Annual Review 2022 1 Annual Review 2022
McConnell Dowell 2 Contents Message from our CEO 04 Group Highlights 07 Our Solutions 08 Environment, Social &Governance 10 Horizon 2030 12 Project Showcase 15 Financial Statements 33 Contact Us 93 Echuca Moama Bridge - opened early 2022, months ahead of schedule
Annual Review 2022 3 1961 Jim Dowell and Malcolm McConnell, two talented, creative individuals with a powerful drive to make things better and so began the construction company, McConnell Dowell. When two young entrepreneurial engineers began work on their first project in New Zealand 60 years ago this year, they were armed with a small cache of tools and a big vision. As they laid those first drains, footpaths and roads, Malcolm McConnell and Jim Dowell may not have realised it at the time, but they were also laying the foundations of what would become a multi-national, multi-disciplinary contracting organisation - and a six-decade journey of innovation, growth and success. Today, McConnell Dowell has a network of offices across more than 15 countries, employs over 3500 people, and has capabilities in building, civil, fabrication, marine, mechanical, pipelines, rail, and tunnelling construction. Celebrating 60 years of Creative Construction Click the play button to watch our founders’ story. Mc onnell Dowell is Creative Construction. We successfully deliver complex infrastru ture with our customers and the community. 03
McConnell Dowell 4 Message from our CEO Key Highlights The June 2022 financial year marks the fifth consecutive year of operational profits for the McConnell Dowell Group and the highest revenue result in six years. The business enters the new financial year in a good position and has set itself a steady and achievable growth strategy out to 2030. Scott Cummins 17% revenue growthto $1.7 billion 36% growth in profit after tax to $31 million. 34% growth in Work in Hand to $2.5 billion setting solid platform for growth into FY23 and beyond Solid cashflow performance and strong liquidity positionwith $210 million available cash and minimal debt Balanced portfolio of projects underway and predominately performing well(85% at bid margin or better) Preferred contractor status project listing increased to $2.5 billion, including over $1 billion that will be converted into Work in Hand in quarter one of the coming financial year Continued strong opportunity pipeline, including a tender pipeline of $3.6 billion Zero major environmental incidents Lead safety indicator, PHAIR*, exceeded target by 76% * PHAIR - Potential Harm-All Injury Ratio Continued trend of improvement in financial results:
Annual review 2022 Operational Performance Strong revenue growth, coupled with disciplined bidding, project delivery and cost control, combined to see the Group’s profit after tax improve and work in hand grow significantly. Positively, revenue growth was spread across multiple business units and regions with Australia, South East Asia and Built Environs business units all achieving healthy increases in turnover. Revenue for the New Zealand business was adversely impacted by a five-week COVID lockdown, however the underlying performance of that region was also positive. Work in hand also grew substantially, especially in Australia, New Zealand and the Built Environs business. South East Asia remains an ongoing challenge for newwork, but new opportunities are emerging, particularly in the strategically important marine sector. Preferred contractor positions also grew steadily across the business, underwriting the potential for further revenue improvement in FY23. The diversity of the Group’s capability and market sector participation continues to benefit the organisation and proactive customer engagement and business development is continuing to ensure a strong and diverse pipeline of opportunities remains available and actively pursued. Business Unit Overview Australia Conditions were strong in the Australian construction sector with all levels of government using infrastructure investment to drive post-COVID recovery efforts. Private sector investment is also holding up well with the resource and energy markets in particular seeing strong activity levels. NewWork Won for the year was at $1.6 billion, exceeding budget by 12%, while revenue and operating earnings both increased. Revenue was $1.1 billion. The Australian business unit increased tendering activity and achieved an exceptional win rate of over 50% The business was awarded a broad range of project sizes and types across all Australian regions and in most specialist capabilities, highlighting the diversity of the business unit. Contracts awarded include the Midland Station and BCI Minerals - Mardie Salt projects in Western Australia; the Heysen Tunnels Managing Contractor development phase in South Australia; AIE Port Kembla in New South Wales; and the Archer River Crossing in Queensland. Meanwhile, Victoria continues to contribute significant revenue and work in hand, with new contracts awarded with existing customers such as the Level Crossing Removal Project, Major Road Projects Victoria, Rail Projects Victoria, and Australian Rail Track Corporation. In addition, the business secured numerous smaller rail services contracts in Victoria for numerous customers including V/Line, VicTrack, and MTM. Additional work was also secured through the SAWater Frameworks partnership in South Australia. Looking forward, a number of major opportunities are pending award in the first half of next financial year, signifying a strong start to the next reporting period. New Zealand & Pacific Revenue for the New Zealand and Pacific Islands business unit was slightly down on last year at $186 million, the result being negatively impacted by a five-week industrywide COVID lockdown. Despite this the business unit’s profitability improved by 9%. The business successfully completed several major projects across a range of disciplines. These included transport related projects such as the Puhinui Station Interchange Project in Auckland (in internal joint venture with MCD’s Built Environs business), the Christchurch Southern Motorway Stage 2, and the City Rail Link Contract 2 in Auckland. All are important upgrades and augmentations to the country’s road-rail network. In the water sector, the company completed the Auckland-based Snells Algies Wastewater Pipeline and Outfall, and the St Marys BayWater Quality Improvement projects. The former project achieving a newworld record for the longest Direct Pipe® drive at 2021 metres. The business also continued to support regional water needs with projects such as the Pukekohe WWTP, Warkworth to Snells pumpstation and Dunedin City Council Panel works. 