1 Annual Review 2023
2 Contents 04 CEO's Message 07 Group Highlights 08 Our Solutions 10 Sustainability 12 Community 15 Project Showcase 33 Financial Statements 93 Contact Us McConnell Dowell is Creative Construction. We successfully deliver complex infrastructure with our customers and the community.
McConnell Dowell Group Annual Review 2023 3 Jurong Region Line - Contract J108, Singapore
McConnell Dowell 4 Scott Cummins - Chief Executive Officer CEO's message Increased profit performance and cash generation in this period from our Australian and NZ/Pacific businesses was overshadowed by a large loss in our SEA business. However, we enter the new financial year with our expected FY24 revenue budget secured, and a focus on project execution and improved risk management initiatives.
McConnell Dowell Group Annual Review 2023 5 Operational Performance Our overall performance in this period was mixed. While we were pleased to see excellent revenue growth across the Australian, New Zealand and Pacific Islands, and Built Environs business units, it was disappointing to see our profit impacted by underperformance of the Southeast Asian business. The result in South East Asia was primarily driven by losses on the Batangas LNG terminal project in the Philippines due to several factors including Covid-19 travel restrictions and supply chain delays with the Ukraine war. This had a material impact on the Group’s overall FY23 profit performance despite strong underlying performance across other Business Units. McConnell Dowell has resolved certain contractual claims with its client. Further, it has been agreed that McConnell Dowell will provide support services that utilise our expertise, experience, systems and capabilities to assist the client to achieve full commissioning of the project in the coming months. This has significantly reduced our financial exposure. Across the Group, several changes and new practices were established, applying further safeguards for future performance. This included the introduction of a Project Management Office at Executive level, led by experienced project management professionals and reporting directly to myself. The PMO will provide best practice support to all project management teams. We also reviewed our commercial limits policy, tightening application of commercial terms and applying a robust reconsideration of pursue/nopursue decisions at all tender review gates. Enhanced project technical reviews designed to strengthen our assurance mechanisms, enabling us to identify specific issues earlier and allow for more timely interventionshas also been put into practice. We enter the new financial year with excellent work in hand underpinning revenue certainty, and a strong focus on delivery performance to ensure a return to profitability. Business Unit Overview Australia The Australian business unit continued to execute works across all the regions and in a range of industry sectors. Operationally, 95% of the strong project portfolio is profitable. The business unit achieved similar profitability levels as in FY22, however there are some executions and cost challenges in the current environment. Completed contracts during the year included Granite Island Causeway (SA), Ovingham Grade Separation (SA), Cranbourne Line Upgrade (Vic), Aviation Road Pedestrian Underpass (Vic), Echuca Moama Bridge (Vic). Ongoing major projects included Kidston Pumped Hydro (Qld), Western Program Alliance (Vic), Port Kembla Gas Terminal (NSW), and New Midland Station (WA). Australian government spending continued to support a strong pipeline of new project opportunities in the first half of FY23. Projects secured during this period included the award of Tasmania’s largest current civil infrastructure project – the New Bridgewater Bridge project, the Epping Road upgrade, Webb St Level Crossing Removal, Inland Rail: Beveridge to Albury – Tranche 1, and Swanson Dock West projects in Victoria, Kamay Ferry Wharves in NSW, CUF Marine Development Works and Port Dock Rail ECIs in South Australia, and the Gladstone to Fitzroy Pipeline and Aura and Harmony Trunk Infrastructure projects in Queensland. With an already strong order book, these new project awards mean the Australian business unit commences FY24 with 100% of its planned revenue for the new financial year already secured. New Zealand & Pacific The New Zealand business unit achieved a pleasing fifth-straight year of improvement across all financial metrics. Over 90% of the unit’s project portfolio is at bid margin or better, with no loss-making projects. New Zealand experienced steady work in hand growth during FY23, navigating a variable pipeline and client funding constraints to secure work. Several key projects were awarded including the high-profile State Highway 25A Taparahi Slip Remediation project following the Cyclone Gabrielle weather event in early 2023, Shotover Waste Water Treatment Plant Upgrade in Queenstown, continued works at Auckland International Airport, Warkworth to Snells pipeline with Watercare, an 8-year WWTP upgrade programme in Dunedin, Te Puke WWTP ECI, and the Wellington Sludge Minimisation project. The appointment of a Water Sector Lead and increased self-perform capability has contributed to McConnell Dowell’s sustained success in the NZ water infrastructure sector. The Pacific region saw opportunities significantly increased due to the geopolitical environment refocusing Western engagement. The ADF project