1 for the year ended 30 June 2025 FINANCIAL STATEMENTS 2025
2 Revenue by Business Unit Consistent project execution performance, diversity and technical capability continues to position the company well. 4% 21% 13% 63% Australia South East Asia New Zealand & Pacific Built Environs
3 8% 44% 37% Revenue by Type 31% 28% 37% 51% 36% Work in Hand by Type 2% 27% Work in Hand by Business Unit 11% 44% 19% Australia South East Asia New Zealand & Pacific Built Environs Services Relationship Construction Only Design & Construction 3% Design & Construction Construction Only Services Relationship
4 for the year ended 30 June 2025 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 2025. 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.V. Cummins; A.H. Macartney; D. Morrison (resigned 10 February 2025); S.P. Collett (appointed 7 March 2025) Company Secretary D. Morrison (resigned 10 February 2025). PRINCIPAL ACTIVITIES The principal activity of the company is construction. There were no significant changes in the principal activities of the company during the year. CONSOLIDATED RESULT McConnell Dowell’s revenue contracted 14.6%, in line with previous expectations, to A$2.4 billion (2024: A$2.8 billion), following an expected softening of infrastructure markets in Australia and New Zealand. The Group’s gross earnings were negatively impacted by significant losses from the Jurong Region Line (J108) project in the Infrastructure Southeast Asia business unit, and the Kidston Pumped Storage Hydro (Kidston) project in the Infrastructure Australia business unit. Cost increases on these two key projects resulted in the recognition of a combined loss of A$98.4 million for the year ended 30 June 2025. While additional costs in the forecast cost to complete have been recognised in the year, the cash flow impact will largely materialise over the course of the next 12 months as the projects move to be completed. The healthy cash balance, supported by ongoing profitability and continued strong cash generation will fund the outflow expected from these projects. The J108 and Kidston projects were tendered and awarded prior to March 2020. Following the interventions and improvements to the risk management processes introduced in 2023, projects with this risk profile would no longer be tendered in the lump-sum contract form. The business continues to focus on specialised projects in Australia, New Zealand & Pacific Islands and Southeast Asia, offering engineering and infrastructure solutions in the transport, ports & coastal, water & wastewater, energy, resources and commercial building sectors. The Group enters FY26 with combined work in hand of A$2.1 billion, down from A$2.6 billion in June 2024. As previously guided, work in hand in the Infrastructure business units has reduced to A$1.2 billion (June 2024: A $2.2 billion), reflecting the overall reduction in state government spending (particularly in Victoria and New South Wales). The Infrastructure business units remain aligned to the market shift to defence, energy, water, marine and resources. Work in hand in the Building business unit has increased to A$864 million (June 2024: A$443 million) following successful award of projects in healthcare, recreation and education sectors. 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. KEY HIGHLIGHTS IN FY25 • Revenue contracted by 14.6% to A$2.4 billion (2023: A$2.8 billion), in line with previous expectations • Operating loss of A$54.1 million (2024: A$50 million operating profit), • Operating profit (excluding J108 and Kidston) of A$44.3million (2024: A$50 million operating profit), • Work in hand comparatively lower at A$2.1 billion with A$1.8 billion new work secured during the period. • Improved cash position with A$267.4 million in the bank. • Bonding & bank facilities available of A$580.3 million ($429.9 million utilised) with dedicated support from our financial partners. • Operating earnings improved in the Building business unit through continued solid project execution. OPERATIONAL PERFORMANCE Our commitment to ensuring the success of our operating brands, McConnell Dowell and Built Environs remains unwavering and in line with the objective of ensuring a sustainable future for both brands. McConnell Dowell delivers