05 In the Pacific Islands, McConnell Dowell completed Stage 2 of the Te Mato Vai project - a multi-staged upgrade of the water supply network on Rarotonga. McConnell Dowell New Zealand were awarded several projects during the financial year and newwork won was $437m. New project awards included Barber Grove, Gisborne Wastewater Treatment Plant, Corbans Reserve, Continuing works at AIAL on the Fuel network, Eastland Port and Auckland District Health Board. The latter another joint venture with Built Environs. In the Pacific Islands McConnell Dowell was awarded a contract to upgrade the lighting at Fitiuta Airport and Pago Runway 5/23000 in American Samoa. Looking forward, the New Zealand business has a strengthening pipeline of opportunities in the transport, water/wastewater and energy sectors. Built Environs Built Environs, the Group’s commercial building business operating in South Australia, Victoria and New Zealand, increased its revenue by 20% to $143m in FY22. The business successfully delivered a range of complex projects in health, education, community sport and infrastructure. Highlights include completion of the Auckland City Mission Home Ground project and the Puhinui Station Interchange project in New Zealand; Modbury Hospital Upgrade and the State Sports Park in Adelaide; and its first project in Victoria, the Beaumaris Secondary College project for the Victorian Schools Building Authority. The former three projects receiving multiple industry awards for excellence. The team’s strong focus on business development across all operating regions saw bid volumes increase f to $1.6 billion and newwork won increase from $99m to $312m. Key project wins in FY22 include the Queen Elizabeth Hospital Stage 3 Redevelopment in Adelaide for the South Australian state government, and the Fitzroy Sports Centre for the Victorian state government. Built Environs’ successful partnership in New Zealand with McConnell Dowell continued with their joint venture being awarded the A40 Central Plant and Tunnel Project for the Auckland District Health Board. The Built Environs business enters the new financial year with several promising upcoming tender opportunities in all regions and the likelihood of further business growth. South East Asia Revenue in South East Asia increased by 56% to $251 million, however the region remains the most challenging for McConnell Dowell. Profit margins were adversely impacted by difficult operating conditions, including the residual impact of COVID-19 border closures across the region, and no newwork was secured in the reporting period. Despite recent relaxation of COVID-19 restrictions, current projects are now navigating through the challenges of the tightening global supply chain. Active projects include Tangguh LNG and Palembang Wastewater project in Indonesia; Jurong Regional Line (J108), C1A, and Tuas Water Reclamation Works in Singapore; and FGEN LNGMulti-Purpose Jetty and Gas Receiving Facility in the Philippines. Looking forward, and notwithstanding these challenges, the regional construction sector appears to be on a steady path to recovery and is forecast to return to near pre-pandemic levels in FY23. A complete review of the region’s opportunity pipeline has been undertaken and good quality prospects that align stronglywith the Group’s specialist engineering capability and delivery strengths have been identified. Tendering activitywhich was temporarily paused during the period of International border closures has now recommenced and the Group anticipates securing newwork in this region in the near term.
McConnell Dowell 6 Environmental, Social and Governance The business continued to embed its Environmental, Social and Governance (ESG) framework, guiding organisational decision-making and driving a range of programs and initiatives, in line with the Group’s Purpose and Values. In the environmental area there were no serious incidents recorded, the result of consistent application of the Group’s accredited Management System and a strong focus on environmental awareness training. Carbon reduction and resource minimisation initiatives included the increased use of solar on sites, such as solar generators and lighting, greater use of recycled products, and reduced potable water use through site capture and increased usage of recycled water. In the social area, the health, safety and well-being of employees and the community remained paramount, with the Group’s lead safety indicators showing positive trends. The primary lead safety indicator, Potential HarmAll Injury Ratio (PHAIR), exceeded the target set by 76%, demonstrating a healthy reporting culture across the business. While the impacts of the COVID-19 pandemic started to normalise in the second half of FY22 across all operations, the business continued to provide support to staff and communities through localised response plans and programs. The business continued to take a leadership role in the construction industry’s focus on improving the culture and wellbeing of the workforce. In Australia, MCD led a ground-breaking pilot program on wellness on the Mordialloc Freeway Project. Undertaken in partnership with government and a local university, the successful program is now being adopted across the industry. Social procurement spend exceeded targets, where set, by an average 46%, while the Australian Business Unit advanced through the first stage of its formal reconciliation action plan. In New Zealand, the 2021 formation of a local Diversity and Inclusion committee has led to the rollout of several important initiatives across the business including Māori language and customs training for senior managers. From a governance perspective, the business continued to operate with strong policy compliance and rigorous oversight and audit regimes in place. Visiting Manager Reports (VMR) exceeded target by 22% and included the use of virtual visits via technology – a positive legacy of the COVID-19 pandemic. The Group maintained all third-party systems accreditations and licences across its operations and met all its obligations as a signatory to the UN Global Compact. People and Leadership The Group’s strong leadership foundation was further bolstered in the financial year with several key appointments. In Australia, these included the appointment of a national pre-contracts manager and a new general manager for the New South Wales region. The pre-contracts appointee is an experienced female staff member, while the new general manager was externally appointed and brings a strong local network and reputation within this critical growth market. The South East Asian business also saw the appointment of several new local senior leaders, with