Australia and New Zealand.
Technology and Communications Services
1 Total revenue is a non-statutory disclosure and includes revenue, other income and notional revenue from joint ventures and other
alliances not proportionately consolidated. Due to rounding, divisional percentages do not add up precisely to 100%.
Downer’s expertise in the feasibility and design phases of the life cycle provides customers with a high level
of assurance and reduces uncertainty at the beginning of the investment process.
Page 3 of 39
Downer has a track record of delivering both fixed and mobile networks across Australia and New Zealand.
Downer is a leader in intelligent transport technology systems (ITS) in both countries.
Comprehensive project and program management capabilities are supported by our world class engineering
and technical capabilities. This allows Downer to deliver projects safely, cost effectively and on time.
Customers include nbn™, Telstra, Chorus, Spark and Vodafone.
UTILITIES SERVICES
The Utilities Services division provides complete lifecycle solutions to customers in the power, gas, water
and renewable energy sectors.
Utilities Services
1 Total revenue is a non-statutory disclosure and includes revenue, other income and notional revenue from joint ventures and other
alliances not proportionately consolidated. Due to rounding, divisional percentages do not add up precisely to 100%.
Power and Gas
Downer offers customers a wide range of services including planning, designing, constructing, operating,
maintaining, managing and decommissioning power and gas network assets.
Downer erects steel lattice transmission towers, designs and builds substations and connects tens of
thousands of new power and gas customers each year. It also maintains over 62,000 kilometres of electricity
and gas networks across more than 115,000 square kilometres.
Customers include United Energy, AusNet Services, Ausgrid, Ergon Energy, Powerco, Wellington Electricity
and Powerlink.
Water
Downer provides complete water lifecycle solutions for municipal and industrial water users, with expertise
including waste and waste water treatment, pumping and water transfer, desalination and water re-use, and
abstraction and dewatering.
Supporting its customers across the full asset lifecycle from the conceptual development of a project through
design, construction, commissioning and optimisation, Downer also operates and maintains treatment,
storage, pump station and network assets.
Customers include Logan City Council, Mackay Regional Council, Melbourne Water, Queensland Urban
Utilities, Tauranga City Council, Yarra Valley Water, Wagga Wagga City Council and Watercare.
Page 4 of 39
Renewable energy
Downer is one of Australia’s largest and most experienced providers in the renewable energy market,
offering design, build and maintenance services for: wind farms and wind turbine sites; solar farms; landfill
methane generation plants; sugar cane waste (Bagasse) fired cogeneration plants; and other biomass fired
cogeneration plants.
Downer offers the services required for the entire asset life-cycle including procurement, assembly,
construction and commissioning.
Downer is currently working on the Ararat Wind Farm Project (Victoria), the Sunshine Coast Solar Farm
(Queensland) and the Clare Solar Farm (Queensland).
RAIL
Downer provides total rail asset solutions including freight and passenger build, operations and
maintenance, component overhauls and after-market parts.
Rail
1 Total revenue is a non-statutory disclosure and includes revenue, other income and notional revenue from joint ventures and other
alliances not proportionately consolidated. Due to rounding, divisional percentages do not add up precisely to 100%.
Downer provides services to a range of public and private sector rail customers with capabilities spanning
the maintenance, overhaul and provision of passenger and freight rolling stock, as well as importing and
commissioning completed locomotive units for use in the resources sector.
Downer operates two fleet control centres, focused on monitoring and management of passenger and freight
fleets on behalf of its customers, and four manufacturing plants.
Downer has formed strategic joint ventures and relationships with leading technology and knowledge
providers to support its growth objectives in the passenger and freight market. These include Keolis, Electro-
Motive Diesel (owned by Caterpillar), and CRRC Changchun Railway Vehicles (CRRC).
The Keolis Downer joint venture is Australia’s largest private provider of multi-modal public transport
solutions, with contracts to operate and maintain Yarra Trams in Melbourne and the Gold Coast light rail
system in Queensland. Keolis Downer also owns Australian Transit Enterprises (ATE), one of Australia’s
largest route, school and charter bus businesses. ATE operates a fleet of over 900 buses in South Australia,
Western Australia and Queensland.
Customers include Sydney Trains, Transport for NSW, Queensland Rail, Public Transport Authority (WA),
Metro Trains Melbourne, Public Transport Victoria, Pacific National, Aurizon, BHP Billiton, Genesee &
Wyoming and SCT Logistics.
Page 5 of 39
ENGINEERING, CONSTRUCTION AND MAINTENANCE (EC&M)
Downer works with customers in the public and private sectors delivering services including design,
engineering, construction, maintenance and ongoing management of critical assets.
EC&M
1 Total revenue is a non-statutory disclosure and includes revenue, other income and notional revenue from joint ventures and other
alliances not proportionately consolidated. Due to rounding, divisional percentages do not add up precisely to 100%.
Multi-disciplined teams project manage and self-execute a wide range of services for greenfield and
brownfield projects across a range of industry sectors including: oil and gas; power generation; commercial /
non-residential; iron ore; coal; and industrial materials. T hese services are delivered on complex resources
and industrial sites as well as commercial operations with critical infrastructure requirements such as data
centres, airport facilities and hospitals.
Downer supports customers across all stages of the project lifecycle with services including:
feasibility studies;
engineering design;
civil works;
structural, mechanical and piping;
electrical and instrumentation;
mineral process equipment design and manufacture;
commissioning;
operations maintenance;
shutdowns, turnarounds and outages;
strategic asset management; and
decommissioning.
Customers include Alcoa, Bechtel, BHP Billiton, Chevron, Landcorp, Newcrest, Orica, Origin Energy,
POSCO, Powerlink Queensland, Rio Tinto, Santos, Transgrid, Wesfarmers and Woodside Energy.
Page 6 of 39
MINING
Downer is one of Australia’s leading diversified mining contractors with around 3,500 employees working
across more than 50 sites in Australia, Papua New Guinea, South America and Southern Africa.
Mining
1 Total revenue is a non-statutory disclosure and includes revenue, other income and notional revenue from joint ventures and other
alliances not proportionately consolidated. Due to rounding, divisional percentages do not add up precisely to 100%.
Downer’s Mining division generates its revenues primarily from open cut mining and blasting services, with
contributions also from tyre management and underground mining. Downer supports its customers at all
stages of the mining lifecycle including:
asset management;
blasting services, explosives manufacture and supply;
civil projects (mine site infrastructure);
crushing;
exploration drilling;
mine closure and mine site rehabilitation;
mobile plant maintenance;
open cut mining;
training and development for ATSI employees;
tyre management (through the subsidiary Otraco International); and
underground mining.
Customers include BHP Mitsubishi Alliance, Glencore, Idemitsu Australia Resources, Karara Mining,
Millmerran Power Partners, Newmarket Gold, Newmont, Rio Tinto, Roy Hill Iron Ore, Stanwell Corporation
and Yancoal Australia.
GROUP FINANCIAL PERFORMANCE
For the six months ended 31 December 2016, Downer reported increases in total revenue, earnings before
interest and tax (EBIT) and net profit after tax (NPAT).
REVENUE
Total revenue for the Group increased by $59.6 million, or 1.7%, to $3.6 billion.
Transport Services revenue increased 13.5% to $911.2 million due to continuing strong performance on
existing contracts, improved contribution from Infrastructure Projects including Newcastle Light Rail and the
acquisition of RPQ.
Technology and Communications Services revenue decreased 1.6% to $245.9 million due to lower revenue
from the completion of the Foxtel contract in Australia, partially offset by favourable performance on the
nbn
TM
contracts in Australia and the Chorus contract in New Zealand.
Page 7 of 39
Utilities Services revenue increased 17.5% to $442.3 million, due to new contracts and strong contributions
from renewable energy, power, gas and water projects in Australia and New Zealand.
Rail revenue decreased 4.9% to $399.7 million due to the completion of freight build manufacturing contracts
and reduced revenue from the joint venture operations. This was partially offset by higher revenue in
passenger maintenance and from improved After Market Services (AMS) sales.
EC&M revenue increased 4.9% to $973.4 million as a result of the increased activities on the Gorgon and
Wheatstone projects in Western Australia, offset by the continued downturn in the resources sector in
Australia, with significant projects completed in the prior period not being fully replaced.
Mining revenue decreased 18.7% to $635.4 million mainly as a result of the completion of the Christmas
Creek contract.
EXPENSES
Total expenses increased by 2.2% which is in line with the 1.7% increase in total revenue.
Employee benefits expenses increased by 2.8%, or $37.7 million, to $1.4 billion and represents 42.7% of
Downer’s cost base. This increase is mainly due to higher activity across the Group and a more labour
intensive contract base in the current period compared to the prior corresponding period (pcp).
Subcontractor costs increased by 16.1% to $729.2 million and represents 22.6% of Downer’s cost base. This
increase accords with the increase in total revenue and the change in the sub-contractor mix on some
contracts. The continued use of subcontracting accords with the Group’s strategy to retain cost base
variability.
Raw materials and consumables expense increased 0.4% to $567.9 million and represents 17.6% of
Downer’s cost base. The slight increase is the net impact of raw material requirements for new projects
(particularly in Utilities and Transport) offset by lower requirements as a result of completion of contracts in
Mining and Rail.
Plant and equipment costs decreased by 16.0% to $253.2 million and represents 7.8% of Downer’s cost
base. This largely reflects the continued reduction in operating leased assets coupled with increased
utilisation of owned assets, more efficient maintenance practices and scope reduction on some Mining
contracts.
Depreciation and amortisation decreased by 18.0% to $ 105.0 million and represents 3.3% of Downer’s cost
base. This decrease is predominantly as a result of project completion in Mining.
Other expenses, which includes communication, travel, occupancy and professional fees costs, have
decreased by 1.0% to $193.5 million and represents 6.0% of Downer’s cost base. Included in other
expenses is $10.0 million referable to Downer’s share of pre-tax bid costs written off in relation to Downer’s
unsuccessful bid for the New Intercity Fleet contract for Transport for NSW.
EARNINGS
EBIT for the Group increased 6.7% to $120.8 million, consistent with the increase in revenue and with higher
margins in Transport Services, Technology and Communications Services, EC&M and Rail. Net Profit After
Tax (NPAT) for the Group increased 8.5% to $78.2 million which includes the $10.0 million write-off of New
Intercity Fleet bid costs.
Transport Services EBIT increased 31.0% to $41.4 million due to continued strong performance and the
successful integration of the RPQ acquisition.
Technology and Communications Services EBIT increased 53.9% to $21.7 million mainly as a result of the
continued strong performance in Australia and improved performance in New Zealand.
Page 8 of 39
Utilities Services EBIT decreased 8.8% to $20.8 million, driven by the completion of a major gas project in
the pcp in Australia and lower than expected profit from the Ararat wind farm project.
Rail EBIT increased $9.5 million to $14.0 million reflecting improved profitability relating to Waratah TLS,
benefits from cost saving initiatives following a restructure in the pcp, and improved performance by joint
venture operations. The prior period included $5.7 million of restructuring costs.
EC&M EBIT increased 31.6% to $27.1 million due to continued strong performance on the Gorgon and
Wheatstone projects and improved results from the resources related consultancies (QCC Resources and
Mineral Technologies), despite the impact of the continued reduced activity in Australia.