its infrastructure projects in three geographical regions – Australia, New Zealand & Pacific Islands and Southeast Asia. Built Environs delivers its building projects in New Zealand and the states of Victoria and South Australia. Infrastructure The Australia and Southeast Asia business unit have previously reported on under-performance associated with certain projects awarded in the preCOVID period. The majority of these projects have been managed to a satisfactory outcome and, while not contributing profit to the Group, they represent a reducing proportion of revenue as these projects are steadily worked out of the portfolio. The remainder of the project portfolio continues to perform well at higher average operating margins. The New Zealand & Pacific Islands business unit continues to deliver strong performance with revenue of A$317.3 million (2024: A$304.9 million) and has reported an operating margin of A$24.8 million (2024: A $21.7 million). As expected, work in hand is down in the period to A$168.8 million (June 2024: A$339 million), reflecting the timing of larger infrastructure project awards, particularly for government funded projects. An improvement is expected to emerge in the New Zealand & Pacific Islands markets in the coming year. The Australia business unit revenue decreased by 24.2% in the period to A$1.5 billion (2024: A$2.0 billion). Improving margins across its portfolio of projects have contributed to a strong performance for the business unit, however, this performance is overshadowed by the Kidston project in Queensland. The project has not achieved expected productivities, resulting in increased forecast cost to complete and a reported loss in the period. Cost escalation on certain alliance contracts translated into additional revenue at zero margin. Consequently, the Australia business unit will report a loss of A$8.5 million. As expected, work in hand has reduced to A$780 million (June 2024: A$1.6 billion), with new projects to the value of A$679.6 million awarded in the period. In the Southeast Asia business unit, newly awarded marine projects are profitable. However, the J108 project for the Land Transport Authority in Singapore has experienced delays and disruptions. These delays have resulted in commercial claims and increased forecast cost to complete. The commercial negotiations continue with the client and the project will report a significant loss in the year of A$57.3 million (2024: A$6.3 million loss). The business unit’s strategy focuses on self-performing projects in specialised sectors in Indonesia and Singapore. Building Built Environs has reported higher comparable revenue of A$491.1 million (2024: A$419.1 million), with improved operating earnings of A$17 million as compared to the prior period (2024: A$8.6 million). Work in Hand has increased to A$864 million (June 2024: A$443 million) and remains at comfortable levels to deliver similar revenue levels going forward. The improved operating performance and growth in order book reflects a disciplined approach to operation delivery and a focus on its targeted
5 market sectors of education, healthcare and recreation. DIVIDENDS A dividend of A$7.0 million (2024 – A$3.4 million) was declared and paid during the year ended 30 June 2025 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. In addition to the items discussed under going concern and liquidity, refer to note 27: Events after the reporting period. 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 sheet 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 (A$’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 [7] to [59] were approved by the directors by resolution dated 18 August 2025 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 the new year with 76% of FY26 revenue secured despite the lower levels of work in hand of A$2.1 billion. At the date of this report the Company also has A$1.97 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. From these, post year end, new work won in New Zealand and Pacific Islands amounted to $500 million. In addition, there are a further A$1.9 billion of tenders outstanding and tenders in excess of A$8.0 billion expected in FY26 which will provide a solid base for future growth. The Group has a