sourcing underway for the managing director role. The leadership teams in New Zealand & Pacific Islands and Built Environs business units remained unchanged throughout the period, as did the composition of the Group’s Executive Committee, highlighting the stability of the business. Resourcing in all geographic markets remained under significant pressure as record-breaking levels of construction activity, along with the challenges of immigration and mobility during the pandemic, combined to create imbalanced demand and supply of critical capabilities. Internal resource sharing between business units relieved some pressure and created opportunities for staff to build their careers in new regions. An international recruitment campaign was also launched, initially focused on the UK and Europe. Looking to future recruitment requirements, an outsourced model is being implemented in Australia to better respond to the needs of the business. Graduate programs are also now in place in all four business units with strong annual intakes. Within a tight talent market, retention of key talent is crucial and investment in learning and development remained a primary focus for the Group. The business has partnered with Australia’s top-ranked business school, The University of Melbourne - Melbourne Business School, to deliver an integrated Senior Leadership Program aimed at developing leadership capabilities in an intensive learning environment. The inaugural program was delivered during the year with great success. The second cohort will complete the course in late 2022. An Operational Leadership Program – a five-day intensive program targeting emerging leaders in project management– will launch in the coming year. Looking ahead The Group enters the 2023 financial year in a strong financial position with no debt except for a small value of asset finance , solid work in hand, and a robust pipeline of preferred contractor positions and qualified opportunities across its operating regions and businesses. Government infrastructure investment continues to be strong, while energy transition and climate change related projects will grow in number and scale over the coming decades. While market headwinds remain, including residual COVID challenges, price escalation, increasing government debt, resource shortages, and supply chain disruptions, the Group has robust management responses and strategies in place and working effectively. With a clear eye on the future, the Group’s Board-endorsed Horizon 2030 strategy provides a robust framework and roadmap for long term decision making and investment, centred on the business’s engineering-led heritage and ‘Creative Construction’ value proposition. S. V. Cummins CEO
Annual Review 2022 7 Group Highlights $210 million Cash Balance As of 30 June 2022. Compard to $172 million as at June 2021 $2.5 billion Work in Hand As of 30 June 2022. Compard to $1.9 billion as at June 2021 $2.5 billion Preferred Status As of 30 June 2022. Compard to $1.7 billion as at June 2021 Profit after tax up 36%, highest level in 7 years. 07
McConnell Dowell 8 Our Solutions Transport Whether it’s boring a new metro tunnel, refurbishing an historic bridge, or constructing new train and tramways, McConnell Dowell is a safe pair of hands for any transport challenge. Energy We help create safe, sustainable and efficient power infrastructure that supports today’s energy hungry and environmentally conscious communities. We deliver civil, electrical, mechanical, pipelines and tunnelling works across all power generation types. Marine & Coastal The McConnell Dowell name is synonymous with marine design and construction with over 330 marine projects successfully completed. From ambitious resource projects in remote locations, to city changing infrastructure, customers come to us with complex problems that require innovative solutions. Kidston Pumped Storage Hydro, Australia Batangas LNG Terminal, Philippines Level Crossing Removal Project, Australia
Annual review 2022 Water & Wastewater We deliver across the complete water and waste water system; from capture, storage and treatment to distribution and outfall. Building From state of the art hospitals and high-tech sports facilities to landmark retail developments, our building brand, Built Environs, is experienced in all types of commercial building. Resources When it comes to resources, McConnell Dowell are a tried and trusted partner to industry heavyweights such as BHP Billiton, Rio Tinto, Vale and Fortescue Metals Group. They know us, respect us, and partner with us for their major projects, time and time again. Our services encompass the complete project lifecycle, from early concept design to commissioning and ongoing maintenance, to suit our customers’ objectives and approach. Barber Grove to Seaview, NZ Fitzroy Sports Centre, Australia QAL Waste Line Replacement, Australia 09
McConnell Dowell 10 Environment: Carbon & Our Environment Social: Our Community & People Governance: Conduct & Compliance We approach business holistically, embracing environmental, social and governance objectives aligned with our five values and our purpose of 'Providing a Better Life'. Environment, Social & Governance Reducing carbon Acting on climate change Minimising waste and pollution Embracing the circular economy Keeping everyone safe Nurturing and developing our people Working with and for the community Embracing diversity and inclusion Being open, honest and transparent Managing risk Being compliant Delivering what we promise
Annual Review 2022 11 11 of calculated carbon savings through value engineering, recycled material opportunities, use of bio-fuels and use of renewable technologies in construction. ESG in Action 53,000 tonnes of water used from non-potable sources across Australian projects through on site collection and recycled sources. 76% exceedence of social procurement spend targets on government projects. This includes providing employment opportunities for recent refugees, disadvantaged youth and defence veterans. 46% of construction waste diverted from landfill on building projects through recycling, re-purposing and smart design. 98% McConnell Dowell partnered with Vivid Disability Services, to provide employment for 20 persons living with a disability on the Echuca Moama Bridge Project. 10 of whom graduated with a nationally recognised qualification for the first time. * * Includes construction and infrastructure lifecycle savings, across target Australian projects
McConnell Dowell 12 Horizon 2030 Our Horizon 2030 strategy provides the framework and roadmap for long-term decision making and investment, centred on our engineering heritage and ‘Creative Construction’ value proposition.