Mining EBIT decreased 34.4% to $44.4 million due predominantly to the completion of the contract at
Christmas Creek during the period.
Corporate costs decreased by $2.3 million, or 5.7%, to $37.8 million, predominantly due to lower
restructuring costs and reduced investment in the IT Transformation Program.
The Group recognised $4.2 million in R&D incentives compared to $5.0 million in the prior period, reflecting a
change in legislation that reduced the benefit rate from 10% to 8.5% of the capped eligible spend of $100
million.
Net finance costs decreased by $2.1 million, or 13.3%, to $13.7 million due to a lower average net debt
balance during the 2017 half-year, following amortisation of facilities in the normal course, higher cash
balances held and the prepayment of two Export Credit Agency (ECA) guaranteed loans during the period.
The effective tax rate of 27.0% is lower than the statutory rate of 30.0% due to non-assessable R&D
incentives, non-taxable distributions from joint ventures and lower overseas tax rates.
Page 9 of 39
DIVISIONAL FINANCIAL PERFORMANCE
Transport Services
Total revenue of $911.2 million, up 13.5%;
EBIT of $41.4 million, up 31.0%;
EBIT margin of 4.5%, up 0.6 ppts;
ROFE of 21.0%, up from 16.1%; and
Work-in-hand of $5.3 billion.
.
Technology and Communications Services
Total revenue of $245.9 million, down 1.6%;
EBIT of $21.7 million, up 53.9%;
EBIT margin of 8.8%, up 3.2 ppts;
ROFE of 157.3%, up from 58.9%; and
Work-in-hand of $1.6 billion.
Utilities Services
Total revenue of $442.3 million, up 17.5%;
EBIT of $20.8 million, down 8.8%;
EBIT margin of 4.7%, down 1.4 ppts;
ROFE of 10.8%, down from 13.2%; and
Work-in-hand of $3.5 billion.
Rail
Total revenue of $399.7 million, down 4.9%;
EBIT of $14.0 million, up 211.1%;
EBIT margin of 3.5%, up from 1.1%;
ROFE of 5.4%, up from 3.6%; and
Work-in-hand of $7.2 billion.
Page 10 of 39
Engineering, Construction and Maintenance (EC&M)
Total revenue of $973.4 million, up 4.9%;
EBIT of $27.1 million, up 31.6%;
EBIT margin of 2.8%, up 0.6 ppts;
ROFE of 25.1%, up from 21.2%; and
Work-in-hand of $1.5 billion.
Mining
Total revenue of $635.4 million, down 18.7%;
EBIT of $44.4 million, down 34.4%;
EBIT margin of 7.0%, down 1.7 ppts;
ROFE of 16.3%, down from 18.6%; and
Work-in-hand of $2.0 billion.
GROUP FINANCIAL POSITION
Funding, liquidity and capital are managed at Group level, with Divisions focused on working capital and
operating cash flow management. The following financial position commentary relates to the Downer Group.
OPERATING CASH FLOW
Operating cash flow was strong at $243.6 million, up 36.8% on last year due to strong contract performance,
advance payments received and higher distributions from equity accounted investees. EBITDA conversion
continued to be strong at 102.6%, showing a high correlation between earnings and cash.
Operating cash flow ($’m) Dec-14 Dec-13
INVESTING CASH
Total investing cash flow was $123.4 million, largely in line with the prior period amount of $123.5 million.
Reduced capital investment, predominantly in the Mining business, was offset by the acquisitions of RPQ
and AGIS in the current period for a combined total cash consideration of $52.0 million. Excluding
acquisitions, investing cash flow decreased by $51.6 million. Payments for intangible assets has decreased
by $12.3 million compared to pcp and largely represents the Group’s investment in IT systems.
DEBT AND BONDING
The Group’s performance bonding facilities totalled $1,629.1 million at 31 December 2016 with $823.6
million undrawn. There is material available capacity to support the ongoing operations of the Group.
As at 31 December 2016, Downer had liquidity of $1.1 billion comprising cash balances of $602.1 million and
undrawn committed debt facilities of $485.0 million.
The Group continues to be rated BBB (Outlook Stable) by Fitch Ratings.
Page 11 of 39
BALANCE SHEET
The net assets of Downer increased by 1.4% to $2.1 billion.
Cash and cash equivalents increased by $32.7 million, or 5.7%, to $602.1 million, reflecting strong operating
cash flows from operations.
Net debt decreased from $87.4 million at 30 June 2016 to $22.2 million at 31 December 2016. This reflects a
strong cash position and a reduction in gross debt following the prepayment of two ECA guaranteed loans
during the period. The strong cash and reduced net debt position resulted in 1.0% gearing (net debt to net
debt plus equity) at 31 December 2016, down from 4.0% at 30 June 2016. The present value of operating
lease commitments for plant and equipment also reduced from $128.5 million to $122.5 million, representing
an off balance sheet gearing of 6.4% at 31 December 2016, down from 9.4% at 30 June 2016.
Current trade and other receivables decreased $111.7 million to $1,012.6 million. Trade debtor days
(excluding WIP) for the Group decreased by 2.8 days, from 23.6 at 30 June 2016 to 20.8 days. Trade debtor
days (including WIP) for the Group decreased by 6.4 days, from 57.7 days at 30 June 2016 to 51.3 days.
Inventories decreased $27.4 million to $299.8 million reflecting a reduction in components and spare parts
as a result of project completions and tight inventory management.
Current tax assets decreased by $44.8 million to $1.5 million due to the timing of cash tax payments.
Interest in joint ventures and associates increased by $7.1 million, with $ 6.8 million of distributions received
offset by Downer’s share of net profits from joint ventures and associates of $13.9 million.
The net value of Property Plant and Equipment decreased by $0.5 million.
Intangible assets increased by $62.6 million due to $56.6 million of goodwill recognised from the acquisition
of RPQ and AGIS and the Group’s investment in IT systems.
Trade and other payables decreased by $94.7 million as a result of project completions and timing on
payments. Trade creditor days decreased by 5.6 days from 37.2 days at 30 June 2016 to 31.6 days. Trade
and other payables represent 46.3% of Downer’s total liabilities.
Total drawn borrowings of $622.3 million represent 31.0% of Downer’s total liabilities and has decreased by
$27.7 million as a result of the repayment of debt during the period.
Other financial liabilities of $32.4 million increased by $16.6 million and represent 1.6% of Downer’s total
liabilities. The increase reflects the $17.5 million deferred consideration on acquisitions of RPQ and AGIS
partially offset by a lower mark to market revaluation on cross-currency and interest rate swaps.
Deferred tax liability decreased by $3.1 million to $54.6 million and is primarily due to temporary differences
in WIP and accruals.
Provisions of $366.0 million increased by $1.8 million and represents 18.2% of Downer’s total liabilities.
Employee provisions (annual leave and long service leave) made up 81.9% of this balance with the
remainder covering onerous contracts provisions, property and warranty obligations and return conditions
obligations for leased assets.
Shareholder equity increased by $29.9 million as the net profit after tax of $78.2 million was partially offset by
$55.3 million of dividend payments made during the period. Net foreign currency gains on translation of
foreign jurisdictions, particularly in New Zealand, resulted in a movement in the foreign currency translation
reserve by $4.1 million.
Page 12 of 39
DIVIDENDS
The Downer Board resolved to pay a fully franked interim dividend of 12.0 cents per share (12.0 cents per
share in the prior corresponding period), payable on 16 March 2017 to shareholders on the register at 16
February 2017.
The Board also determined to continue to pay a fully imputed dividend on the ROADS security, which having
been reset on 15 June 2016 has a yield of 6.29% per annum payable quarterly in arrears, with the next
payment due on 15 March 2017. As this dividend is fully imputed (the New Zealand equivalent of being fully
franked), the actual cash yield paid by Downer will be 4.53% per annum for the next six months.
ZERO HARM
Downer’s Lost Time Injury Frequency Rate (LTIFR) reduced from 0.84 to 0.55 and Total Recordable Injury
Frequency Rate (TRIFR) reduced from 3.67 to 3.61 per million hours worked.
OUTLOOK
Downer is targeting NPAT of around $175 million for the 2017 financial year.
0.84
0.55
3.67
3.61
3.00
3.50
4.00
4.50
5.00
5.50
6.00
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
Dec-15
Jan-16
Feb-16
Mar-16
Apr-16
May-16
Jun-16
Jul-16
Aug-16Sep-16
Oct-16
Nov-16
Dec-16
TRIFR
LTIFR
Downer Group Safety Performance
(12-month rolling frequency rates)
LTIFRTRIFR
Page 13 of 39
GROUP BUSINESS STRATEGIES AND PROSPECTS FOR FUTURE FINANCIAL YEARS
Downer strives to improve business performance through a focus on safety, enhanced customer
relationships, business transformation, cost efficiencies and productivity gains in response to changing
economic conditions. Downer’s strategic objectives, prospects and risks that could adversely impact the
achievement of these objectives are outlined in the table below:
Strategic
Objective
Prospects Risk Management
Maintain focus
on Zero Harm
Downer is an industry leader but seeks to
continually improve its performance to achieve
its goal of zero work related injuries and
environmental incidents.
Downer’s activities can result in harm to people
and the environment. Downer has sought to
mitigate this risk by assessing, understanding
and mitigating the “critical risks” facing Downer
and implementing Downer’s Cardinal Rules
which provide direction and guidance on these
critical risks.
Build core
markets and
capabilities
Downer will continue to improve its existing
business and build on its market leading
positions, capabilities and Intellectual Property.
Downer will pursue initiatives to achieve these
objectives, including:
The achievement of these strategic
objectives may be affected by
macro-economic risks including global
economic conditions, volatile commodity prices,
reduced capital expenditure in the Australian
resources sector, insourcing by key customers
(e.g. rolling stock maintenance and mining
services), early termination or scope reduction
on existing contracts (e.g. contract mining) and
increasing overseas competition. Downer will
continue to manage its exposure to these risks
through:
developing and growing Asset
Management capabilities;
forming strategic partnerships and
joint ventures with leading technology
and knowledge providers;
focusing more closely on forward
revenue opportunities in public transport
(network construction, operations and
maintenance), electricity networks (through
State Government privatisations),
passenger heavy and light rail, outsourcing
of road maintenance by State
Governments and the nbn roll-out;
forming strategic partnerships and
joint ventures with leading technology
and knowledge providers and
enhancing Downer’s Customer
Relationship Management (CRM)
program;
expanding into overseas markets
selectively through existing customer
relationships;
identification, and rigorous review, of
overseas opportunities;
enhancing management capability
to improve operational and financial
performance;
a succession planning process for
all leadership roles and a leadership
development program;
adapting tendering model for large
infrastructure projects; and
bid governance processes that ensure i)
there is a substantial level of risk
assessment to inform Downer’s decision
on whether to bid, and the terms of the bid,
and ii) there is a strong focus on bid costs
throughout the tender process; and
maintaining industry and
geographical diversification to
achieve greater resilience through
economic cycles.
growth and development strategies to
diversify revenue sources, including
through joint ventures.
Strengthen
customer
relationships
Continuous improvement of the Company’s
engagement with customers, including working
with them constructively to reduce costs and
improve productivity.
