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.
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