provides a steady base to mobilise across the Pacific Islands, enabling the business to respond to the increased pipeline. This year, several key projects were secured including the Queen Salote International Wharf Upgrade in Tonga, a new sewer pipeline in the Solomon Islands, the ECI phase for MFAT’s PPSP Chanceries and Staff Housing project which spans seven Pacific Islands, and several new projects in American Samoa. All taking our Pacific Islands committed work forward across eleven Pacific Islands. NZP commences FY24 with a high backlog of 94% secured work, set to increase to over 100% when preferred contractor status contracts are secured. Built Environs Built Environs, the Group’s commercial building business operating in The commercial building arm of the Group increased its revenue by 60% to $229 million, consistent with a significant growth agenda in that Business Unit’s FY23 business plan. With several projects priced prior to the significant price escalation seen in the aftermath of the COVID-19 pandemic, together with several subcontractor insolvencies and the subcontractor market generally being at full capacity in Victoria, Built Environs experienced an EBIT downgrade to break even for FY23. However, the continued strong focus on new business and market exposure across each of the three regions has seen the new work won increase by 63% to a record $510 million. New projects secured include 150 Grenfell St (SA), The Queen Elizabeth Hospital (SA), Manukau Health Park Packages (NZ), Auckland Airport West Terminal Work Package 2, Mt Derrimut Station (Vic), Webb Street Station (Vic), Fawkner Leisure Centre (Vic). These new projects continue to cement Built Environs’ emerging presence in large scale health, transport and sports and leisure works. In South Australia, Built Environs handed over to the Department of Infrastructure and Transport the Golden Grove Park ‘n’ Ride project as part of the Public Transport Program Alliance.
6 Message from our CEO continued... social responsibility (CSR) initiative per project, and more than 90% of client social procurement spending targets were met or exceeded. People and Leadership Our strong leadership across the business was further enhanced by several key senior appointments, including the addition of a Project Management Office function at Group level, led by Trevor Cruden with more than 30 years’ experience in the area. Our new South East Asia Managing Director Tan Hee Wee brings a wealth of local knowledge and new industry relationships to the business, while the Australian leadership team welcomed Katrina Dodd as GM Engineering and Ryan Dodd as the new GM Queensland/Northern Territory region; both also bringing strong local network connections and reputations. Leadership teams in New Zealand and Pacific Islands and Built Environs remain largely unchanged, highlighting overall business stability. After a tumultuous post-COVID-19 period industry-wide, employee turnover has generally stabilised, with attraction and retention of top talent through career progression and leadership programs continuing to be a focus. Ongoing staff development remains a priority, with 19,779 hours of training undertaken by our employees. Looking ahead While our secured revenue is strong, there are some complexities emerging, especially in our largest market, Australia. Recent government change at the federal and state level has led to a review of priorities and major projects. Investment in social infrastructure (schools, hospitals, public housing) is set to increase in key states such as Victoria and NSW, with some of this investment likely to replace transport infrastructure funding. Similarly, all regions are planning for the inevitable energy transition and future climate and water resilience investment requirements. This again, may divert funding away from transport infrastructure. Our Horizon 2030 Strategy foresaw these trends, and the business is well placed to participate in these next waves of growth, with Work in Hand up 40% to $3.5 billion, securing expected revenue budget for FY24. The Built Environs business specialises in social infrastructure, especially schools and hospitals, while our recent focus and success in energy (e.g., Kidston Pumped Hydro and Port Kembla LNG Terminal) and water (e.g., numerous WWTP projects in NZ, Palembang WWTP in Indonesia, and SA Water Frameworks) provides the market positioning and capability platform needed for future growth. The business successfully delivered in its Victorian region the Year 9 Building for the Haileybury College and the Mt Alexander College project for the Victorian Schools Building Authority. In New Zealand, Built Environs completed the Otahuhu Logistics Park project for Logos and handed over its first health project the new Paediatric Intensive Care Units for Health New Zealand. South East Asia Revenue in South-East Asia reduced to $120 million, and the region remains the most challenging for the Group. Profit margins were adversely impacted by difficult operating conditions and supply chain constraints, with limited new work secured in the reporting period. Changes have been made in Project Leadership in the period on several of our key projects. Active projects included Jurong Regional Line (J108) and Tuas Wastewater Reclamation Works - C1A in Singapore, the Tangguh LNG, and Palembang Wastewater projects in Indonesia and FGEN LNG MultiPurpose Jetty and Gas Receiving Facility in