Ongoing analysis of markets, customers and
competitors to understand potential impacts
and determine necessary action.
Leveraging “cross-selling” opportunities. Continuing to drive benefits from Downer’s
broad range of capabilities and CRM tools.
Engaging more closely with customers to
understand their needs and play a more
substantial role in their success.
Downer restructured in 2015 to create better
alignment with its customer base and is
implementing a range of initiatives to develop a
more customer-focused organisation.
Page 14 of 39
Drive efficiency
and productivity
Downer has two key internal business
initiatives:
Fit 4 Business Program: which has
achieved over $600 million in cost
benefits since its launch in FY11; and
Business Transformation Program:
involves investment in core systems and
the consolidation of business services.
Downer has taken proactive steps to ‘right-size’
its business in alignment with market
conditions.
Failing to take proactive steps to reduce costs
in line with forward revenue projections would
jeopardise the ability to drive further
improvements to business performance. The
focus on business improvement, technological
advancements and cost management is a
fundamental part of Downer’s formal planning
processes, day-to-day management activities
and governance activities.
Continue to improve tender, contract and
project risk management processes.
Rigorous tender, contract and project risk
policies and procedures consistently across the
Group.
Continue to focus on asset utilisation and the
appropriateness of the carrying value and
allocation of non-current assets.
Detailed review of equipment, including age
and valuation. Asset specific maintenance
plans and continued assessment to ensure
equipment is allocated on a best fit-for-purpose
basis.
Assess growth
opportunities
Downer assesses merger and acquisition
opportunities on an ongoing basis, including in
new geographies, with a focus on the following
key criteria:
strategic fit for Downer;
growth of capability; and
appropriate valuation.
Downer undertakes rigorous analysis of
potential opportunities to ensure they meet the
key criteria and are structured to mitigate
downside risks. The company is also focused
on ensuring it remains well within its financing
covenant and credit rating metrics.
Capital
management
Downer intends to maintain strong balance
sheet and financial metrics. It also intends to
maintain an investment-grade external credit
rating.
The Group maintains ample capacity to support
its ongoing operations and continues to be
rated BBB (Stable) by Fitch Ratings.
The following table provides an overview of the key prospects relevant to each of Downer’s service lines and
summarises Downer’s intended strategic response across each sector to maximise the Company’s
performance and realise future opportunities.
Service line Prospects Downer’s response
Transport Services Potential for further outsourcing as Governments
seek greater efficiency and smarter solutions.
Downer is a market leader in Australia and
New Zealand and is well positioned for
future opportunities in both countries.
Downer has a vertically integrated road
services business with end-to-end service
offering, including asphalt production.
Technology and
Communications
Services
Customers are developing new performance-
based contracting models, based on closer
collaboration between parties, which are
generating longer term construction, operations
and maintenance opportunities.
Downer is a market leader in both Australia
and New Zealand and works closely with
its customers in both countries to adapt to
the changing environment and help them
achieve success.
Utilities Services The power, gas and water markets offer long-
term operations and maintenance contract
opportunities, with potential for growth through
increased outsourcing.
In addition, there is substantial investment in
renewable energy as Australia strives to achieve
the Government’s Renewable Energy Target.
Downer has market leading positions in
both Australia and New Zealand and is well
positioned for future opportunities,
including those flowing from State
Government privatisation of electricity
assets.
Page 15 of 39
Rail Governments are seeking value through:
the procurement of large orders of
passenger rolling stock and long-term
maintenance contracts;
the franchising of operations and
maintenance of heavy rail, light rail and bus
transport networks; and
the development of multi-modal transport
infrastructure solutions.
Freight customers are seeking continual
improvements to fleet performance and
reliability, with a strong focus on technology and
innovation.
Downer’s rail asset management model
has a strong focus on ‘return on
investment’ – i.e. increasing fleet
availability and reliability.
Downer maintains strong strategic
partnerships with leading global transport
solutions providers and, through this
model, is pursuing opportunities in rolling
stock manufacture and maintenance and
transport network operations and
maintenance.
The Keolis Downer joint venture is a
leading Australian multi-modal transport
operator, through its light rail and bus
operations.
EC&M EC&M opportunities, particularly in the
resources sector, are declining due to the mining
downturn. They are being replaced by
opportunities at different stages of the
investment / asset lifecycle and across adjacent
sectors.
Downer is building on its leading, multi-
discipline capability, working with
customers to provide the best project
management delivery mode, and
developing its asset management
capabilities to become a strategic solutions
provider across the complete asset
lifecycle.
Downer is also focused on optimising its
performance on existing LNG projects.
Mining Depressed commodity prices have led to
reduced volumes and lower levels of investment,
increasing the industry’s focus on cost reduction.
However, opportunities exist for mining
contractors that can work collaboratively with
customers to help drive productivity
improvements and reduce production costs.
Downer’s Mining division continues to
perform strongly by focusing on cost
reduction, increased efficiencies and close
collaboration with customers.
The business continues to examine
overseas opportunities.
Auditor’s independence declaration
The auditor’s independence declaration, as required under Section 307C of the Corporations Act 2001, is set
out on page 17.
Signed in accordance with a resolution of the Directors.
On behalf of the Directors
R M Harding
Chairman
Sydney, 2 February 2017
Page 16 of 39
KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG
International”), a Swiss entity. Liability limited by a scheme approved under Professional Standards Legislation.
Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001
To: the directors of Downer EDI Limited
I declare that, to the best of my knowledge and belief, in relation to the review for the half-year ended 31
December 2016 there have been:
(i) no contraventions of the auditor independence requirements as set out in the Corporations
Act 2001 in relation to the review; and
(ii) no contraventions of any applicable code of professional conduct in relation to the review.
KPMG
John Teer
Partner
Sydney
2 February 2017
Independent Auditor’s Review Report
To the Members of Downer EDI Limited
Conclusion
We have reviewed the accompanying half-year
financial report of Downer EDI Limited.
Based on our review, which is not an audit, we
have not become aware of any matter that
makes us believe that the half -year financial
report of Downer EDI Limited is not in
accordance with the Corporations Act 2001,
including:
i)
giving a true and fair view of the Group’s
financial position as at 31 December 2016
and of its performance for the half -year
ended on that date; and
ii)
complying with Australian Accounting
Standard AASB 134 Interim Financial
Reporting and the Corporations
Regulations 2001.
The half-year financial report comprises:
•
the condensed consolidated statement of
financial position as at 31 December 2016;
•
condensed consolidated statement of profit
or loss and other comprehensive income,
condensed consolidated statement of
changes in equity and condensed
consolidated statement of cash flows for the
half -year ended on that date;
•
notes A to D comprising a summary of
significant accounting policies and other
explanatory information; and
•
the Directors’ d eclaration.
The Group comprises Downer EDI Limited (the
Company) and the entities it controlled at the
half -year’s end or from time to time during the
half -year.
Responsibilities of the Directors for the half-year financial report
The Directors of the Company are responsible for:
•
the preparation of the half -year 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 half -year financial report that is free from material misstatement, whether due to fraud or
error.
Page 18 of 39
Auditor’s responsibility for the review of the half-year financial report
Our responsibility is to express a conclusion on the half -year f inancial report based on our review.
We conducted our review in accordance with Auditing Standard on Review Engagements ASRE
2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to
state whether, on the basis of the procedures described, we have become aware of any matter that
makes us believe that the half -year financial report is not in accordance with the Corporations Act
2001 including: giving a true and fair view of the Group’s financial position as at 31 December 2016
and its performance for the half-year ended on that date; and complying with Australian Accounting
Standard AASB 134 Interim Financial Reporting and the Corporations Regulations 2001. As
auditor of Downer EDI Limited, ASRE 2410 requires that we comply with the ethical requirements
relevant to the audit of the annual financial report.
A review of a half -year financial report consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and other review
procedures. A review is substantially less in scope than an audit conducted in accordance with
Australian Auditing Standards and consequently does not enable us to obtain assurance that we
would become aware of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Independence
In conducting our review, we have complied with the independence requirements of the
Corporations Act 2001.
KPMG
John Teer
Partner
Cameron Slapp
Partner
Sydney Sydney
2 February 2017 2 February 2017
Page 19 of 39
Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income
for the half-year ended 31 December 2016
31 Dec
31 Dec
2016
2015
Note
$'m
$'m
Revenue from ordinary activitiesB23,333.6 3,262.0
Other incomeB21.0 2.6
Total revenue and other income3,334.6 3,264.6
Employee benefits expenseB2(1,378.9)(1,341.2)
Subcontractor costs(729.2)(628.2)
Raw materials and consumables used(567.9)(565.4)
Plant and equipment costs(253.2)(301.3)
Depreciation and amortisation D1,D2(105.0)(128.0)
Other expenses from ordinary activities (193.5)(195.4)
Total expenses(3,227.7)(3,159.5)
Share of net profit of joint ventures and associates13.9 8.1
Earnings before interest and tax120.8 113.2
Finance income4.7 3.8
Finance costs(18.4)(19.6)
Net finance costs(13.7)(15.8)
Profit before income tax107.1 97.4
Income tax expense(28.9)(25.3)
Profit after income tax78.2 72.1
Other comprehensive income
Items that may be reclassified subsequently to profit or loss
-4.1 10.7
-3.8 (1.2)
-(0.3)(1.2)
-(1.1)0.7
6.5 9.0
Total comprehensive income for the period84.7 81.1
Earnings per share (cents)
- Basic earnings per shareB317.6 15.8
-
D
iluted earnings per shareB317.1 15.1
Other comprehensive income for the period (net of tax)
Income tax relating to components of other comprehensive income
The condensed consolidated statement of profit orloss and other comprehensive income should be read in
con
junction with the accompanying notes on pages 24 to 38.
Exchange differences arising on translation of foreign operations
Net loss on cross currency interest rate swaps taken to equity
Net gain / (loss) on foreign currency forward contracts taken to equity
Page 20 of 39
Condensed Consolidated Statement of Financial Position
as at 31 December 2016
DecJun
2016
2016
Note
$'m
$'m
ASSETS
Current assets
Cash and cash equivalents 602.1 569.4
Trade and other receivables1,012.6 1,124.3
Other financial assets12.4 10.1
Inventories299.8 327.2
Current tax assets1.5 46.3
Prepayments and other assets30.1 38.2
Total current assets1,958.5 2,115.5
Non-current assets
Trade and other receivables28.3 17.3
Interest in joint ventures and associates88.7 81.6
Property, plant and equipmentD1987.8 988.3
Intangible assetsD21,032.5 969.9
Other financial assets24.9 22.1
Prepayments and other assets5.0 5.6
Total non-current assets2,167.2 2,084.8
Total assets4,125.7 4,200.3
LIABILITIES
Current liabilities
Trade and other payables916.0 1,010.9
BorrowingsC134.5 45.5
Other financial liabilities18.0 15.1
Employee benefits provision274.6
254.
