Macquarie Australia Conference Presentation

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SafetyEarnings growthCash conversionBalance sheet
Our focus areas
Our financial results
23.8% NPATA
1
growth v HY18
3
FY19 guidance of $352
million NPATA
1
Operating cash flow
of $355.3m, cash
conversion of 90.7%
Continue delivering cash
backed earnings with
+90% cash conversion to
adjusted EBITDA
Gearing of 23.8% v
24.6% in HY18and
$1.4bn of liquidity
Balance sheet flexibility
to support growth
strategy
Total revenue
2
$mEBITA
1
$mNPATA
1
$mOperating Cash Flow $m
All figures above and throughout the presentation include 100% contribution from Spotless, before minority interests, unless stated otherwis e.
1
Downer calculates EBITA and NPATA by adjusting EBIT and NPAT to add back acquired intangible assets amortisation expense. Group HY19 $31.4m, $22.0m after-tax (HY18: $30.7m, $21.6m after-tax). FY19 guidance includes the fair value
gain from acquiring the remaining 50% of the Downer Mouchel JV in late 1H19.
2
Total revenue above and throughout the presentation is a non-statutory disclosure and includes revenue from joint ventures and other allianc es and other income.
3
HY18 figures are underlying.
LTIFR of 0.68 and
TRIFR of 3.09,
improving on HY18
Zero Harm embedded in
culture and fundamental
to success
268.0
222.3
-
50
100
150
200
250
300
HY19HY18
163.4
132.0
-
50
100
150
200
HY19HY18
355.3
307.1
-
100
200
300
400
HY19HY18
6,623.0
6,100.5
0
2,000
4,000
6,000
8,000
HY19HY18
+8.6% v HY18+20.6% v HY18
3
+23.8% v HY18
3
+15.7% v HY18
HY19: delivering operationally and financially
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12%
8%
28%
22%
30%
Urban Services
Mining, Energy and Industrial Services
Energy and Resources
—Engineering
—Construction
—Asset management services
Mining
—Open Cut
—Underground
—Blasting and tyre management
Mining
—Hospitality and FM
—Health, Education, Defence,
Justice, Resources, Infrastructure
—Mechanical & Electrical (M&E) and
Heating, Ventilation and Air-
conditioning (HVAC)
—Laundries
—Non-residential building (Hawkins)
Facilities
—Asset management of power, gas
and water distribution networks
—Wind, solar and battery storage
—Communications
Utilities
—Road Network Management
—Road surfacing and maintenance
—Bitumen products and logistics
—Transport infrastructure
—Asset management in heavy rail
and light rail
—Public Transport operations
Transport
Urban Services now 80% of Downer’s EBITA
75%
Revenue
80%
EBITA
1
25%
Revenue
20%
EBITA
1
3.6%
EBITA margin
4.7%
EBITA margin
EC&M
Transport
Mining
EC&M
Facilities
Utilities
1
Chart split based on HY19 EBITA (excludes unallocated corporate costs).
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Limited construction risk
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EBITA composition
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Focused on projects and customers that will help drive
long term service revenue
Exposure to high risk markets actively limited by risk
management processes focusing on quantum, type of
project and contract form
17% of HY19 EBITA
ConstructionServices
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Chart split based on HY19 EBITA (excludes unallocated corporate costs).
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Downer’s focus: lifecycle asset services
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2 years5 years10 years15 years20 years
Engineering
Procurement
Construction
Maintenance
Operating
Supply
Revenue
Margin
Downer is focused on winning and delivering secure, long term service revenue and
leveraging its expertise to drive margin expansion over time.
Defensive, long term, predictable revenue with opportunities for top-line growth
Ability to improve margin through operational efficiencies and innovation over time
Diverse and high quality customer base
Lower risk to margin compared to construction
Servicing
Selective participation
Focus on O&M markets
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Services businesses provide a high quality
and predictable earnings base
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0
50
100
150
200
250
300
350
400
Jan-16Jan-17Jan-18Jan-19
Underlying NPAT / NPATA
1
($m)
1
Actual
Guidance
FY16FY17FY18FY19
Guidance
1,2
180175295
352
Actual
1
180.6181.5296.5
Difference
+0.6+6.5+1.5
1. NPATA in FY18 and guided for FY19. NPAT all other years. 2. Guidance as at the half year result prior.
Consecutive financial years hitting (or exceeding) guidance
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Downer’s shareholder value proposition
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Aligned to growing
markets and serving
quality customers
Strategic capital
allocation, cost and
capital efficiency
Consistently growing
EPS and DPS
Increasing EPS and
maintaining a 50% -
60% payout ratio
Business
growth
Efficient use
of capital
Shareholder
value
TSR growth through
continued delivery
Maintaining a strong
balance sheet and
credit rating
Continue strong
operating cash flow
discipline
Increased exposure to
low capital, service
oriented businesses
Strategic acquisitions
23.8% NPATA
growth v HY18
1,2
12.8% ROFE
3
Targeting 19%
EPS growth in
FY19
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1
Downer calculates EBITA and NPATA by adjusting EBIT and NPAT to add back acquired intangible assets amortisation expense. Group HY19 $31.4m, $22.0m after-tax (HY18: $30.7m, $21.6m after-tax).