the Philippines. Throughout the region, the construction sector has recovered to pre COVID levels in the most part, but there are still adverse effects in delivery with delays in the supply chain and depleted availability of key staff, labour, and specialist equipment. Refocusing of tender activity towards near shore marine infrastructure in FY23 has strongly positioned the BU to be awarded key projects in H1 FY24 in our key geographical markets. In FY24, the BU will continue this recentring of focus on primarily Marine opportunities in the key geographical markets of Singapore and Indonesia. Environmental, Social and Governance We have continued to deliver on our environmental, social and governance objectives aligned with our purpose of 'Providing a Better Life', by embedding our Environmental, Social and Governance (ESG) framework into our organisational decision making. Environmentally, we remain committed to reducing carbon and embracing the circular economy, including concerted efforts to minimise waste and pollution. Climate change risk or ESG proposition continues to be considered in all tenders, with an average of two environmental initiatives executed per project, and 80% of our construction and office waste diverted from landfill. We also co-developed the ‘Solarator’ - a compact containerised power plant combining solar panels, batteries and a small diesel generator, which is being used on project sites across Australia. Solarators are scalable in output and can reduce diesel consumption by up to 90% for our off-grid site facilities. On the social front, our 'Pre-employment Program’ on the New Bridgewater Bridge project is helping build the capability and capacity of Tasmania's construction industry, and providing a career kick-start for people who were either long-term unemployed, indigenous, disengaged youth, or living with a disability. The program was developed by us, funded by Keystone Tasmania, and delivered in partnership with TasTAFE and Lifeline. Overall, 56 participants (84% of the intake) graduated with job-ready skills. 26% were women and 28% were Aboriginal or Torres Strait Islander. Our Australian team also advanced their Reconciliation Action Plan (RAP) work to ‘Elevate’ level, while 100% of New Zealand projects and offices involved mana whenua. We achieved out target of at least one corporate Scott Cummins Chief Executive Officer
McConnell Dowell Group Annual Review 2023 7 Despite strong revenue growth, a disappointing loss-making year Profitable business performance in Australia and NZ & Pacific Strong year of New Work Won - $3.2 billion, taking work in hand to $3.5 billion Opportunity pipeline remains healthy despite some signs of heated market slowing Significant steps towards improving operational performance and risk management 07 Group Overview
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. Ports & 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.
McConnell Dowell Group Annual Review 2023 9 Water & Wastewater We deliver across the complete water and wastewater system; from capture, storage and treatment to distribution and outfall. Building From state of the art hospitals and hightech 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.
10 We approach business holistically, embracing environmental, social and governance objectives aligned with our five values and our purpose of 'Providing a Better Life'. Sustainability saved from Solarator & solar array use 300 Million 696,000 tonnes of waste diverted from landfill 4434tonnes of CO2 litres of nonpotable water used in place of potable
McConnell Dowell Group Annual Review 2023 11 Case Studies * * Includes construction and infrastructure lifecycle savings, across target Australian projects We co-developed the ‘Solarator’ - a compact containerised power plant that combines solar panels, batteries and a small diesel generator. Now being used on our project sites across Australia, the Solarators are scaleable in output and can reduce diesel consumption by up to 90% for our off-grid site facilities. Over a 10-year period the units will save over 8,000 tonnes of carbon on our work sites. In addition to their sustainability benefits, Solarators are quiet, low maintenance, compact, transportable and 'plug and play' in their set up. Introducing the ‘Solarator’
12 Case Studies We developed 'Pre-employment Program’ on the New Bridgewater Bridge project, helping build the capability and capacity of Tasmania's construction industry, and providing a career kick-start for 56 people who were either long-term unemployed, indigenous, disengaged youth, or a person living with a disability. The program was developed by us, funded by Keystone Tasmania, and delivered in partnership with TasTAFE and Lifeline. Overall, 500 people applied to join the course, 149 were shortlisted, and 56 participants (84% of the intake) graduated with job-ready skills. 26% were women and 28% were Aboriginal or Torres Strait Islander. Building a workforce to build a bridge
McConnell Dowell Group Annual Review 2023 13 Community We make a positive and meaningful difference to the health, well-being and prosperity of our people and the communities with whom we work. 281 $ At least CSR initiative per project Social procurement spend of Our Reconcilliation Action Plan moving towards Innovate level 1 MillionAUD
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. Project Showcase A cross-section of current projects under construction.