2
P
rovisions 36.5 51.6
Current tax liabilities3.1 0.5
Total current liabilities1,282.7 1,377.8
Non-current liabilities
Trade and other payables12.9 12.7
BorrowingsC1587.8 604.5
Other financial liabilities14.4 0.7
Employee benefits provision25.1 27.6
Provisions 29.8 30.8
Deferred tax liabilities54.6 57.7
Total non-current liabilities724.6 734.0
Total liabilities2,007.3 2,111.8
Net assets2,118.4 2,088.5
EQUITY
Issued capitalC31,428.8 1,427.8
Reserves(2.8)(8.8)
Retained earnings692.4 669.5
Total equity2,118.4 2,088.5
The condensed consolidated statement of financialposition should be read in conjunction with the
accompanying notes on pages 24 to 38.
Page 21 of 39
Condensed Consolidated Statement of Changes in Equity
for the half-year ended 31 December 2016
Dec 2016
$'m
Issued
capital
Hedge
reserve
Foreign
currency
translation
reserve
Employee
benefits
reserve
Retained
earningsTotal
Balance at 1 July 2016
1,427.8 (2.6)(18.4)12.2 669.5 2,088.5
Profit after income tax
- - - - 78.2 78.2
Other comprehensive income for the period
(net of tax)
- 2.4 4.1 - - 6.5
Total comprehensive income for the period
- 2.4 4.1 - 78.2 84.7
Vested executive incentive shares transactions
1.0 - - (1.0) - -
Share-based employee benefits expense
- - - 1.2 - 1.2
Income tax relating to share-based transactions
during the period
- - - (0.7) - (0.7)
Payment of dividends
(i)
- - - - (55.3)(55.3)
Balance at 31 December 2016
1,428.8 (0.2)(14.3)11.7 692.4 2,118.4
Dec 2015
$'m
Issued
capital
Hedge
reserve
Foreign
currency
translation
reserve
Employee
benefits
reserve
Retained
earningsTotal
Balance at 1 July 2015
1,449.1 (0.3)(27.8)12.3 602.0 2,035.3
Profit after income tax
- - - - 72.1 72.1
Other comprehensive income for the period
(net of tax)
- (1.7)10.7 - - 9.0
Total comprehensive income for the period
- (1.7)10.7 - 72.1 81.1
Group on-market share buy-back
(6.4) - - - - (6.4)
Vested executive incentive shares transactions
0.9 - - - - 0.9
Share-based em
ployee benefits expense
- - - 2.4 - 2.4
Income tax relating to share-based transactions
during the period
- - - (0.1) - (0.1)
Payment of dividends
(i)
- - - - (56.7)(56.7)
Balance at 31 December 2015
1,443.6 (2.0)(17.1)14.6 617.4 2,056.5
The condensed consolidated statement of changes in equity should be read in conjunction with the accompanying
notes on pages 24 to 38.
(i)
Payment of dividend relates to the 2015 final dividend and $4.8m ROADS dividends paid during the financial period.
(i)
Payment of dividend relates to the 2016 final dividend and $4.3m ROADS dividends paid during the financial period.
Page 22 of 39
Condensed Consolidated Statement of Cash Flows
for the half-year ended 31 December 2016
31 Dec
31 Dec
2016
2015
$'m
$'m
Cash flows from operating activities
Receipts from customers3,821.4 3,690.6
Distributions from equity accounted investees6.8 2.1
Payments to suppliers and employees(3,596.5)(3,537.6)
Interest received4.1 3.5
Interest and other costs of finance paid(17.3)(14.7)
Net income tax received25.1 34.2
Net cash inflow from operating activities 243.6 178.1
Cash flows from investing activities
Proceeds from sale of property, plant and equipment17.8 12.0
Payments for property, plant and equipment(72.2)(112.0)
Payments for intangible assets(16.4)(28.7)
Receipt from investments
- 0.6
Advances to joint ventures - (1.5)
Proceeds from sale of businesses - 7.2
Payments for businesses acquired(52.6)(1.1)
Net cash used in investing activities(123.4)(123.5)
Cash flows from financing activities
Group on-market share buy-back - (6.4)
Proceeds from borrowings - 168.9
Repayments of borrowings(32.8)(44.8)
Dividends paid(55.3)(56.7)
Net cash (used in) / inflow from financing activities(88.1)61.0
Net increase in cash and cash equivalents32.1 115.6
Cash and cash equivalents at the beginning of the period569.4 372.2
Effect of exchange rate changes0.6 1.7
Cash and cash equivalents at the end of the period602.1 489.5
The condensed consolidated statement of cash flows should be read in conjunction with the accompanying notes
on pages 24 to 38.
Page 23 of 39
Notes to the condensed consolidated financial report
for the half-year ended 31 December 2016
About this report
Statement of compliance and basis of preparation
Rounding of amounts
Accounting estimates and judgements
Business performance
B1. Segment informationB3. Earnings per share
B2. Profit from ordinary activitiesB4. Subsequent events
B1. Segment information
- Transport Services
- Technology and Communication Services (Tech & Comms Services)
- Utilities Services
-Rail
- Engineering, Construction and Maintenance (EC&M)
- Mining
There have been no changes to the composition of the Group's reportable segments since last reported in the 2016
Annual Report.
The reportable segments identified within the Group are outlined below:
An operating segment is a component of an entity that engages in business activities from which it may earn
revenue and incur expenses. The operating segments havebeen identified based on the nature of the service
provided and the internal reports that are reviewed regularly by the Group CEO in assessing performance and in
determinin
g the allocation of resources.
A
B
These condensed consolidated half-yearFinancial Report (Financial Report) represent the consolidated results of
Downer EDI Limited (ABN 97 003 872 848). The Financial Report is general purpose financial statements which has
been prepared in accordance with AASB 134Interim Financial Reportingand theCorporations Act 2001(Cth), and
with IAS 34 Interim Financial Reporting.
The Financial Report does not include all the information required for an annual financial report and should be read
in con
junction with the 2016 Annual Report.
Accounting policies are selected and applied in a manner thatensures the resulting financial information satisfies
the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other
events is reported. The accounting policies and methods of computation applied in the Financial Report are
consistent with those adopted and disclosed in the 2016 Annual Report. Amounts in the Financial Report are
presented in Australian dollars unless otherwise notedand has been prepared on a historical cost basis, except for
r
evaluation of certain financial instruments.
The Financial Report was authorised for issue by the Directors on 2 February 2017.
Downer is a company of the kind referred to inASIC Corporations (Rounding in Financial / Directors’ reports)
Instrument 2016/191, relating to the “rounding off” of amounts in the Directors' Report and consolidated financial
statements. Unless otherwise expressly stated, amounts have been rounded off to the nearest whole number of
millions of dollars and one place of decimals representing hundreds of thousands of dollars in accordance with that
Instrument. Amounts shown as $- re
present amounts less than $50,000 which have been rounded down.
Significant judgement, estimates and assumptions about future events are made by management when applying
accounting policies and preparing theFinancial Report which are consistent with those described in the 2016 Annual
Report.
Page 24 of 39
Notes to the condensed consolidated financial report - continued
for the half-year ended 31 December 2016
B1. Segment information - continued
B1-01B1-02B1-03B1-06B1-04B1-05
B1-07
Tech &
31 Dec 2016TransportCommsUtilities
$'mServicesServices ServicesRailEC&MMining Total
Revenue
885.5 245.9 442.3 202.0 951.6 612.2
5.2
3,344.7
Inter-segment sales
- - - - - -
(10.1)(10.1)
Total segment revenue
885.5 245.9 442.3 202.0 951.6 612.2 (4.9) 3,334.6
25.7 - - 197.7 21.8 23.2 - 268.4
911.2 245.9 442.3 399.7 973.4 635.4 (4.9) 3,603.0
41.4 21.7 20.8 14.0 27.1 44.4
(48.6)
120.8
Tech &
31 Dec 2015TransportCommsUtilities
$'mServicesServices ServicesRailEC&MMining
Total
Revenue771.8 249.9 376.5 211.5 912.1 758.2 9.7
3,289.7
Inter-segment sales - - - - - - (25.1)
(25.1)
Total segment revenue 771.8 249.9 376.5
211.5 912.1 758.2 (15.4) 3,264.6
31.1 - - 208.6 15.7 23.4 -
278.8
802.9 249.9 376.5 420.1 927.8 781.6 (15.4) 3,543.4
31.6 14.1 22.8 4.5 20.6 67.7 (48.1)
113.2
Reconciliation of segment net operating profit to net profit after tax:
31 Dec
31 Dec
2016
2015
$'m
$'m
Segment net operating profit169.4 161.3
Unallocated:
Research and development incentives4.2 5.0
Bid costs referable to New Intercity Fleet rail project
(i)
(10.0)
-
Bid costs referable to Canberra light rail project
(ii)
-
(13.0)
Settlement of contractual claims(5.0) -
Corporate costs(37.8)(40.1)
Total unallocated (48.6)(48.1)
Earnings before interest and tax120.8 113.2
Net finance costs(13.7)(15.8)
Profit before income tax107.1 97.4
Income tax expense(28.9)(25.3)
Profit after income tax78.2 72.1
(i)
This is a non-statutory disclosure as it relates to Downer's share of revenue from equity accounted joint ventures and associates.
(ii)
Downer was a member of the ACTivate consortium. On 1 February 2016, the consortium was advised that it had
not been successful in its bid to build, operate and maintain Canberra's new light rail project ("Capital Metro").
Accordingly, an amount of $13.0 million, referable to Downer's share of pre-tax bid costs, has been expensed.
(i)
Downer was a member of the Constellation Rail consortium. On 18 August 2016, the consortium was advised that it
had not been successful in its bid to deliver and maintain the New Intercity Fleet (NIF) for Transport for NSW.
Accordingly, an amount of $10.0 million, referable to Downer's share of pre-tax bid costs, has been expensed.
Share of sales revenue from joint
ventures and associates
(i)
Total revenue including joint
ventures and other income
(i)
Total revenue including joint
ventures and other income
(i)
Segment results
Total reported segment results
(EBIT)
Total reported segment results
(EBIT)
Un-
allocated
Un-
allocated
Share of sales revenue from joint
ventures and associates
(i)
Page 25 of 39
Notes to the condensed consolidated financial report - continued
for the half-year ended 31 December 2016
B2. Profit from ordinary activities
a) Revenue and other income
31 Dec
31 Dec
2016
2015
$'m
$'m
Sales revenue
Rendering of services2,137.3 1,955.9
Mining services598.0 739.4
Construction contracts482.1 449.0
Sale of goods104.8 98.1
Other revenue11.4 19.6
Total revenue from ordinary activities3,333.6 3,262.0
Other income1.0 2.6
Total revenue and other income3,334.6 3,264.6
Share of sales revenue from joint ventures and associates
(i)
268.4 278.8
Total revenue including joint ventures and associates and other income
(i)
3,603.0 3,543.4
b) Operating expenses
31 Dec
31 Dec
2016
2015
$'m
$'m
Employee benefits expense:
- Defined contribution plans
73.9 69.6
- Share-based employee benefits expense
1.2 2.4
- Employee benefits1,303.8 1,269.2
Total employee benefits expense
1,378.9 1,341.2
Operating lease expenses relating to land and building33.6 34.2
Operating lease expenses relating to plant and equipment45.5 49.4
Total operating lease expenses79.1 83.6
- 2.3
c) Individually significant items
31 Dec
31 Dec
2016
2015
$'m
$'m
- Bid costs referable to New Intercity Fleet rail project
(i)
10.0 -
- Bid costs referable to Canberra light rail project
(ii)
- 13.0
(i)
This is a non-statutory disclosure as it relates to Downer's share of revenue from equity accounted joint ventures and associates.