Annual Review 2022 13 Water security, Climate resiliance, Defence self reliance, Transitioning energy, Urbanisation and Aging infrastructure. Strategic Drivers: Underpinned by Our Purpose and Values: Providing a better life Safety & Care Honesty & Integrity Customer Focus Working Together Performance Excellence Strategic Positioning: McConnell Dowell Capability Platform Strong customer relationships, brand & track record, experienced construction management local resources, partnerships, products & plant Engineering design, means, methods, techniques General capability Specialist operations Specialist equipment Specialist capability Enabling capabilities Creative, Collaborative Empowered Engineering-led Great people Smart systems & processes Strong partners & supply chains Integrated systems Digital leadership Automation focussed Aligned cultures Complimentary skills Relationship driven To be an engineering-led specialist multi-disciplinary contractor working with our customers, partners and the community to deliver complex infrastructure solutions. Underpinned by a significant civil/ transport infrastructure and building presence in major urban markets. 13 Transport Building Energy Marine Resources Water
McConnell Dowell 14 HomeGround, the new building of Auckland City Mission. Completed by Built Environs in early 2022, the project won the New Zealand Property Council’s Supreme Award, the most prestigious award in the NZ building industry.
Annual Review 2022 15 15 Project Showcase A cross-section of current projects under construction.
McConnell Dowell 16 Kidston Pumped Storage Hydro A game-changing project for Australia’s clean energy industry Converting a disused gold-mine into a natural battery capable of generating 250 MW of power on a rapid (30 second) response basis.
Annual Review 2022 17 Delivering Tasmania’s largest ever transport infrastructure project New Bridgewater Bridge Design and construction of a modern new 1 km crossing of the River Derwent for improved mobility, accessibility, and connectivity.
McConnell Dowell 18 HMAS Coonawarra Supporting the Australian Defence Force with newmarine facilities Construction of a new 250 m long wharf and two approach jetties in Darwin to provide additional berthing and support services for the Royal Australian Navy.
Annual Review 2022 19 Removing dangerous level crossings across metro Melbourne Level Crossing Removal Project An ongoing, 10-year alliance with the Victorian state government that has so far seen seven level crossings removed, a new train stabling yard constructed, and over 6 km of metro track duplicated.
McConnell Dowell 20 Midland Station Expanding and improving public transport in Perth Decommissioning and demolition of a 53 year old train station and the design and construction of a new station, bus interchange and cycling facilities.
Annual Review 2022 21 Enhancing water security and supply north of Adelaide SAWater Frameworks Planning, management, and delivery of approximately 150 water infrastructure projects for SAWater, including water storage, pipelines and treatments plants.
McConnell Dowell 22 BCI Minerals - Mardie Salt Growing Australian exports with newmarine facilities Collaborative design and construction of a piled 2.4 km long jetty structure, along with dolphins, shiploader, conveyor system, and all support infrastructure for new salt export facility.
Annual Review 2022 23 Bringing energy certainty and flexibility to eastern Australia Port Kembla Gas Terminal Converting an abandoned marine terminal used for coal exports into a gas import terminal, including all wharf infrastructure and associated facilities.
McConnell Dowell 24 Jurong Region Line - Contract J108 Improving connectivity and travel times around Singapore Design and construction of three new elevated stations and connecting 2.3 km long viaduct for the new Jurong Region Line in the Tengah region of Singapore.
25 Improving health outcomes and water resilience in Indonesia Palembang Wastewater Treatment Plant Construction of a new 20 ML per daywastewater treatment plant that will provide 12,000 households and businesses with sewerage services for the first time
McConnell Dowell 26 Old Mangere Bridge Replacement Re-linking communities across an environmentally sensitive waterway De-construction of a 105-yearold bridge and construction of a new 260 m long, eight metre wide bridge in Auckland.
Annual Review 2022 27 Improving water supply and quality for a growing region Barber Grove to SeaviewWastewater Treatment Plant Pipe Duplication Design and construction of a 1.2 km long, 1 m diameter water pipeline using a mix of trenchless and open trench methods to suit the difficult seismic and geological conditions.
McConnell Dowell 28 Nuku’alofa Port Upgrade Supporting economic development in the Pacific Islands Expanding, modernizing and climate-proofing Tonga’s main international sea port.
Annual Review 2022 29 Improving essential services in an operational hospital Auckland City Hospital Central Plant and Tunnel Multistorey building and services tunnel construction, and installation and commissioning of all new essential plant and equipment.
McConnell Dowell 30 The Queen Elizabeth Hospital Expanding clinical services in South Australia A new purpose-built hospital facilitywith a 46-bay emergency department, 12 operating theatres, a 14-bed intensive care unit, a 52-bed rehabilitation unit, and 4 procedure rooms
Annual Review 2022 31 Delivering Australia’s first vertical multi-use sports centre Fitzroy Gasworks Sports Centre Building four multi-purpose courts (sized for basketball and netball) over two levels, a gymnasium, café, lounge and other community facilities.
McConnell Dowell 32 Eastland Port Wharf 7 Upgrade Improving capacity and safety at a strategic New Zealand port Wharf upgrade works to enable two Handymax ships to load and unload safely and simultaneously at the country’s largest logging port.