McConnell Dowell Group Annual Review 2023 15 15 Auckland City Hospital Central Plant & Tunnel, New Zealand
16 Fitzroy to Gladstone Pipeline Long-term water security for local communities Designing and constructing 117km pipeline, a water treatment plant, reservoirs and pumping stations in the Gladstone region in Queensland.
McConnell Dowell Group Annual Review 2023 17 A game-changing project for Australia’s clean energy industry Kidston Pumped Storage Hydro Converting a disused gold mine into a natural battery capable of generating 250 MW of power on a rapid (30 second) response basis.
18 New Bridgewater Bridge Delivering Tasmania’s largest ever transport infrastructure project Design and construction of a modern new 1 km crossing of the River Derwent for improved mobility, accessibility, and connectivity.
McConnell Dowell Group Annual Review 2023 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.
20 Kamay Ferry Wharves Rebuilding water connections across Botany Bay Construction of two new wharves in Botany Bay to improve public access and revitalising the historical significance of the area.
McConnell Dowell Group Annual Review 2023 21 Collaborating on Australia's largest freight rail infrastructure project Inland Rail Victoria Improving Australia's national freight network by designing and constructing the first tranche of the Inland Rail project.
22 Swanson Dock West remediation Remediating and upgrading existing wharf structure for future port operations Delivering the wharf upgrade project in three stages to maintain port operations and minimise disruption
McConnell Dowell Group Annual Review 2023 23 Improving connectivity and traffic flow for 35,000 daily commuters Epping Road Upgrade Upgrading the intersection and creating a safer space for all road users in the local area in Melbourne's north
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 day wastewater treatment plant that will provide 12,000 households and businesses with sewerage services for the first time
26 Shotover Wastewater Treatment Plant Upgrade Improving environmental outcomes for Queenstown Construction of an additional reactor tank and clarifier which will double the capacity of the wastewater treatment plant (WWTP)
McConnell Dowell Group Annual Review 2023 27 Contributing to a cleaner and more sustainable Wellington Wellington Sludge Minimisation Facility Project Construction of a new Sludge Minimisation Facility encompassing hydrolysis, anaerobic digestion, dewatering and thermal drying.
28 Nuku’alofa Port Upgrade Supporting economic development in the Pacific Islands Modernising and climate-proofing the facility, increasing container capacity, and improving overall port operations for Tonga’s main international port.
McConnell Dowell Group Annual Review 2023 29 Enhancing hospital infrastructure and services, benefitting the community and patients Auckland City Hospital Central Plant and Tunnel Multistorey building and services tunnel construction, and installation and commissioning of all new essential plant and equipment.
30 The Queen Elizabeth Hospital Increasing emergency, critical care and surgical capabilities in Adelaide's western suburbs Constructing and modernising a new six-level clinical services building providing South Australians with better health care access.
McConnell Dowell Group Annual Review 2023 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.
32 Manuaku Health Hub Redevelopment Improving facilities to deliver enhanced experience for patients and staff A redevelopment project of a health care facility, providing better access to high quality health care for the community in South Auckland
McConnell Dowell Group Annual Review 2023 33 Constructing a high-quality commercial development in Adelaide's CBD 150 Grenfell Street Full reconstruction and expansion of two existing five-story office buildings at 150 Grenfell and 162 Grenfell Street.