negative current ratio at 30 June 2025, with current liabilities exceeding current assets by $27.2 million. Included in the current liabilities are employee entitlement provisions (non-cash) which based on prior experience, remain relatively stable. Also included in the balance are non-cash general project provisions. In addition, cash balances are at record highs, and profit and cash are forecast into FY26, meaning that the current ratio is forecast to normalise back to positive balance . The Directors have reviewed the business plans and detailed financial budgets for the year ending 30 June 2026 and beyond. The construction markets of Australia, New Zealand & Pacific Islands and South East Asia are healthy, however there is a level of uncertainty. The Built Environs pipeline in social infrastructure remains strong, however Government civil infrastructure spend continues to decrease in New South Wales and in Victoria (all Australian regions). 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 near future. The Company has no banking covenants for 30 June 2025. 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. A.H. Macartney Group Chief Financial Officer and Director 18 August 2025 S. V. Cummins Group Chief Executive Officer and Director 18 August 2025
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 2025 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 Andrew Hounsell Partner Melbourne 18 August 2025
7 All figures are in A$000's Note 2025 2024 Revenue 2 2,377,087 2,785,724 Other income 2 8,606 4,294 Total revenue and other income 2,385,693 2,790,018 Operating expenses 3 (2,407,386) (2,721,380) Depreciation 9(a), 9(b) (26,890) (27,146) Share of loss of an associate (234) (102) Tax recoupment from Parent 6,113 19,777 Finance income 5 8,991 7,615 Finance expense 4 (6,720) (4,411) (40,433) 64,371 (Loss) / Profit before tax Income tax expense 5 (14,734) (14,611) (Loss) / Profit after tax (55,167) 49,760 Attributable to: Members of the parent entity (55,252) 49,767 Non-controlling interest 23 85 (7) (Loss) / Profit after tax (55,167) 49,760 Consolidated The above Statement of Proft or Loss is to be read in conjunction with the accompanying notes. 10 4
8 All figures are in A$000's Note 2025 2024 (Loss) / Profit for the year (55,167) 49,760 Other comprehensive income / (loss) Items that may be reclassified subsequently to profit or loss in subsequent period (net of tax) Foreign currency translation 1,383 (355) Other comprehensive income / (loss), net of tax 1,383 (355) Total comprehensive (loss) / income, net of tax (53,784) 49,405 Attributable to: Members of the parent entity (53,872) 49,427 Non-controlling interest 23 88 (22) Total comprehensive (loss) / income, net of tax (53,784) 49,405 Consolidated The above Statement of Other Comprehensive Income is to be read in conjunction with the accompanying notes.
9 All figures are in A$000's Note 2025 2024 Assets Current assets Cash and cash equivalents 8 267,362 232,469 Inventories 6 1,402 3,185 Trade and other receivables 7 263,787 357,195 Contract assets 7(c) 104,028 187,257 Prepayments 146 2,815 Total current assets 636,725 782,921 Non-current assets Property, plant and equipment 9(a) 67,060 62,887 Right of use assets 9(b) 26,795 35,910 Deferred tax assets 12 19,190 18,256 Related party receivable - tax consolidation 17 56,054 49,941 Total non-current assets 169,099 166,994 Total assets 805,824 949,915 Liabilities Current liabilities Trade and other payables 13 324,567 442,890 Contract Liabilities 7(c) 238,337 212,759 Income tax payable 9,654 4,934 Interest bearing loans and borrowings 15 4,921 21 Lease liabilities 18 9,545 13,122 Provisions 16 76,893 81,198 Total current liabilities 663,917 754,924 Non-current liabilities Interest bearing loans and borrowings 15 12,292 - Lease liabilities 18 21,242 26,603 Provisions 16 4,833 4,064 Total non-current liabilities 38,367 30,667 Total liabilities 702,284 785,591 Net assets 103,540 164,324 Equity Issued capital 21 277,765 277,765 Reserves 22 7,879 6,499 Accumulated losses (182,356) (120,104) Parent interests 103,288 164,160 Non-controlling interests 23 252 164 Total equity 103,540 164,324 Consolidated The above Statement of Financial Position is to be read in conjunction with the accompanying notes.