Annual Review 2022 33 *Calculated using ‘Ministry for the Environment. 2020. Measuring Emissions’ 70% 3,300 Achange froma retaining wall toa deck-on-pile design reducedthenumber ofpilesby DESIGNPHASE INNOVATION and therefore the steel required by litresof diesel 593 220,000 TAIRĀWHITI / GISBORNE EASTLANDPORT areonthe road Adapting the design also meant or Carbon dioxide equivalent means the number of metric tons of CO2 emissions with the same global warming potential as onemetric ton of another greenhouse gas CO2e* tonnes of hardill was no longer needed saving and the nearest quarry If a truck load oneway is 80km fewer trucks 50% is the same as driving 593 tonnes of CO2e 2,220,973km or around theworld EastlandPortWharf 7Upgrade CARBONFOOTPRINT REDUCTION 30t 55 times in a standard passenger vehicle
McConnell Dowell 34 Mordialloc Freeway - opened late 2021, 4 weeks ahead of schedule
Annual Review 2022 35 McConnell Dowell Financial Statements for the year ended 30 June 2022 33
McConnell Dowell 36 Portfolio Breakdown Consistent project execution performance, diversity and technical capability continues to position the company well. Australia 68% NZ 11% SEA 15% BE 8% Revenue by Business Unit
Financial Statements 2022 37 Work in Hand by Business Unit Revenue by Type Work in Hand by Type Australia 63% SEA 10% BE 11% NZ 16% Construction Only 37% Relationship 29% Design & Construction 31% Service 3% Construction Only 28% Relationship 35% Design & Construction 36% Service 1%
McConnell Dowell 38 Directors' Report for the year ended 30 June 2022 The Directors present their report on the company consisting of McConnell Dowell Corporation Limited (the Company) and its controlled entities for the year ended 30 June 2022. DIRECTORS AND COMPANY SECRETARY The following persons were Directors of McConnell Dowell Corporation Limited during the financial year and up to the date of this report: Directors S.J. Flanagan (Chair), S.V. Cummins, D.J. Morrison, I. Luck, A.H. Macartney, C.D. Lock Company Secretary D.J. Morrison PRINCIPAL ACTIVITIES The principal activity of the company is infrastructure construction. There were no significant changes in the principal activities of the company during the year. CONSOLIDATED RESULT The Group reports improved financial results for year ended 30 June 2022 on the back of a solid order book and good operational performances from the business in Australia and New Zealand. The Group continues the positive momentum displayed in the 2021 financial year and recorded the highest revenue levels during the last six years. The McConnell Dowell team continues to effectively navigate the complexities and challenges imposed by the COVID-19 pandemic, price escalation risk, resource constraints and supply chain disruptions with robust management responses that are in place and working effectively. KEY FINANCIAL HIGHLIGHTS IN FY22 • Revenue grew by over 17% to $1.7 billion (2021: $1.5 billion) • Increase in profit after tax by 36% to $31 million (2021:$23 million) • Annualised Return on shareholders’ funds of 18% and continue to pay shareholder dividends • Work in hand up to $2.5 billion with over $2.3 billion new work won in the period • Strong liquidity position and cash conversion with $210 million available cash and minimal debt • Bonding & bank facilities available of $676 million ($407 million utilised) with strong support from our financial partners • Preferred positions on prospects worth over $2.5 billion plus a further $3.6 billion live tenders outstanding • Clear pathway to revenue & profit growth for the FY23 and beyond OPERATIONAL PERFORMANCE Disciplined and consistent project delivery, coupled with a strong opportunity pipeline, facilitating strategic selection of suitable McConnell Dowell prospects, continues to underpin McConnell Dowell’s strong results with the portfolio overall delivering on the majority of budgeted financial metrics. The business has reported double digit growth in revenue, profit after tax, work in hand and finished the year in a strong liquidity position. McConnell Dowell’s proactive approach to cost and risk management, coupled with its strong revenue growth has seen the Company’s profit after tax trend upwards in the last two financial years as economies of scale are realised. The Australian business unit continues to be the main contributor of McConnell Dowell’s growth in FY22 representing 66% of the Group’s revenue. Significant awards post year-end (including Bridgewater Bridge in Tasmania and Epping Road in Victoria) positions the business well for FY23. Revenue in New Zealand was impacted by delayed government investment as a result of the COVID-19 pandemic during the first half of the year. Pleasingly new work won and work in hand increased toward the latter part of FY22 on the back of renewed momentum in the market. The South East Asia region remains a very competitive market and was heavily impacted by COVID-19 related challenges which significantly impacted the results for FY22. Tendering activity has now recommenced and the longer-term addressable market in the region remains strong with opportunities emerging in the more nuanced multi-disciplinary type of projects which bodes well for the future pipeline. Revenue in Built Environs grew by 20% underpinned by the business units focus on the health and social building projects, which are seeing ongoing strong investments from governments in Australia and New Zealand. The business unit continue to expand its footprint in Australia along with continued growth in the New Zealand market. The Group's work in hand grew by 34% from June 2021 to $2.5 billion and we are well positioned to achieve the budgeted revenue for FY23 with 91% of budgeted revenue secured, subsequent to July awards. At balance sheet date the business also had $2.5 billion of preferred tender positions under negotiation, including over $1 billion on track to be converted to work in hand in the first quarter of FY23. DIVIDENDS A dividend of $12.5 million (2021 – $5.0 million) was declared and paid during the year ended 30 June 2022 to the parent company shareholder. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There were no significant changes in the state of affairs of the company other than that referred to in the financial statements and notes following. INDEMNIFICATION AND INSURANCE OF DIRECTORS AND OFFICERS During the financial year the company indemnified and paid an insurance premium in respect of a D&O policy insuring the directors and officers of the group companies for certain liabilities and legal costs and expenses that may be incurred by those individuals in their capacity as directors or officers, to the extent permitted by law. The contract of insurance prohibits disclosure of the amount of the premium paid by the company. APPOINTMENT OF AUDITORS KPMG Australia was appointed as the auditor of the company 19 November 2021, resulting in Ernst & Young being removed as the auditor of the company SAFETY AND ENVIRONMENTAL REGULATIONS The company is committed to the highest standard of environmental and workplace safety performance reasonably practicable. The company’s performance in respect to its compliance with its policies and operating procedures to ensure its obligations in this regard are met is reported to the Executive Committee (Exco). The company is subject to various environmental and safety regulations under either Commonwealth, State or other international legislation. The Board believes the company has adequate systems in place for the management of its environmental and workplace safety compliance and operational risks and is not aware of any material breach of relevant legal and regulatory requirements as they apply to the company other than those already disclosed in this report.