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McConnell Dowell Group Annual Review 2023 35 McConnell Dowell Financial Statements for the year ended 30 June 2023 35
36 Portfolio Breakdown Consistent project execution performance, diversity and technical capability continues to position the company well. Revenue by Business Unit 6% 10% 12% 72% Australia South East Asia New Zealand Built Environs
37 Work in Hand by Business Unit 5% 12% 16% 67% Australia South East Asia New Zealand Built Environs Revenue by Type Work in Hand by Type 2% 34% 30% 34% 1% 35% 31% 33% Construction only Relationship Design & Construction Service Construction only Design & Construction Relationship Service
38 for the year ended 30 June 2023 Directors' Report 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 2023. 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 Company has recorded varied financial results for the year ended 30 June 2023. Our underlying Australian, New Zealand and Pacific Islands businesses reported increased operating earnings and cash generation however this was overshadowed by a significant $129 million loss recorded in the South East Asia Business Unit (SEA BU), pushing the group into a $66.5 million loss for FY23 year. The main cause of the SEA BU result was the $104 million loss reported on the BLNG LNG project in the Philippines. The Batangas LNG Terminal project was an EPC contract, which was significantly delayed by COVID-19 and supply chain issues that were further exacerbated by the war in Ukraine. The EPC project is now complete, and all commercial issues settled. We continue to assist the client with final commissioning works under a separate services agreement. The business has recorded revenue growth in FY23 to $2.16 billion, mainly driven by the Australian and Built Environs business units. Project execution across Australia & NZ/Pacific has been steady, with a balanced portfolio of over 80 projects predominately performing well, with 93% profitability. Project execution conditions remain challenging in the post COVID period with high cost escalation, however, we are starting to see some easing of the escalation risk for newer projects. The business secured 40% growth in Work in Hand to $3.5 billion, providing revenue certainty for the FY24 year. KEY FINANCIAL HIGHLIGHTS IN FY23 • Revenue grew by 25% to $2.2 billion (2022: $1.7 billion) • Loss after tax $66.5 million compared to a $31 million profit in the comparative period • Work in hand up 40% to $3.5 billion with $3.2 billion new work secured during the period • Stable liquidity position with $177 million in the bank. All the business units exceeded budget cashflow with the exception of South East Asia, impacted by the deterioration of the BLNG contract resulting in a net operating cash outflow during the period. • Bonding & bank facilities of $721 million available ($562 million utilised) with dedicated support from our financial partners • Preferred positions on prospects worth over $1.0 billion plus a further $1.7 billion live tenders outstanding • Strong position to capitalise on the revenue secured for FY24 and return to profitability and future growth. OPERATIONAL PERFORMANCE Strong ESG foundations were laid throughout the year in mental health, social procurement and sustainability arenas. The group reported an excellent safety performance with the lead indicator (PHAIR) exceeding target. There were zero major environmental incidents in the period. After a successful and profitable FY22, the Group was significantly impacted by the underperformance of the Batangas LNG Terminal project (“BLNG”) in the South East Asia business unit, resulting in the Group reporting an operating loss for the period. The impact of BLNG was offset by a strong operational performance from the Australia, New Zealand & Pacific Islands, and Built Environs business units, which delivered an operating profit of $77 million. The management team responded to the underperformance with a series of operational actions including: • Establishment of a Project Management Office (PMO), which will bring added rigour to delivery performance and a back to basics focus on time, cost and risk • Enhancement of risk management procedures including risk assessment, commercial limits, project review processes, and tender technical risk reviews The Australian business unit continued to execute works across all states and in a range of industry sectors. Operationally, 95% of the strong project portfolio are profitable. The business unit achieved similar profitable levels as in FY22, however there are some execution and cost challenges in the current environment. With a strong order book, the Australian business unit commences FY24 with 100% of its planned revenue for the new financial year already secured. The New Zealand business unit achieved a fifth straight year of improvement across all financial metrics. Over 90% of the project portfolio is at bid margin or better, with no loss-making projects. The business unit commences FY24 with a high backlog of 94% secured work, set to increase to over 100% when preferred contractor status contracts are secured. Revenue in South East Asia reduced to $120 million, and the region remains the most challenging for the Group. Profit margins were adversely impacted by difficult operating conditions and supply chain constraints, with limited new work secured in the reporting period. Changes have been made in the leadership team, and in FY24, the BU will focus on primarily marine opportunities in the key geographical markets of Singapore and Indonesia. The Built Environs business unit reported a 60% increase in its revenue to $229 million on the back of solid levels of work in hand at the beginning of the financial year. The business unit's operational earnings were, however, impacted by several projects priced prior to the significant price escalation, together with several subcontractor insolvencies and the subcontractor market generally being at full capacity in Victoria. Built Environs are well positioned for FY24. Work in hand grew by 40% from June 2022 to $3.5 billion, and the group is now positioned to achieve the budgeted revenue for FY24 with 100% of the revenue secured. The business has $1 billion of preferred tender positions under negotiation. While the Group’s secured revenue is strong, there are some complexities emerging, especially in its largest market, Australia. Recent government change at federal and state level has led to a review of priorities and major projects. Investment in social infrastructure (schools, hospitals, public housing) is set to increase in key states such as Victoria and NSW, with some of this investment likely to replace transport infrastructure funding. Similarly, all regions are planning for the inevitable energy transition and future climate and water resilience investment requirements. The Group’s Horizon 2030 Strategy is aligned with these trends, and the business is well placed to participate in these next waves of growth.