10 for the year ended 30 June 2025 All figures are in A$000's Ordinary shares Preference shares Foreign currency translation reserve Capital and other reserves Non- controlling interest Accumulated losses Total equity Balance as at 267,765 10,000 1,695 4,880 186 (166,471) 118,055 - - - - (7) 49,767 49,760 1 July 2023 Profit after tax Other comprehensive loss - - (340) - (15) - (355) Total comprehensive income for the period - - (340) - (22) 49,767 49,405 Share based payment - - - 264 - - 264 Dividend paid - - - - - (3,400) (3,400) 267,765 10,000 1,355 5,144 164 (120,104) 164,324 - - - - 85 (55,252) (55,167) Balance as at 1 July 2024 (Loss) after tax Other comprehensive income - - 1,380 - 3 - 1,383 Total comprehensive loss for the period - - 1,380 - 88 (55,252) (53,784) Dividend paid - - - - - (7,000) (7,000) Balance as at 30 June 2025 267,765 10,000 2,735 5,144 252 (182,356) 103,540 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
11 for the year ended 30 June 2025 All figures are in A$000's Note 2025 2024 Cash flows from operating activities Receipts from customers (inclusive of goods & service tax) 2,844,684 3,006,341 Payments to suppliers and employees (inclusive of goods & service tax) (2,784,428) (2,886,424) Cash generated from operating activites 60,256 119,917 Interest received 4 8,991 7,615 Finance costs paid 4 (6,720) (4,411) Income tax and other taxes paid (10,758) (1,634) Net cash inflow from operating activities 8 51,769 121,487 9 (a) (16,951) (26,734) Cash flows from investing activities Purchase of property, plant and equipment Proceeds from the disposal of operational property, plant and equipment 2,993 3,976 Net cash used in investing activities (13,958) (22,758) Cash flows from financing activities Proceeds from borrowings 17,213 - Repayment of borrowings - (25,139) Payment of principal portion of lease liabilites (14,613) (14,128) Dividends paid to the equity holders of the parent (7,000) (3,400) Net cash used in from financing activities (4,400) (42,667) Net increase in cash and cash equivalents 33,411 56,062 Cash and cash equivalents at the beginning of the year 232,469 176,908 Exchange movements on cash 1,482 (501) Cash and cash equivalents at the end of the year 8 267,362 232,469 The above Statement of Cash Flows is to be read in conjunction with the accompanying notes. Consolidated
12 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 no banking covenants at 30 June 2025 and did not have any breaches prior to this date. The group retains the support of its bond and guarantee providers. The Directors have considered 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. 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 2025 (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. Material Accounting Policies 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 10, 480 Swan Street, Richmond, 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 18 August 2025. 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 near future. The Company enters the new year with 76% of FY26 revenue secured despite the lower levels of work in hand of $2.1 billion. Post balance date, new work won in New Zealand and Pacific Islands amounted to $500 million. The Directors have reviewed the business plans and detailed financial budgets for the year ending 30 June 2026 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.
13 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.
14 The Group’s financial assets are classified and measured as follows: Trade and other receivables Trade and other receivables are subsequently measured at amortised cost. Amounts due from contract customers Amounts due from contract customers are carried at cost plus margin recognised, less billings and recognised losses at the reporting date in accordance with the revenue recognition policy shown below. Trade receivables and contract retentions are initially recognised at cost plus margin, which approximates fair value, and are subsequently measured at amortised cost. Contract receivables and retentions comprise amounts due in respect of progress billings certified by the client or consultant at the reporting date for which payment has not been received and amounts held as retentions on certified work at the reporting date. Contract costs include costs that are attributable directly to the contract and costs that are attributable to contract activity. Costs that relate directly to a specific contract comprise: site labour costs (including site supervision); costs of materials used in construction; depreciation of equipment used on the contract; costs of design, technical assistance, and any other costs which are specifically chargeable to the customer in terms of the contract. Contract costs incurred that relate to future activity are recognised as an asset to the extent that it is probable it will be recovered. Such costs represent amounts due from contract customers. Cash and bank balances Cash and bank balances comprise cash on hand and bank balances that are subsequently measured at amortised cost. Cash held in joint arrangements are available for use by the Group with the approval of the joint arrangement partners. Bank overdrafts are offset against positive bank balances where a legally enforceable right of offset exists and there is an intention to settle the overdraft and realise the net cash. For the purposes of the statement of cash flows, cash and bank balances consist of cash and bank balances defined above net of outstanding bank overdrafts. Presentation of Impairment Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the asset. Derecognition A financial asset is derecognised when: ► the rights to receive cash flows from the asset have expired; or Impairment of financial assets Under AASB 9, ECLs are recognised in either of the following stages: • 12 Month ECLs: those are ECLs that result from possible default events within the 12 months after the reporting date; and • Lifetime ECLs: those are ECLs that result from all possible default events over the expected life of the instrument. The Group has elected to measure the loss allowances for trade receivables and contract assets at an amount equal to lifetime ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs subsequent to initial