Financial Statements 2022 39 LIKELY DEVELOPMENTS AND EXPECTED RESULTS OF COMPANY In the opinion of the directors, it would prejudice the interests of the company if any further information on likely reasonable and material developments in the operations of the company and the expected results of operations were included herein, and the omission of such information is hereby disclosed. EVENTS SUBSEQUENT TO BALANCE DATE Refer to note 27 - Events subsequent to balance date. ROUNDING The amounts contained in this report and in the financial report have been rounded to the nearest thousand dollars (where rounding is applicable) and where noted ($’000’s) under the option available to the company under ASIC Corporations (Rounding in Financial/Directors' Reports) Instrument 2016/191. The company is an entity to which the Corporations Instrument applies. NON-AUDIT SERVICES The directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit service provided means that auditor independence was not compromised. KPMG Australia has not received or are not due to receive the any amounts for the provision of non-audit services. AUDITOR INDEPENDENCE DECLARATION The company has obtained an Auditor’s Independence Declaration from KPMG Australia. The Auditor’s Independence Declaration is located on the following page. The annual financial statements which appear on pages 39 to 89 were approved by the directors by resolution dated 22 August 2022 and are signed on their behalf. GOING CONCERN AND LIQUIDITY In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Company can continue in operational existence for the foreseeable future. In concluding this assessment, the Directors have taken the following considerations into account: The Company enters FY23 with increased levels of work in hand of $2.5 billion following significant project wins in Australia and New Zealand / Pacific. At the balance sheet date the Company also has more than $2.5 billion of opportunities (based on current contract value) that are in sole source negotiations or in early contractor involvement stage and therefore it is probable these will be converted into contracted projects. The Directors have reviewed the business plans and detailed financial budgets for the year ending 30 June 2023 and beyond, as well as preparing cash flow forecasts covering at least 12 months from the date of these annual financial statements. The construction markets of Australia and New Zealand are healthy, and the Company expects to continue winning work in the coming years to further grow the order book. The preparation of budgets, plans and forecasts include consideration of the impact of the COVID-19 pandemic. This included management’s responses to the effects thereof. Whilst management has taken action to address these effects, this pandemic continues to evolve and represents a risk to the achievement of these budgets, plans and forecasts. Management will continue to monitor and respond to the circumstances as these emerge. The budgets, plans and forecasts have, together with the assumptions used, been interrogated, and approved by the Directors. These detailed financial budgets plan and forecasts that are being implemented by management indicate that the Group will have sufficient liquidity resources for the foreseeable future. The Company has met its banking covenants for 30 June 2022 resulting in no breaches at the year-end period and current forecasts do not indicate any breaches in the upcoming financial quarters. The Group retains the support of its lenders, guarantee providers, and insurance bonding providers. The Directors have considered the business plans, detailed financial budgets and updated forecasts, including all available information, and whilst significant estimates and judgements including the impacts of the wider economic environment (including COVID-19 specifically) are always and will continue to be required, the Directors are of the opinion that the going concern assumption is appropriate in the preparation of the financial statements. S. V. Cummins D. J. Morrison Director Director 22 August 2022 22 August 2022
McConnell Dowell 40 Auditor's Independence Declaration 40 KPMG, an Australian partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved. The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organisation. Liability limited by a scheme approved under Professional Standards Legislation. Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of McConnell Dowell Corporation Limited I declare that, to the best of my knowledge and belief, in relation to the audit of McConnell Dowell Corporation Limited for the financial year ended 30 June 2022 there have been: i. no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii. no contraventions of any applicable code of professional conduct in relation to the audit. KPMG Duncan McLennan Partner Sydney 22 August 2022
Financial Statements 2022 41 Statement of Comprehensive Income All figures are in A$000's Note 2022 2021 Revenue 2 1,722,608 1,473,718 Other income 2 5,829 8,675 Total revenue and other income 1,728,437 1,482,393 Operating expenses 3 (1,666,814) (1,427,396) Depreciation 9(a), 9(b) (25,213) (26,287) Share of loss of an associate 10 (465) (584) Tax recoupment from Parent 5 13,340 6,941 Finance income 4 559 477 Finance expense 4 (3,016) (3,430) Profit before tax 46,828 32,114 Income tax expense 5 (15,606) (9,080) Profit after tax for the year 31,222 23,034 Attributable to: Members of the parent entity 31,179 22,852 Non-controlling interest 23 43 182 Profit after tax for the year 31,222 23,034 Consolidated The above Statement of Comprehensive Income is to be read in conjunction with the accompanying notes. for the year ended 30 June 2022
McConnell Dowell 42 Statement of Other Comprehensive Income All figures are in A$000's Note 2022 2021 Profit after tax for the year 31,222 23,034 Other comprehensive income Items that may be reclassified subsequently to profit or loss in subsequent period (net of tax) Foreign currency translation 22 (377) (2,729) Other comprehensive loss for the year, net of tax (377) (2,729) Total comprehensive profit for the year, net of tax 30,845 20,305 Attributable to: Members of the parent entity 30,778 20,164 Non-controlling interest 23 67 141 Total comprehensive profit for the year, net of tax 30,845 20,305 Consolidated The above Statement of Other Comprehensive Income is to be read in conjunction with the accompanying notes. for the year ended 30 June 2022