39 DIVIDENDS A dividend of $15.75 million (2022 – $12.5 million) was declared and paid during the year ended 30 June 2023 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. 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. 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 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 No significant events have occurred 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 41 to 90 were approved by the directors by resolution dated 21 August 2023 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 Group can continue in operational existence for the near future. The Company enters FY24 with increased levels of work in hand of $3.5 billion following significant project wins in Australia, New Zealand and Built Environs. At the date of this report the Company also has $1 billion of opportunities 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 $1.7 billion of other outstanding tenders and a further $6 billion tenders expected in FY24 which will provide a solid base for future revenue. The Directors have reviewed the business plans and detailed financial budgets for the year ending 30 June 2024 and beyond. The construction markets of Australia, New Zealand and Built Environs are healthy, however there is a level of uncertainty. The Built Environs pipeline in social infrastructure remains strong, however government civil infrastructure spend in New South Wales and in Victoria (both Australian regions) is decreasing. A reducing market will increase the competitiveness in tendering for work. The Company benefits from having diversity in locations and type of work performed allowing it to position itself to maximise the opportunities best fit for the organisation. These detailed financial budgets and business plans that are being implemented by management indicate that the Group will have sufficient liquidity resources for the near future. The Company has met its banking covenants for 30 June 2023 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 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 21 August 2023 21 August 2023
40 Auditor's Independence Declaration 40 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 2023 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 21 August 2023 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 2023 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. KPM_INI_01 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG Duncan McLennan Partner Sydney 21 August 2023
41 for the year ended 30 June 2023 Statement of Profit or Loss All figures are in A$000's Note 2023 2022 Revenue 2 2,161,489 1,722,608 Other income 2 1,798 5,829 Total revenue and other income 2,163,287 1,728,437 Operating expenses 3 (2,204,421) (1,666,814) Depreciation 9(a), 9(b) (25,988) (25,213) Share of loss of an associate 10 (182) (465) Tax recoupment from Parent 5 20,743 13,340 Finance income 4 4,620 559 Finance expense 4 (3,889) (3,016) (Loss) / Profit before tax (45,830) 46,828 Income tax expense 5 (20,743) (15,606) (Loss) / Profit after tax for the year (66,573) 31,222 Attributable to: Members of the parent entity (66,428) 31,179 Non-controlling interest 23 (145) 43 (Loss) / Profit after tax for the year (66,573) 31,222 Consolidated The above Statement of Proft or Loss is to be read in conjunction with the accompanying notes.
42 for the year ended 30 June 2023 Statement of Other Comprehensive Income All figures are in A$000's Note 2023 2022 (Loss) / Profit after tax for the year (66,573) 31,222 Other comprehensive income Items that may be reclassified subsequently to profit or loss in subsequent period (net of tax) Foreign currency translation 3,680 (377) Other comprehensive income / (loss) for the year, net of tax 3,680 (377) Total comprehensive (loss) / income for the year, net of tax (62,893) 30,845 Attributable to: Members of the parent entity (62,720) 30,778 Non-controlling interest 23 (173) 67 Total comprehensive (loss) / income for the year, net of tax (62,893) 30,845 Consolidated The above Statement of Other Comprehensive Income is to be read in conjunction with the accompanying notes.