Net loss on disposal of business
The following material items are relevant to an understanding of the Group's
financial
performance:
(i)
Downer was a member of the Constellation Rail consortium. On 18 August 2016, the consortium was advised
that it had not been successful in its bid to deliver and maintain the New Intercity Fleet (NIF) for Transport for NSW.
Accordingly, an amount of $10.0 million, referable to Downer's share of pre-tax bid costs, has been expensed.
(ii)
Downer was a member of the ACTivate consortium. On 1February 2016, the consortium was advised that it had
not been successful in its bid to build, operate and maintain Canberra's new light rail project ("Capital Metro").
Accordingly, an amount of $13.0 million, referable to Downer's share of pre-tax bid costs, has been expensed.
Page 26 of 39
Notes to the condensed consolidated financial report - continued
for the half-year ended 31 December 2016
B3. Earnings per share
Basic earnings per share
31 Dec31 Dec
2016
2015
Profit attributable to members of the parent entity ($'m)78.2 72.1
Adjustment to reflect ROADS dividends paid ($'m)(4.3)(4.8)
73.9 67.3
Weighted average number of ordinary shares (WANOS) on issue (m's)
(i)
420.5 427.1
Basic earnings per share (cents per share)17.6 15.8
Diluted earnings per share
31 Dec31 Dec
2016
2015
78.2 72.1
Weighted average number of ordinary shares - diluted
Weighted average number of ordinary shares (WANOS) on issue (m's)
(i)(ii)
420.5 427.8
WANOS adjustment to reflect potential dilution for ROADS (m's)
(iii)
37.7 50.9
WANOS used in the calculation of diluted EPS (m's)458.2 478.7
Diluted earnings per share (cents per share)17.1 15.1
(i)
(ii)
(iii)
B4. Subsequent events
a)
b)
c)
The Group's operations in future financial years;
The results of those operations in future financial years; or
The Group's state of affairs in future financial years.
At the date of this report there is no matter or circumstance that has arisen since the end of the period, that has
significantly affected, or may significantly affect:
Profit attributable to members of the parent entity ($'m)
The calculation of basic earnings pershare (EPS) is based on the profit attributable to ordinary shareholders and
the weighted-average number of ordinary shares outstanding.
The calculation of diluted EPS is based on the profit attributable to ordinary shareholders and the weighted-average
number of ordinary shares outstanding after adjustments for the effects of all dilutive potential ordinary shares.
Profit attributable to members of the parent entity used in calculating EPS ($'m)
The WANOS on issue has been adjusted by the weighted average effect of on-market share buy-back and the unvested
executive incentive shares.
For diluted earnings per share, the WANOS has been further adjusted by the potential vesting of executive incentive shares.
The WANOS adjustment is the value of ROADS that could potentially be converted into ordinary shares at the reporting
date. It is calculated based on the issued value of ROADS in New Zealand dollars converted to Australian dollars at the spot
rate prevailing at the reporting date, which was $192.4 million (Dec 2015: $187.5 million), divided by the average market
price of the Company's ordinary shares for the period 1 July 2016 to 31 December 2016 discounted by 2.5% according to the
ROADS contract terms, which was $5.10 (Dec 2015: $3.68).
Page 27 of 39
Notes to the condensed consolidated financial report - continued
for the half-year ended 31 December 2016
Capital structure and financing
C1. BorrowingsC3. Issued capital
C2. Financing facilitiesC4. Dividends
C1. Borrowings
Dec
Jun
2016
2016
$'m
$'m
Current
Secured:
-Finance lease liabilities 17.5 13.1
-Hire purchase liabilities 0.5 0.5
-Supplier finance - 5.8
18.0 19.4
Unsecured:
-Bank loans 5.5 15.1
-AUD medium term notes (series 2009-1)13.3 13.3
-Deferred finance charges(2.3)(2.3)
16.5 26.1
Total current borrowings34.5 45.5
Non-current
Secured:
-Finance lease liabilities 3.0 13.9
-Hire purchase liabilities 0.3 0.6
3.3 14.5
Unsecured:
-Bank loans 4.8 8.6
-USD notes147.9 144.1
-AUD notes 30.0 30.0
-AUD medium term notes (series 2009-1)6.7 13.3
-AUD medium term notes (series 2013-1)150.0 150.0
-AUD medium term notes (series 2015-1)250.0 250.0
-Deferred finance charges(4.9)(6.0)
584.5 590.0
Total non-current borrowings587.8 604.5
Total borrowings622.3 650.0
C
Page 28 of 39
Notes to the condensed consolidated financial report - continued
for the half-year ended 31 December 2016
C2. Financing facilities
Financing facilities
Dec
Jun
2016
2016
$'m
$'m
Syndicated bank loan facility400.0 400.0
Bilateral bank loan facilities85.0 125.0
Total unutilised bank loan facilities485.0 525.0
Syndicated bank bonding facilit
y210.0 -
Bilateral bank and insurance company bonding facilities613.6 614.5
Total unutilised bonding facilities823.6 614.5
Bank loans
Syndicated loan facility
-
-
Bilateral bank loans
USD notes
AUD notes
AUD Medium Term Notes (MTNs)
The Group has the following MTNs on issue:
-
-
-
The above facilities and notes are subject to certain Group guarantees.
Finance lease / Hire purchase / Supplier finance facilities
Series 2015-1 for $250.0 million, which matures in March 2022.
The Group has certain secured facilities of these types which are for an aggregate amount of $21.3 million and which
amortise over different
periods of up to three years.
At 31 December 2016, the Group had the following facilities that were not utilised:
The s
yndicated loan facility, totalling $400.0 million, is unsecured and is split into two tranches:
USD unsecured private placement notes are on issue for a total amount of US$107.0 million. US$7.0 million notes
mature in September 2019 and US$100.0 million in July 2025. The USD denominated principal and interest amounts
have been full
y hedged against the Australian dollar.
AUD unsecured private placement notes are on issue for a total amount of $30.0 million with a maturity date of July
2025.
Series 2009-1 amortises through even semi-annual instalments, until the final maturity date of April 2018 and has
a balance of $20.0 million;
Series 2013-1 for $150.0 million
, which matures in November 2018; and
These facilities are unsecured and due for renewal in multiple tranches in calendar years 2017 and 2018 apart from
$10.3 million loan which is supported by an Export Credit Agency (ECA) guarantee, which amortises through even
semi-annual instalments with a final maturit
y date of July 2018.
$200.0 million maturin
g in April 2019; and
$200.0 million maturin
g in April 2021.
Page 29 of 39
Notes to the condensed consolidated financial report - continued
for the half-year ended 31 December 2016
C2. Financing facilities - continued
Covenants on financing facilities
Bonding
Refinancing requirements
Credit ratings
$805.5 million (refer to Note D5) of these facilities were utilised as at 31 December 2016 with $823.6 million
unutilised. $613.6 million of these facilities have varying maturity dates between calendar years 2017 and 2018. The
remaining $210.0 million relates to a syndicated bonding facility referable to the Sydney Growth Trains project with a
maturity date of December 2019.
Certain of the Group's financing facilities contain undertakings to comply at all times with financial covenants. This
requires the Group to operate within certain financial ratios as well as ensuring that subsidiaries that contribute
certain minimum threshold amounts of Group EBIT andGroup Total Tangible Assets are guarantors under various
facilities.
The Group currently has an Investment Grade credit rating of BBB (Outlook Stable) from Fitch Ratings. Where the
credit rating is reduced or placed on negative outlook, customers and suppliers may be less willing to contract with
the Group. Furthermore, banks and other lending institutions may demand more stringent terms (including increased
pricing, reduced tenors and lower facility limits) on debt and bonding facilities to reflect the deteriorating credit risk
profile.
The underlying risk being assumed by the relevant financier under all bonds is Downer corporate credit risk, rather
than
project specific risk.
Where existing facilities approach maturity, the Group will negotiate with existing and new financiers to extend the
maturity date of these facilities. The Group’s financial metrics and credit rating as well as conditions in financial
markets and other factors may influence the outcome of these negotiations.
The Group has the flexibility in respect of certain committed facility amounts (shown as part of the unutilised bilateral
bank loan facilities
) which can, at the election of the Group, be utilised for bonding purposes.
The main financial covenants which the Group is subject to areNet Worth, Interest Service Coverage (calculated as
rollin
g 12 month EBIT to Net Interest Expense) and Leverage (calculated as Net Debt to Total Capitalisation).
Financial covenant testing is undertaken and reported to the Board on a monthly basis. Reporting of financial
covenants to financiers occurs semi-annually for the rolling 12 month periods to 30 June and 31 December. The
Grou
p was in compliance with all its financial covenants as at 31 December 2016.
The Group has $1,629.1 million of unsecured bank guarantee and insurance bond facilities to support its contracting
activities. $768.0 million of these facilities are provided to the Group on a committed basis and $861.1 million on an
uncommitted basis. These facilities are sub
ject to certain Group guarantees.
Page 30 of 39
Notes to the condensed consolidated financial report - continued
for the half-year ended 31 December 2016
C3. Issued capital
Dec
Jun
2016
2016
$'m
$'m
Ordinary shares
424,785,204 ordinary shares (Jun 2016: 424,785,204)1,270.2 1,270.2
Unvested executive incentive shares
4,257,373 ordinary shares (Jun 2016: 4,453,456)(20.0)(21.0)
Redeemable Optionally Adjustable Distributing Securities (ROADS)
200,000,000 ROADS (Jun 2016: 200,000,000)178.6 178.6
1,428.8 1,427.8
Fully paid ordinary share capital
Fully paid ordinary shares carry one vote per share and carry the right to dividends.
m's $'m
m's $'m
Fully paid ordinary share capital
Balance at the beginning of the financial period / year424.8 1,270.2 432.7 1,296.7
Group on-market share buy-back - - (7.9)(26.5)
Balance at the end of the financial period / year424.8 1,270.2 424.8 1,270.2
Unvested executive incentive shares
Balance at the beginning of the financial period / year4.5 (21.0)5.3 (26.2)
Vested executive incentive shares transactions
(i)
(0.2)1.0 (0.8)5.2
Balance at the end of the financial period / year4.3 (20.0)4.5 (21.0)
Redeemable Optionally Adjustable Distributing
Securities (ROADS)
m's $'m
m's $'m
200.0 178.6 200.0 178.6
Jun
Dec
Jun
Unvested executive incentive shares are stock marketpurchases and are held by theExecutive Employee Share
Plan Trust under the Long Term Incentive (LTI) plan.From the 2011 LTI plan onwards, no dividends will be
distributed on shares held in trust during the performance measurement and service periods. Accumulated dividends
will be paid out to executives after all vesting conditionshave been met. Otherwise, excess net dividends are retained
in the trust to be used by the Company to acquire additional shares on the market for employee equity plans.
2016
Balance at the beginning and at the end of the
financial
period / year
2016
2016
Dec
2016
(i)
Represents 196,083 vested shares for a value of $955,174, referable to the second deferred component of the 2014 STI award and first deferred
component of the 2015 STI. June 2016 figures referable to the first deferred component of the 2014 STI award totalling 842,537 vested shares for a
value of $5,155,989.