Financial Statements 2022 43 All figures are in A$000's Note 2022 2021 Assets Current assets Cash and cash equivalents 8 210,112 172,316 Inventories 6 1,040 1,341 Asset held for sale 9(a) - 615 Trade and other receivables 7 198,101 227,482 Contract assets 7(c) 112,722 68,929 Prepayments 3,915 1,909 Income tax receivable 2,911 2,351 Total current assets 528,801 474,943 Non-current assets Property, plant and equipment 9(a) 48,122 47,023 Right of use assets 9(b) 14,782 18,526 Investment in and loans to associates and others 10 - - Deferred tax assets 12 11,788 10,516 Related party receivable - tax consolidation 17 39,743 41,875 Total non-current assets 114,435 117,940 Total assets 643,236 592,883 Liabilities Current liabilities Trade and other payables 13 250,200 214,188 Contract Liabilities 7(c) 139,614 145,443 Interest bearing loans and borrowings 15 186 2,961 Lease liabilities 18 6,853 8,852 Provisions 16 43,435 35,544 Total current liabilities 440,288 406,988 Non-current liabilities Interest bearing loans and borrowings 15 114 1,334 Lease liabilities 18 11,648 13,581 Provisions 16 4,832 4,031 Total non-current liabilities 16,594 18,946 Total liabilities 456,882 425,934 Net assets 186,354 166,949 Equity Issued capital 21 267,765 267,765 Reserves 22 2,523 1,864 Accumulated losses (84,293) (102,972) Parent interests 185,995 166,657 Non-controlling interests 23 359 292 Total equity 186,354 166,949 Consolidated The above Statement of Financial Position is to be read in conjunction with the accompanying notes. Statement of Financial Position As at year ended 30 June 2022
McConnell Dowell 44 All figures are in A$000's Ordinary shares Preference shares Foreign currency translation reserve Asset revaluation reserve Capital and other reserves Non- controlling interest Retained earnings Total equity Balance as at 1 July 2020 227,765 40,000 1,093 385 2,811 151 (120,824) 151,381 Profit for the period - - - - - 182 22,852 23,034 Other comprehensive loss - - (2,729) - - (41) - (2,770) Total comprehensive income for the period - - (2,729) - - 141 22,852 20,264 Conversion of preference share to ordinary share 40,000 (40,000) - - - - - - Share based payment - - - - 304 - - 304 Dividend paid - - - - - - (5,000) (5,000) Balance as at 1 July 2021 267,765 - (1,636) 385 3,115 292 (102,972) 166,949 Profit for the period - - - - - 43 31,179 31,222 Other comprehensive loss - - (377) - - 24 - (353) Total comprehensive income for the period - - (377) - - 67 31,179 30,869 Share based payment - - - - 1,036 - - 1,036 Dividend paid - - - - - - (12,500) (12,500) Balance as at 30 June 2022 267,765 - (2,013) 385 4,151 359 (84,293) 186,354 The above Statement of Changes in Equity is to be read in conjunction with the accompanying notes. Consolidated Statement of Changes in Equity for the year ended 30 June 2022
Financial Statements 2022 45 All figures are in A$000's Note 2022 2021 Cash flows from operating activities Cash generated from operating activites 8(ii) 82,300 75,496 Interest received 559 477 Finance costs 4 (3,016) (3,430) Income tax and other taxes paid (2,259) (1,083) Net cash inflows from operating activities 8 77,584 71,460 Cash flows from investing activities Purchase of property, plant and equipment 9 (a) (16,846) (15,849) Proceeds from the disposal of property, plant and equipment 3,667 3,760 Net cash used in investing activities (13,179) (12,089) Cash flows from financing activities Repayment of borrowings (3,996) (6,125) Payment of principal portion of lease liabilites (9,771) (14,954) Dividends paid to the equity holders of the parent (12,500) (5,000) Net cash used in financing activities (26,267) (26,079) Net increase in cash and cash equivalents 38,138 33,292 Cash and cash equivalents at the beginning of the period 172,316 139,204 Exchange movements on cash (342) (180) Cash and cash equivalents at the end of the period 8 210,112 172,316 The above Statement of Cash Flows is to be read in conjunction with the accompanying notes. Statement of Cash Flows for the year ended 30 June 2022 Consolidated
McConnell Dowell 46 Notes to the annual financial statements for the year ended 30 June 2022 COMPANY DETAILS McConnell Dowell Corporation Limited (the Company) is a public unlisted for-profit company incorporated and domiciled in Australia. The Company’s registered place of business is Level 3, 109 Burwood Road, Hawthorn, Victoria, Australia. The ultimate Australian parent is Aveng Australia Holdings Pty Ltd. The ultimate parent is Aveng Limited (a company incorporated in South Africa). BASIS OF PREPARATION The financial report is a general-purpose financial report, which has been prepared in accordance with the Corporations Act 2001, Australian Accounting Standards and other authoritative pronouncements of the Australian Accounting Standards Board (AASB). The financial report of the Consolidated Entity also complies with International Financial Reporting Standards (IFRS) as adopted by the International Accounting Standards Board (IASB). The financial report has also been prepared on a historical cost basis, except for certain financial instruments (when applicable) which have been measured at fair value. Where necessary, comparative figures have been reclassified and repositioned for consistency with current year disclosures. The financial report is presented in Australian dollars and all values are rounded to the nearest thousand ($000’s) except when otherwise indicated in accordance with ASIC Corporations (Rounding in Financial/ Directors' Reports) Instrument 2016/191. The financial report was approved by a resolution of the Directors of the Company on 22 August 2022. Going Concern In determining the appropriate basis of preparation of the financial statements, the Directors are required to consider whether the Group can continue in operational existence for the foreseeable future. The Company enters FY23 with increased levels of work in hand of $2.5 billion following significant project wins in Australia, New Zealand and Built Environs. At the date of this report the Company also has more than $1.7 billion of opportunities(based on current contract value) that are in sole source negotiations or in Early Contractor involvement stage and therefore it is probable these will be converted into contracted projects. In addition, there are a further $1.8 billion of other outstanding tenders and a further $7 billion tenders expected in FY23 which will provide a solid base for future growth. The Directors have reviewed business plans and detailed financial budgets for the year ending 30 June 2023 and beyond which indicate significant construction opportunities ahead. The construction markets of Australia, New Zealand and Built Environs are healthy, and the Company expects to continue winning work in the coming years to