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HY18 underlying
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Throughout the presentation, ROFE = 12 month rolling underlying EBITA divided by average funds employed (AFE); AFE = Average Opening and Closing Net Debt + Equity.
4
EPS is calculated using FY18 underlying NPATA and FY19 NPATA market guidance after taking into account minority interest and ROADS dividends.
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Work-in-hand of $43.5 billion
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7%
4%
40%
8%
41%
Transport
Mining
EC&M
Facilities
Utilities
43.5
42.0
39.2
Dec-18Jun-18Dec-17
Work-in -hand
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Case study: Road Services
Efficient and predictable journeys
Environmental sustainability
Putting the road user first
Enabler for economic prosperity
Safety
Surfacing and maintenance services to road network
managers, including maintenance services, asphaltand
bituminous products
Road, intelligent traffic systems and smart city asset
management including long-term strategic decision making and
advice to owners
Manufactures and supplies bituminous and non-bituminous
road surfacing products using virgin and re-purposed materials
Part of the circular economy, landfill management, landfill
diversion and repurposing into products for road maintenance
Downer’s Road Services business provides a strong, vertically integrated
supply chain to customers:
Scale ($2.2bn revenue) / competitive advantage
Strategic/ significant barriers to entry
Value
proposition
Vertically integrated multi-brand strategy
Tailwinds
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Infrastructure investment
Population growth
Environmental sustainability focus
Smart City technology
Note: Statistics relate to FY18.
Asphalt produced:
3,200 kTon
Bitumen sprayed:
60,000k litres
Length of road
maintained:
58,000 kms
Customers
State and local governments
Waste businesses
Miners
Airports
Toll and other road owners
Road Network Manager
Service Provider
Manufacture / Supply
Margin capture
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Case study: Auckland City Rail Link
Construction of twin 3.45km rail tunnels
Construction of two new underground
stations and redevelopment of Mt Eden
Station
30 year facilities management and
maintenance contract (10+10+10)
Downer, Hawkins, AE Smith, Vinci, SoletancheBachy
Downer, Vinci, SoletancheBachy
Spotless and Downer will maintain the new and refurbished stations and
certain other rail infrastructure over a 30 year period. Potential future
opportunities to extend the FM footprint to other Auckland rail assets
Downer’s ability to provide integrated project management, infrastructure construction
and facilities management services was a critical element in Link Alliance securing the
largest infrastructure project (NZ$4.4bn) ever undertaken in NZ.
Project Scope
Downer Group’s scope > NZ$1bn
Contract
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Fully integrated Alliance Contract Model
Limited loss risk
Strong partners
Future opportunity to extend FM model to
Auckland rail network
Customers
New Zealand Government
Auckland Council
Project Management
Construction
30 Year Maintenance
Margin capture
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Case study: Rolling Stock Through Life Support
843 Waratah Rail Cars (NSW)
328 SGT Rail Cars (NSW)
455 HCMT Rail Cars (VIC)
140 Millennium Rail Cars (NSW)
179 A/B Class Rail Cars (WA)
Downer designs and constructs rolling stock related depots and facilities used
for rail and light rail operations
Downer provides project management services for the design, construction
and commissioning of passenger rolling stock
Downer is Australia’s largest rolling stock asset manager providing
maintenance and overhaul services (Through Life Support) to network
operators with over 1,945 rail cars under long term management. Spotless
provides FM services for facilities and rolling stock presentation
Downer’s passenger rolling stock platforms and relationship with the world’s largest rolling stock
manufacturer in CRRC, provide a significant (>$4.5bn) and growing base of long term, high margin
asset management contracts
Scope
Downer Group’s scope > $4.5bn
Contract
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No rolling stock design or construction risk
PPP and Direct Contracts (Long Term)
Availability based TLS contracts (10-30yrs)
Strong partnership with CRRC
Option sets available / increased margin
Customers
NSW Government
Victorian Government
WA Government
Project Management Services
Design and Construction of service
Depots and Facilities
Rolling Stock Asset Management
(10-30 years)
Margin capture
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FY19 outlook and goals confirmed
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FY19 Outlook
Downer confirms its previous FY19 NPATA guidance of $352 million before minority interests
FY19 operational and financial goals
Zero Harm: Ensure a safe environment for employees with improving injury rates and well being
Growth: Deliver EPS growth of 19% in FY19
Cash flow: Maintain strong cash flow conversion consistent with recent periods
Returns: Active capital management and maintain dividend payout ratio within 50 –60% of NPATA
Balance sheet: Maintain conservative gearing position, providing balance sheet flexibility to support growth
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