Page 31 of 39
Notes to the condensed consolidated financial report - continued
for the half-year ended 31 December 2016
C4. Dividends
a) Ordinary shares
2017
Interim
2016
Final
2016
Interim
Dividend per share (in Australian cents)12.0 12.012.0
Franking percentage100%100%100%
Cost (in $'m)51.0 51.0 51.7
Dividend record date16/02/201718/08/2016 18/02/2016
Payment date16/03/201715/09/2016 17/03/2016
b) Redeemable Optionally Adjustable Distributing Securities (ROADS)
2017Quarter 1Quarter 2Total
Dividend per ROADS (in Australian cents)1.08 1.09 2.17
100%100%100%
Cost (in A$'m)2.1 2.2 4.3
Payment date15/09/2016 15/12/2016
2016Quarter 1Quarter 2Quarter 3Quarter 4Total
Dividend per ROADS (in Australian cents)1.18 1.22 1.17 1.24 4.81
100%100%100%100%100%
Cost (in A$'m)2.4 2.4 2.3 2.5 9.6
Payment date15/09/2015 15/12/2015 15/03/2016 15/06/2016
New Zealand imputation credit percentage
New Zealand imputation credit percentage
The 2017 interim dividend has not been declared at the reporting date and therefore is not reflected in the financial
statements.
Page 32 of 39
Notes to the condensed consolidated financial report - continued
for the half-year ended 31 December 2016
Other disclosures
D1. Property, plant and equipmentD4. Acquisition and disposal of businesses
D2. Intangible assetsD5. Contingent liabilities
D3. Joint arrangements and associate entities
D1. Property, plant and equipment
Freehold
Land and
Buildings
Plant and
Equipment
Equipment
under
Finance
LeaseTotal
Carrying amount as at 1 July 2016
68.5 859.9 59.9 988.3
Additions
- 86.3 4.3 90.6
Disposals at net book value
- (14.2)(0.8)(15.0)
Acquisition of businesses
- 16.3 - 16.3
Depreciation expense
(2.4)(82.0)(6.9)(91.3)
Reclassifications at net book value
0.6 2.7 (3.3) -
Reclassified as intangible assets
(i)
- (3.0) - (3.0)
0.1 2.1 (0.3)1.9
Closing net book value as at 31 December 2016
66.8 868.1 52.9 987.8
Cost96.2 2,121.4 105.1 2,322.7
Accumulated depreciation(29.4)(1,253.3)(52.2)(1,334.9)
Carrying amount as at 1 July 2015
59.1 895.1 82.9 1,037.1
Additions
13.6 168.8 14.0 196.4
Disposals at net book value
- (16.8)(0.5)(17.3)
Acquisition of business
- 1.7 - 1.7
Disposals of business at net book value
- (0.6) - (0.6)
Depreciation expense
(4.7)(217.7)(12.1)(234.5)
Reclassifications at net book value
- 24.4 (24.4) -
Reclassified as intangible assets
(i)
- (1.2) - (1.2)
0.5 6.2 - 6.7
Closing net book value as at 30 June 2016
68.5 859.9 59.9 988.3
Cost95.5 2,143.3 109.8 2,348.6
Accumulated depreciation(27.0)(1,283.4)(49.9)(1,360.3)
Net foreign currency exchange differences at net
book value
(i)
Refers to the reclassification of software from Capital Work In Progress to Intangible Assets.
Jun 2016
Net foreign currency exchange differences at net
book value
D
Dec 2016
$'m
Page 33 of 39
Notes to the condensed consolidated financial report - continued
for the half-year ended 31 December 2016
D2. Intangible assets
Goodwill
Customer
contracts and
relationships
Intellectual
property,
software and
system
developmentTotal
Carrying amount as at 1 July 2016
805.3 37.1 127.5 969.9
Additions
- - 16.4 16.4
Acquisition of businesses
56.6 - - 56.6
Reclassifications at net book value
(i)
- - 3.0 3.0
Amortisation expense
- (3.4)(10.3)(13.7)
0.3 - - 0.3
Closing net book value as at 31 December 2016
862.2 33.7 136.6 1,032.5
Cost
938.2 50.1 271.5 1,259.8
Accumulated amortisation and impairment
(76.0)(16.4)(134.9)(227.3)
Carrying amount as at 1 July 2015
781.7 43.5 93.8 919.0
Additions
- - 49.1 49.1
Acquisition of business
20.5 - - 20.5
Reclassifications at net book value
(i)
- - 1.2 1.2
Amortisation expense
- (6.4)(17.8)(24.2)
3.1 - 1.2 4.3
Closin
g net book value as at 30 June 2016
805.3 37.1 127.5 969.9
Cost
881.3 50.1 255.3 1,186.7
Accumulated amortisation and impairment
(76.0)(13.0)(127.8)(216.8)
Net foreign currency exchange differences at net
book value
(i)
Refers to the reclassification of software from Capital Work In Progress to Intangible Assets.
Net foreign currency exchange differences at net
book value
Dec 2016
$'m
Jun 2016
Page 34 of 39
Notes to the condensed consolidated financial report - continued
for the half-year ended 31 December 2016
D3. Joint arrangements and associate entities
Name of arrangement
Country of
operation
31 Dec 2016
%
31 Dec 2015
%
Allied Asphalt LimitedNew Zealand
50
50
Australia
50
50
Australia
50
50
Australia
50
50
New Zealand
50
50
Isaac Asphalt Limited New Zealand
50
50
RTL Mining and Earthworks Pty Ltd Australia
44
44
VEC Shaw Joint VentureAustralia
50
50
Associates
Australia
27
27
Australia
49
49
Australia
49
49
(i)
Joint ventures
There are no material commitments held by joint ventures or associates.
Bitumen Importers Australia Joint
Venture
Bitumen Importers Australia Pt
y Ltd
EDI Rail-Bombardier
Trans
portation Pty Ltd
Emulco Limited
MHPS Plant Services Pty Ltd
Reliance Rail Pty Ltd
(i)
Downer previously wrote down its investment in Reliance Rail Pty Ltd to nil. The New South Wales Government has the right in
February 2018 to acquire Downer's ownership of Reliance Rail Pty Ltd for nil consideration. As a consequence, Downer does
not include Reliance Rail Pty Ltd in its equity accounted disclosure.
Keolis Downer Pty Ltd
Construction of bitumen
stora
ge facility
Bitumen importer
Road construction
Sale and maintenance of
railwa
y rolling stock
Emulsion plant
Principal activity
Operation and maintenance of
Gold Coast light rail, Melbourne
tram network and bus
operation
Ownership interest
Manufacture and supply of
as
phalt
Contract mining; civil works
and
plant hire
Refurbishment, construction
and maintenance of boilers
Rail manufacturing and
maintenance
All joint ventures and associates have a statutory reporting date of 30 June, with the exception of MHPS Plant
Services Pty Ltd which has a statutory reporting date of 31 March.
The Group has interests in the following joint ventures and associates which are equity accounted:
Asphalt plant
Page 35 of 39
Notes to the condensed consolidated financial report - continued
for the half-year ended 31 December 2016
D4. Acquisition and disposal of businesses
Acquisitions
RPQ Group
Dec 2015
The goodwill resulting from this acquisition represents future market development, expected revenue growth
opportunities, technical talent and expertise, and the benefit of expected synergies. These benefits are not
recognised separately from goodwill because they do not meetthe recognition criteria for identifiable intangible
assets. None of the goodwill arising on this acquisition is expected to be deductible for tax purposes.
The Group has reported provisional purchase price allocation for the RPQ acquisition. The final determination of the
fair value of acquired identifiable assets and liabilities is expected to be completed by 30 June 2017.
On 1 October 2016, the Group acquired 100% of RPQ Group (RPQ) for a gross consideration of $55.0 million which
includes cash consideration of $47.5 million and $7.5 million deferred consideration. The principal activities of RPQ
include the supply of asphalt, bitumen spray sealing, road milling and profiling, road maintenance, foam bitumen
stabilisation, mobile asphalt production, mobile crushing and equipment hire. The RPQ acquisition increases the
Group's capabilities in the Roading business.
Dec 2016
On 18 December 2015, the Group acquired 100% of Green Vision Recycling Limited for $0.9 million. Green Vision is
a New Zealand company specialised in recycling horizontal infrastructure (roads, footpath, kerbs and soil).
AGIS
On 1 July 2016, the Group acquired 100% of AGIS Group Pty Limited (AGIS) and its subsidiaries. AGIS provides
project management, systems engineering and integration, and capability development advice to a range of
government agencies including the Department of Defence,Australian Defence Force and Department of Foreign
Affairs and Trade.
Total cash outflow for this acquisition was $6.0 million, which comprises a consideration of $17.3 million, net of $1.3
million cash balances acquired and $10.0 million deferred consideration. The goodwill resulting from this acquisition
represents future market development, expected revenue growth, technical talent and expertise and the benefit of
expected synergies. These benefits are not recognised separately from goodwill because they do not meet the
criteria for identifiable intangible assets. None of the goodwillarising on this acquisitionis expected to be deductible
for tax purposes.
The Group has reported provisional purchase price allocation for the AGIS acquisition. The final determination of the
fair value of acquired identifiable assets and liabilities is expected to be completed by 30 June 2017.
Page 36 of 39
Notes to the condensed consolidated financial report - continued
for the half-year ended 31 December 2016
D4. Acquisition and disposal of businesses - continued
Disposals
The Group did not dispose any business during the period ended 31 December 2016.
D5. Contingent liabilities
Dec
Jun
2016
2016
$'m
$'m
Bonding
805.5722.0
Other contingent liabilities
i)
ii)
iii)
iv)
v)
The Group is subject to product liability claims. Provision is made for the potential costs of carrying out
rectification works based on known claims and previous claims history. However, as the ultimate outcome of
these claims cannot be reliably determined at the date of this report, contingent liability may exist for any amounts
that ultimately becomes payable in excess of current provisioning levels.
The Group is subject to design liability in relation to completed design and construction projects. The Directors
are of the opinion that there is adequate insurance to cover this area and accordingly, no amounts are recognised
in the financial statements.
Controlled entities have entered into various joint arrangements under which the controlled entity is jointly and
severally liable for the obligations of the relevant joint arrangements.
The Group carries the normal contractor’s and consultant’s liability in relation to services, supply and construction
contracts (for example, liability relating to professional advice, design, completion, workmanship, and damage),
as well as liability for personal injury/property damage during the course of a project. Potential liability may arise
from claims, disputes and/or litigation/arbitration by or against Group companies and/or joint venture
arrangements in which the Group has an interest. The Group is currently managing a number of claims,
arbitration and litigation processes in relation to services, supply and construction contracts as well as in relation
to personal injury and property damage claims arising from project delivery.
Several New Zealand entities in the Group have been named as co-defendants in four “leaky building” claims.
The leaky building claims where Group entities are co-defendants generally relate to water damage arising from
design and construction methodologies (and certification) for residential and other buildings that were common in
New Zealand during the early-mid 2000s. The Directors are of the opinion that disclosure of any further
information relating to the leaky building claims would be prejudicial to the interests of the Group.