further grow the order book. These detailed financial budgets and business plans that are being implemented by management indicate that the Group will have sufficient liquidity resources for the foreseeable future. The Company has met its banking covenants for 30 June 2022 resulting in no breaches at year-end and current forecasts do not indicate any breaches in the upcoming financial quarters. The Group retains the support of its lenders, guarantee providers, and insurance bonding providers. The Directors have considered the business plans and detailed financial budgets, including all available information, and whilst significant estimates and judgements including the impacts of the wider economic environment (including COVID-19 specifically) are always and will continue to be required, the Directors are of the opinion that the going concern assumption is appropriate in the preparation of the financial statements. STATEMENT OF COMPLIANCE The financial report complies with Australian Accounting Standards and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). BASIS OF CONSOLIDATION The consolidated financial statements include the financial statements of McConnell Dowell Corporation Limited and its subsidiaries as at 30 June each year (the Group). Control over a subsidiary is achieved when the Group is exposed or has the rights to variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the subsidiary. Specifically, the Group deems it controls a subsidiary if and only if the Group has: • Power over the subsidiary (i.e., existing rights that give it the current ability to direct the relevant activities of the subsidiary) • Exposure, or rights, to variable returns from its involvement with the subsidiary, and • The ability to use its power over the subsidiary to affect its returns When the Group has less than a majority of the voting or similar rights of a subsidiary, the Group considers all relevant facts and circumstances in assessing whether it has power over a subsidiary, including; • The contractual arrangement with the other vote holders of the subsidiary • Rights arising from the other contractual arrangements • The Group’s voting rights and potential voting rights The Group reassess whether or not it controls a subsidiary if facts and circumstances indicate that there are changes to one or more of the three elements of control. Subsidiaries are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group. The parent's investments in controlled entities are initially recognised at cost and subsequently measured at cost, less any impairment charges. 1. Accounting policies
Financial Statements 2022 47 Non-controlling interests not held by the Group are allocated their share of net profit after tax and each component of other comprehensive income and are presented within equity in the consolidated statement of financial position, separately from parent shareholders’ equity. All intercompany transactions and balances, income and expenses, and profits and losses resulting from intra-group transactions are eliminated on consolidation. BUSINESS COMBINATIONS Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic conditions, the Group’s operating or accounting policies and other pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the acquisition date fair value of the acquirer's previously held equity interest in the acquiree is remeasured at fair value as at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with AASB 9 either in profit or loss or in other comprehensive income. If the contingent consideration is classified as equity, it shall not be remeasured. FOREIGN CURRENCY TRANSLATION Functional and presentation currency Both the functional and presentation currency of McConnell Dowell Corporation Limited and its Australian subsidiaries is Australian dollars ($). Where a subsidiary’s functional currency is a different denomination it is translated to the presentation currency (see below). Transactions and balances Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date. All differences arising on settlement or translation of monetary items are taken to the statement of profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Translation of group companies’ functional currency to group presentation currency On consolidation the assets and liabilities of foreign entities are translated into Australian dollars at rates of exchange prevailing at the reporting date. Income, expenditure and cash flow items are translated into Australian dollars at weighted average rates. Exchange variations arising on translation for consolidation are recognised in the foreign currency translation reserve in equity, through other comprehensive income. If a subsidiary were sold, such translation differences are recognised in the statement of profit or loss as part of the cumulative gain or loss on disposal. FINANCIAL INSTRUMENTS Financial Assets Initial recognition and measurement The Group initially recognises financial assets when the Group becomes a party to the contractual provisions of the instrument. Financial assets are initially measured at fair value plus in the case of assets not measured at fair value through profit or loss, directly attributable transaction costs. Subsequently financial assets, excluding derivatives, are classified as measured at amortised cost or fair value, depending on the Group’s business model for managing the financial asset and the contractual cash flow characteristics of the financial asset. Derivatives are subsequently measured at fair value through profit or loss. Changes in the fair value of derivatives used to economically hedge the Group’s foreign exchange exposure are recognised in other earnings in the earnings or loss component of the statement of comprehensive earnings. A financial asset qualifies for amortised cost, using the effective interest method net of any impairment loss if it meets both of the following conditions: • the asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows; and • the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal amount outstanding. If a financial asset does not meet both of these conditions, it is measured at fair value. The assessment of business model is made at portfolio level as this reflects best the way the business is managed, and information is provided to management. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the marketplace are recognised on the trade date, i.e., the date that the Group commits to purchase or sell the asset. The Group’s financial assets are classified as trade and other receivables, amounts due from contract assets, and cash and bank balances.