43 as at year ended 30 June 2023 All figures are in A$000's Note 2023 2022 Assets Current assets Cash and cash equivalents 8 176,908 210,112 Inventories 6 1,665 1,040 Trade and other receivables 7 273,410 198,101 Contract assets 7(c) 150,593 112,722 Prepayments 2,799 3,915 Income tax receivable 2,014 2,911 Total current assets 607,389 528,801 Non-current assets Property, plant and equipment 9(a) 49,996 48,122 Right of use assets 9(b) 27,077 14,782 Deferred tax assets 12 9,623 11,788 Related party receivable - tax consolidation 17 45,004 39,743 Total non-current assets 131,700 114,435 Total assets 739,089 643,236 Liabilities Current liabilities Trade and other payables 13 342,922 250,200 Contract Liabilities 7(c) 165,830 139,614 Interest bearing loans and borrowings 15 25,139 186 Lease liabilities 18 11,897 6,853 Provisions 16 52,055 43,435 Total current liabilities 597,843 440,288 Non-current liabilities Interest bearing loans and borrowings 15 21 114 Lease liabilities 18 18,746 11,648 Provisions 16 4,424 4,832 Total non-current liabilities 23,191 16,594 Total liabilities 621,034 456,882 Net assets 118,055 186,354 Equity Issued capital 21 277,765 267,765 Reserves 22 6,575 2,523 Accumulated losses (166,471) (84,293) Parent interests 117,869 185,995 Non-controlling interests 23 186 359 Total equity 118,055 186,354 Consolidated The above Statement of Financial Position is to be read in conjunction with the accompanying notes. Statement of Financial Position
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 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 1 July 2022 267,765 - (2,013) 385 4,151 359 (84,293) 186,354 Loss for the period - - - - - (145) (66,428) (66,573) Other comprehensive income - - 3,708 - - (28) - 3,680 Total comprehensive loss for the period - - 3,708 - - (173) (66,428) (62,893) Preference share issuance* - 10,000 - - - - - 10,000 Share based payment - - - - 344 - - 344 Dividend paid - - - - - - (15,750) (15,750) Balance as at 30 June 2023 267,765 10,000 1,695 385 4,495 186 (166,471) 118,055 The above Statement of Changes in Equity is to be read in conjunction with the accompanying notes. * Refer to Note 21 Issued Capital for additional information Consolidated Statement of Changes in Equity for the year ended 30 June 2023
45 All figures are in A$000's Note 2023 2022 Cash flows from operating activities Receipts from customers (inclusive of goods & service tax) 2,301,206 1,893,544 Payments to suppliers and employees (inclusive of goods & service tax) (2,327,473) (1,811,244) Cash (used in) / generated from operating activites (26,267) 82,300 Interest received 4,620 559 Finance costs 4 (3,889) (3,016) Income tax and other taxes paid (1,897) (2,259) Net cash (outflows) / inflows from operating activities 8 (27,433) 77,584 Cash flows from investing activities Purchase of property, plant and equipment 9 (a) (19,221) (16,846) Proceeds from the disposal of property, plant and equipment 2,394 3,667 Net cash used in investing activities (16,827) (13,179) Cash flows from financing activities Proceeds from issuance of preference shares 10,000 - Proceeds from borrowings 35,457 - Repayment of borrowings (10,597) (3,996) Payment of principal portion of lease liabilites (9,469) (9,771) Dividends paid to the equity holders of the parent (15,750) (12,500) Net cash generated from / (used in) financing activities 9,641 (26,267) Net (decrease) / increase in cash and cash equivalents (34,619) 38,138 Cash and cash equivalents at the beginning of the period 210,112 172,316 Exchange movements on cash 1,415 (342) Cash and cash equivalents at the end of the period 8 176,908 210,112 The above Statement of Cash Flows is to be read in conjunction with the accompanying notes. Statement of Cash Flows Consolidated for the year ended 30 June 2023
46 Notes to the annual financial statements for the year ended 30 June 2023 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 21 August 2023. 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 FY24 with increased levels of work in hand of $3.5 billion following significant project wins in Australia, New Zealand and Built Environs. At the date of this report the Company also has $1 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 $7.5 billion tenders expected in FY24 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 2024 and beyond. The construction markets of Australia, New Zealand and Built Environs are healthy, however there is a level of uncertainty. The Built Environs pipeline in social infrastructure remains strong, however Government Civil infrastructure spend in New South Wales and in Victoria(all Australian regions) is decreasing. A reducing market will increase the competitiveness in tendering for work. The Company benefits from having diversity in locations and type of work performed allowing the Company to position itself to maximise the opportunities best fit for the organisation. 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 renegotiated its banking covenants for 30 June 2023 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) 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
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 customers, and cash and bank balances.
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