Dec 2015
On 31 August 2015, the Group sold the Rimtec business to Rimex Wheel Pty Ltd for a total consideration of $7.2
million. The Grou
p has incurred $2.3 million loss as a result of this transaction.
The Group is required under certain contracts to provideguarantees and indemnities to counterparties relating to
contract performance for varying amounts, some of which are indeterminable.
The Group has bank guarantees and insurance bonds on issue in
respect of contract performance in the normal course of business
Dec 2016
Page 37 of 39
Notes to the condensed consolidated financial report - continued
for the half-year ended 31 December 2016
D5. Contingent Liabilities - continued
vi)
vii)
viii)
ix)
Ground subsidence at the Waratah Train Maintenance Centre located on Manchester Road, Auburn (‘AMC’) has
been identified. The design and construction of the AMC formed part of the Waratah Train Project, with Reliance
Rail contracting Downer to design and build the AMC. In turn, Downer subcontracted this work to John Holland
Pty Ltd. The design and construction of the areas inwhich subsidence has been observed formed part of the
subcontractor’s design and construct obligations. Investigations into the causes of the subsidence continue with
an estimated remediation cost in the order of $70 million. While it is too early to reliably estimate the total cost of
the remediation, in the opinion of the Directors there is no material exposure to either Downer EDI Rail Pty
Limited or Downer EDI PPP Maintenance Pty Limited arising from the subsidence, based on the fact that there
are a range of recovery options being pursued.
On 16 September 2015, the Group announced that it had terminated a contract with Tecnicas Reunidas S.A.
(“TR”) following TR’s failure to remedy a substantial breach of the contract and that the Group would be pursuing
a claim against TR in the order of $65 million. Downer has since demobilised from the site and has commenced a
claim that will be determined via an arbitration process, with a hearing date scheduled for June 2018. TR has
initiated a counter-claim. The Directors are of the opinion that disclosure of any further information relating to this
matter would be prejudicial to the interests of the Group.
The Group is defending a claim brought by Port Waratah Coal Services Limited and a cross claim by another
defendant, Menard Bachy Pty Ltd in respect of alleged non-conforming excavation and civil work performed at
Kooragang Island Coal Terminal by Downer and its joint venture partner, Daracon Contractors Pty Ltd. The value
of the claim against all defendants (Downer is one of five defendants) is $39 million. The Directors are of the
opinion that disclosure of any further information relating to this matter would be prejudicial to the interests of the
Group.
Under the terms of the agreement reached between the New South Wales Government and Reliance Rail, the
Group has a contingent commitment to pay Reliance Rail $12.5 million in 2018 should it be required to refinance
Reliance Rail's senior debt.
Page 38 of 39
Directors' Declaration
for the half-year ended 31 December 2016
In the opinion of the Directors' of Downer EDI Limited:
(a)
(i)
(ii)
(b)
On behalf of the Directors
R M Harding
Chairman
Sydney, 2 February 2017
the condensed consolidated half-year Financial Report and notes set out on pages 20to38, arein
accordance with the Corporations Act 2001 (Cth), including:
givinga true andfairviewof the Group's financial position as at 31 December 2016 and ofits
performance for the six month period ended on that date; and
complyingwithAustralian Accounting StandardAASB134Interim Financial Reportingand the
Corporations Regulations 2001; and
there are reasonable groundstobelieve that the Companywillbe abletopayitsdebts as and when they
become due and payable.
Signed in accordance with a resolution of the Directors:
Page 39 of 39
Media/ ASX and NZX Release
2 February 2017
DOWNER REPORTS NET PROFIT AFTER TAX OF $78.2 MILLION
AND INCREASES FULL YEAR GUIDANCE
Downer EDI Limited (Downer) today announced its financial results for the six months to
31 December 2016:
Net profit after tax (NPAT) of $78.2 million, up 8.5% on the previous corresponding period;
Total revenue of $3.6 billion, up 1.7%;
Earnings before interest and tax (EBIT) of $120.8 million, up 6.7%;
Operating cash flow of $243.6 million, representing cash conversion of 102.6% of earnings
before interest, tax, depreciation and amortisation (EBITDA);
Gearing of 1.0% (6.4% including off-balance sheet debt);
Work-in-hand of $21.1 billion, up from $18.6 billion at 30 June 2016; and
Full year NPAT guidance increased from $163 million to around $175 million.
The result includes the write-off of $10 million in pre-tax bid costs as announced on 18 August
2016.
The Chief Executive Officer of Downer, Grant Fenn, said he was very pleased with the first half
result which featured strong performances from all of the businesses and a number of significant
contract wins.
“We continue to reposition our business successfully to service increased investment and
outsourcing in sectors including Roads and Rail, Public Transport, Utilities, Communications and
Defence,” Mr Fenn said.
“Our cash flow result, and our cash conversion of 102.6% of EBITDA, was again outstanding and
our net debt is just $22.2 million with gearing of 1%, or 6.4% including off-balance sheet debt.
“Work-in-hand has increased over 13% during the half to $21.1 billion with major contracts wins in
both Australia and New Zealand including High Capacity Metro Trains in Victoria and Sydney
Growth Trains in New South Wales.
“Overall it has been a very strong operational and financial performance and we are increasing our
guidance for full year NPAT to around $175 million, up from $163 million.”
Downer EDI Limited
ABN 97 003 872 848
Triniti Business Campus
39 Delhi Road
North Ryde NSW 2113
1800 DOWNER
www.downergroup.com
Page 1 of 2
Downer reports its financial results under six service lines and the performance of each service
line, compared with the previous corresponding period, is summarised below:
Transport Services Technology and Communications Services
Total revenue of $911.2 million, up 13.5% Total revenue of $245.9 million, down 1.6%
EBIT of $41.4 million, up 31.0% EBIT of $21.7 million, up 53.9%
Work-in-hand of $5.3 billion Work-in-hand of $1.6 billion
Utilities Services Rail
Total revenue of $442.3 million, up 17.5% Total revenue of $399.7 million, down 4.9%
EBIT of $20.8 million, down 8.8% EBIT of $14.0 million, up 211.1%
Work-in-hand of $3.5 billion Work-in-hand of $7.2 billion
Engineering, Construction and Maintenance Mining
Total revenue of $973.4 million, up 4.9% Total revenue of $635.4 million, down 18.7%
EBIT of $27.1 million, up 31.6% EBIT of $44.4 million, down 34.4%
Work-in-hand of $1.5 billion Work-in-hand of $2.0 billion
Zero Harm
Downer’s Lost Time Injury Frequency Rate of 0.55 remained below one incident per million hours
worked. Total Recordable Injury Frequency Rate reduced from 3.67 to 3.61 per million hours
worked.
Dividend
The Downer Board resolved to pay a fully franked interim dividend of 12.0 cents per share (12.0
cents per share in the prior corresponding period), payable on 16 March 2017 to shareholders on
the register at 16 February 2017. The company’s Dividend Reinvestment Plan (DRP) remains
suspended and will not operate for this dividend.
Outlook
Downer is targeting NPAT of around $175 million for the 2017 financial year.
For further information please contact:
Michael Sharp, Group Head of Corporate Affairs and Investor Relations +61 439 470145
Downer EDI Limited (Downer) is a leading provider of services to customers in markets including: Transport
Services; Technology and Communications Services; Utilities Services; Rail; Engineering, Construction &
Maintenance and Mining. We build strong relationships of trust with our customers, truly understanding and
predicting their needs and bringing them world leading insights and solutions. Downer employs about 19,000
people across more than 200 sites and projects, mostly in Australia and New Zealand, but also in the Asia-
Pacific region, South America and Southern Africa. For more on Downer, visit:
www.downergroup.com
Page 2 of 2
DOWNER HALF YEAR RESULTS
Investor presentation | 2 February 2017
OVERVIEW
Total revenue
1
$3,603.0 million, up 1.7%
Work in hand
2
$21.1 billion,
up from $18.6 billion at 30 June 2016
1 Total revenue is a non-statutory disclosure and includes revenue from joint ventures and other
alliances and other income.
2Work-in-hand numbers are unaudited.
3Adjusted for the mark-to-market of derivatives and deferred finance charges.
4 Gearing = Net debt / net debt + equity. Gearing including off-balance sheet debt based on present
value of plant and equipment operating leases discounted at 10% pa: $122.5m (June 2016: $128.5m).
5Lost Time Injury Frequency Rate - the number of lost time injuries (LTIs) per million hours worked.
6Total Recordable Injury Frequency Rate – the number of LTIs and medically treated injuries per million
hours worked.
Net Profit After Tax (NPAT) $78.2 million,
up 8.5%
Earnings Before Interest and Tax (EBIT) $120.8 million,
up 6.7%
Operating cash flow $243.6 million,
EBITDA conversion 102.6%
Net debt
3
$22.2 million,
down from $87.4 million at 30 June 2016
Interim dividend declared: 12.0 cps,
100% franked no Dividend Reinvestment Plan
LTIFR
5
of 0.55, down from 0.84 at 31 December 2015
TRIFR
6
of 3.61, down from 3.67 at 31 December 2015
Return on Funds Employed (ROFE) 13.0%,
up from 12.5%
Gearing
4
1.0%, (6.4% including off-balance sheet debt)
2
Full year NPAT outlook increased from $163
million to around $175 million
TRANSPORT SERVICES
OPPORTUNITIES
1Total revenue includes joint ventures and other income.
2ROFE = EBIT divided by average funds employed (AFE). AFE = Average Opening and Closing Net Debt + Equity.
Total revenue
1
$m EBIT margin EBIT $m ROFE
2
41.4
31.6
0
10
20
30
40
50
HY17HY16
4.5%
3.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
HY17HY16
21.0%
16.1%
0%
5%
10%
15%
20%
25%
HY17HY16
911.2
802.9
0
200
400
600
800
1,000
HY17HY16
3
Revenue increase of 13% driven by new projects, road maintenance and RPQ acquisition
Continuing strong performance for customers on existing contracts
Contribution from new projects including Newcastle Light Rail, NSW Transport Access Program
Acquisition of RPQ provides further geographical presence and capability mix
Numerous contract wins in Australia and New Zealand
Performance in the previous corresponding period affected by inclement weather
TECHNOLOGY AND COMMUNICATIONS SERVICES
1Total revenue includes joint ventures and other income.
2ROFE = EBIT divided by average funds employed (AFE). AFE = Average Opening and Closing Net Debt + Equity.
Total revenue
1
$m EBIT margin EBIT $m ROFE
2
245.9
249.9
0
50
100
150
200
250
300
HY17HY16
21.7
14.1
0
5
10
15
20
25
30
HY17HY16
8.8%
5.6%
0%
2%
4%
6%
8%
10%
HY17HY16
157.3%
58.9%
0%
50%
100%
150%
200%
HY17HY16
4
Improved earnings performance despite reduced revenue
Strong contribution from nbn
TM
contracts with increased volumes
A number of new contracts awarded including Telstra Wideband
UTILITIES SERVICES
1Total revenue includes joint ventures and other income.
2ROFE = EBIT divided by average funds employed (AFE). AFE = Average Opening and Closing Net Debt + Equity.
Total revenue
1
$m EBIT margin EBIT $m ROFE
2
442.3
376.5
0
100
200
300
400
500
HY17HY16
20.8
22.8
0
5
10
15
20
25
HY17HY16
4.7%
6.1%
0%
1%
2%
3%
4%
5%
6%
7%
HY17HY16
10.8%
13.2%
0%
2%
4%
6%
8%
10%
12%
14%
HY17HY16
5
Revenue increase of 18% driven by new and existing contracts
EBIT reduced by completion of major gas and power projects in the previous corresponding period
Good performance across Power and Gas distribution, stronger performance by Water business
Awarded Clare Solar Farm contract (December 2016); well positioned for the large pipeline of renewable projects
Advisory role with Ausgrid
Positioned well for services to privatised and Government owned power assets
RAIL
1Total revenue includes joint ventures and other income.
2ROFE = EBIT divided by average funds employed (AFE). AFE = Average Opening and Closing Net Debt + Equity.
Total revenue
1
$m EBIT margin EBIT $m ROFE
2
399.7
420.1
0
100
200
300
400
500
HY17HY16
14.0
4.5
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
HY17HY16
3.5%
1.1%
0%
1%
2%
3%
4%
HY17HY16
5.4%
3.6%
0%
1%
2%
3%
4%
5%
6%
HY17HY16
6
Continuing strong performance on maintenance contracts e.g. Waratah TLS and Millennium
Improved performance by joint ventures
Improved depot performance driven by restructuring in the previous corresponding period
Awarded three major contracts: High Capacity Metro Trains in Victoria; Sydney Growth Trains in NSW;
Transport for Newcastle (Keolis Downer)
1Total revenue includes joint ventures and other income.
2ROFE = EBIT divided by average funds employed (AFE). AFE = Average Opening and Closing Net Debt + Equity.
Total revenue
1
$m EBIT margin EBIT $m ROFE
2
27.1
20.6
0
5
10
15
20
25
30
HY17HY16
2.8%
2.2%
0%
1%
2%
3%
4%
5%
HY17HY16
25.1%
21.2%
0%
5%
10%
15%
20%
25%
30%
HY17HY16
973.4
927.8
0
200
400
600
800
1000
1200
HY17HY16
ENGINEERING, CONSTRUCTION & MAINTENANCE
7
Continuing strong performance at Gorgon and Wheatstone
EBIT result benefited from restructuring in FY16
Improved result from consultancies (QCC and MT)
Expansion of Defence footprint through acquisition of AGIS
MINING
1Total revenue includes joint ventures and other income.
2ROFE = EBIT divided by average funds employed (AFE). AFE = Average Opening and Closing Net Debt + Equity.
Total revenue
1
$m EBIT margin EBIT $m ROFE
2
635.4
781.6
0
200
400
600
800
1,000
HY17HY16
44.4
67.7
0
10
20
30
40
50
60
70
80
HY17HY16
7.0%
8.7%
0%
2%
4%
6%
8%
10%
HY17HY16
16.3%
18.6%
0%
5%
10%
15%
20%
HY17HY16
8
Expiry of Christmas Creek contract
Two year extension to Meandu Mine contract (to June 2020)
Four year extension to Karara Mining contract (to March 2022)
Several mining services contract wins (blasting and underground)
FINANCIAL PERFORMANCE
1
Total revenue includes joint ventures and other income.
2ROFE = EBIT divided by average funds employed (AFE); AFE = Average Opening and Closing Net Debt + Equity.
$m HY17 HY16 Change (%)
Total revenue
1
3,603.0 3,543.4 1.7
EBITDA 225.8 241.2 (6.4)
EBIT 120.8 113.2 6.7
Net interest expense (13.7) (15.8) 13.3
Tax expense (28.9) (25.3) (14.2)
Net profit after tax 78.2 72.1 8.5
EBIT margin 3.4% 3.2% 0.2
Effective tax rate 27.0% 26.0% 1.0
ROFE
2
13.0% 12.5% 0.5
Dividend declared
(cents per share)
12.0 12.0 -
Ordinary Dividend payout ratio 69.0% 76.5% (7.5)
10
$m Total
Transport Tech & Comm Utilities Rail EC&M Mining Corp
Statutory EBIT 120.8 41.4 21.7 20.8 14.0 27.1 44.4 (48.6)
New Intercity Fleet bid costs 10.0
10.0
Settlement of contractual
claims
5.0 5.0
Contract closure (6.5) (6.5)
Adjusted EBIT (approx)
129.3
41.4 21.7 20.8 14.0 27.1 37.9 (33.6)
SUMMARY OF EARNINGS
11
UNALLOCATED COSTS (CORPORATE COSTS)
$m HY17 HY16
R&D incentives 4.2 5.0
New Intercity Fleet bid costs (10.0) -
Capital Metro bid costs - (13.0)
Settlement of contractual claims (5.0) -
Corporate costs (37.8) (40.1)
Total unallocated (48.6) (48.1)
12
OPERATING CASH FLOW
1Interest and other costs of finance paid minus int erest received.
$m HY17 HY16
EBIT 120.8 113.2
Add: depreciation & amortisation 105.0 128.0
EBITDA 225.8 241.2
Operating cash flow 243.6 178.1
Add: Net interest paid
1
13.2 11.2
Tax received (25.1) (34.2)
Adjusted operating cash flow 231.7 155.1
EBITDA conversion 102.6% 64.3%
Add back project claims - 65.0
Underlying operating cash flow 231.7 220.1
Normalised EBITDA conversion 102.6% 91.3%
13
CASH FLOW
1As at 31 December 2015, Downer had bought back 1.8 million shares, reducing the total number of shares outst anding to 430.9 million.
2Refer to slide 24 for details.
$m HY17 HY16
Total operating 243.6 178.1
Net capital expenditure (54.4) (100.0)
AGIS and RPQ acquisitions (52.6) -
IT Transformation and Other (16.4) (23.5)
Total investing (123.4) (123.5)
On-market share buy-back
1
- (6.4)
Net (repayment)/ proceeds of borrowings (32.8) 124.1
Dividends paid (55.3) (56.7)
Total financing (88.1) 61.0
Net increase in cash held 32.1 115.6
Cash at 31 December 602.1 489.5
Total liquidity
2
1,087.1 1,017.5
14
DEBT MATURITY PROFILE
15
1. Undrawn $485m. June 2016 undrawn facility was $525m with $40m re-allocated to bonding facilities
0
100
200
300
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
Dec-22
Jun-23
Dec-23
Jun-24
Dec-24
Jun-25
Dec-25
A$m Equivalent
Weighted average debt duration
(Dec 2016) = 3.96 years (Jun 2016) = 4.25 years
By Limit (at 31 Dec 2016)
USPP
Finance leases
ECA finance
A$MTN
Syndicated bank facility
Bilateral bank facilities
1
1
BALANCE SHEET AND CAPITAL MANAGEMENT
1Adjusted for the mark-to-market of derivatives and deferred finance charges.
2Includes the present value of plant and equipment operating leases discounted at 10% pa: $122.5m (2016: $128.5m).
3Adjusted Net Debt Includes Net Debt plus 6x operating lease expenses in the year. Adjusted EBITDAR equals underlying earnings before int erest, tax, depreciation, amortisation and
operating lease expense (on a rolling 12 month basis).
$m Dec 16 Jun 16
Total assets
4,125.7 4,200.3
Total shareholders’ equity 2,118.4 2,088.5
Net debt
1
22.2 87.4
Gearing: net debt to net debt plus equity 1.0% 4.0%
Gearing (including off balance sheet debt)
2
6.4% 9.4%
Debtor days 20.8 23.6
WIP days 30.5 34.1
Creditor days 31.6 37.2
Interest cover 9.5 x 8.8 x
Net Debt / EBITDA
0.04 0.2
Adjusted Net Debt / adjusted EBITDAR
3
1.5 x 1.6 x
16
11%
25%
12%
18%
27%
7%
Rail
Transport Services
Utilities Services
Mining
EC&M
Technology & Communications Services
18
DOWNER REVENUE BASE
42%
58%
Public
Private
WORK-IN-HAND: $21.1 BILLION
By Contract Type – December 2016
By Service Line – December 2016
19
25%
17%
7%
10%
34%
7%
Transport Services
Utilities Services
EC&M
Mining
Rail
Technology & Communications Services
35%
20%
40%
2%
3%
Schedule of Rates
Recurring
Lump Sum / Fixed Price
Alliance / Target Cost
Cost Plus
WORK-IN-HAND: BOOSTED BY RECENT RAIL WINS
20
$m
0
5,000
10,000
15,000
20,000
25,000
FY14FY15FY16Dec-16
WORK-IN-HAND BY SERVICE LINE
$m
21
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
TransportUtilitiesEC&MMiningRailT&C
Jun-16Dec-16
OUTLOOK
22
Downer is targeting NPAT of around $175 million for the 2017 financial year
.
DEBT AND BONDING FACILITIES
11 Including A$ Medium Term Notes sold to Asian and European domiciled investors measured at financial close of the transaction.
Debt facilities $m
Total facilities 1,109.3
Drawn (624.3)
Available facilities 485.0
Cash 602.1
Total liquidity 1,087.1
Bonding facilities $m
Total facilities 1,629.1
Drawn (805.5)
Available facilities 823.6
Debt facilities by type %
Syndicated bank facility 36
A$MTN 36
USPP
15
Bilateral bank facilities 8
ECA finance 3
Finance leases & other 2
100
Debt facilities by geography %
Australia / NZ 50
North America 23
Asia
1
22
Europe
1
5
100
24
SEGMENT REPORTING
HY17
$m
Transport
Services
Technology and
Communications
Services
Utilities
Services
Rail
EC&M Mining Unallocated Total
Segment revenue
885.5 245.9 442.3 202.0 951.6 612.2 (4.9) 3,334.6
Share of sales from JVs and Associates
1
25.7 - - 197.7 21.8 23.2 - 268.4
Total revenue
1
911.2 245.9 442.3 399.7 973.4 635.4 (4.9) 3,603.0
EBIT
41.4 21.7 20.8 14.0 27.1 44.4 (48.6) 120.8
EBIT margin
4.5% 8.8% 4.7% 3.5% 2.8% 7.0% - 3.4%
HY16
$m
Transport
Services
Technology and
Communications
Services
Utilities
Services
Rail
EC&M Mining Unallocated Total
Segment revenue 771.8 249.9 376.5
211.5
912.1 758.2 (15.4) 3,264.6
Share of sales from JVs and Associates
1
31.1 - -
208.6
15.7 23.4 - 278.8
Total revenue
1
802.9 249.9 376.5
420.1
927.8 781.6 (15.4) 3,543.4
EBIT 31.6 14.1 22.8
4.5
20.6 67.7 (48.1) 113.2
EBIT margin
3.9% 5.6% 6.1% 1.1% 2.2% 8.7% - 3.2%
1 This is a non-statutory disclosure as it relates to/includes Downer’s share of revenue from equity accounted joint ventures and associates.
25
Data sourced from publicly available filings. Our datasets may not be complete. Automated analysis can produce errors. If you believe any data on this page is incorrect, please contact us at hello@nzxplorer.co.nz. For informational purposes only. Not investment advice.
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