recognition, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and an analysis, based on the Group’s historical experience and information, including credit assessment and forward-looking information. Measurement of ECLs ECL are a probability-weighted estimate of credit losses. Credit losses are measured at the present value of all cash shortfalls (i.e., the difference between the contractual cash flows due to the entity in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the effective interest rate of the financial asset). Credit-impaired financial assets At each reporting date, the Group has assessed whether financial assets within the scope of AASB 9 impairment requirements are credit impaired. Financial assets not carried at fair value through profit or loss are assessed at each reporting date to determine whether there is objective evidence of credit-impairment. A financial asset is credit-impaired when one or more event that have a detrimental impact on the estimated future cash flows of the financial assets have occurred. Accordingly, this accounting policy relates to Amounts due from contract customers, Trade and other receivables and Cash and bank balances. Objective evidence that financial assets are impaired includes, but is not limited to: • default or delinquency by a debtor in interest or principal payments; • restructuring of an amount due to the Group on terms that the Group would not consider otherwise; • indications that a debtor or issuer will enter bankruptcy or other financial reorganisation; • adverse changes in the payment status of borrowers or issuers; • the disappearance of an active market for a security; or • observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets such as changes in arrears or economic conditions that correlate with defaults. Financial liabilities Initial recognition and measurement The Group initially recognises financial liabilities when the Group becomes a party to the contractual provisions of the instrument. Financial liabilities are classified as measured at amortised cost or fair value, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group determines
15 the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at fair value and in the case of loans and borrowings and other liabilities, less directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, borrowings and other liabilities, bank overdrafts, employee-related payables, amounts due to contract customers and derivatives that are liabilities. The Group has not designated any financial liabilities upon initial recognition as at fair value through profit or loss, except those financial liabilities that contain embedded derivatives that significantly modify cash flows that would otherwise be required under the contract. Amounts due to contract customers Where progress billings exceed the aggregate of costs plus margin less losses, the net amounts are reflected as a liability and is carried at amortised cost. Borrowings and other liabilities Borrowings are subsequently measured at amortised cost using the effective interest method. Gains and losses are recognised in earnings when the liabilities are derecognised as well as through the amortisation process. Trade and other payables Trade and other payables are subsequently measured at amortised cost using the effective interest method. Bank overdraft Bank overdrafts are subsequently measured at amortised cost using the effective interest method. Offsetting of financial instruments Financial assets and financial liabilities are offset, and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liabilities simultaneously. Derecognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in earnings. INVENTORIES Inventories comprise raw materials and consumable stores. Inventories are valued at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated cost of completion and the estimated costs necessary to make the sale. Write-downs to net realisable value and inventory losses are expensed in the period in which the write-downs or losses occur. INVESTMENTS IN ASSOCIATES The Group’s investment in its associates is accounted for using the equity method of accounting in the consolidated financial statements and at cost in the parent. The associates are entities over which the Group has significant influence. The Group generally deems they have significant influence if they have over 20% of the voting rights. Under the equity method, investments in associates are carried in the statement of financial position at cost plus post acquisition changes in the Group’s share of net assets of the associates. Goodwill relating to an associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The Group’s share of its associates’ profits or losses is recognised in the statement of profit or loss, and its share of movements in reserves is recognised in reserves. The cumulative movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised in the parent entity’s statement of profit or loss as a component of other income, while in the consolidated financial statements they reduce the carrying amount of the investment. After application of the equity method the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investment in its associate. The Group determines at each reporting date whether there is any objective evidence that the investment in associate is impaired. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and it’s carrying value and recognises the amount in the statement of profit or loss. When the Group’s share of losses in an associate equal or exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. The associates’ accounting policies conform to those used by the Group for like transactions and events in similar circumstances. INTEREST IN JOINT ARRANGEMENTS Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about relevant activities require unanimous consent of the parties sharing control. The Group’s interest in joint arrangements are either classified as joint operations or joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. When a Group entity undertakes its activities under joint operation, the Group entity as a joint operator recognises in relation to its interest in a joint operation, its: • Assets, including its share of any assets held jointly • Liabilities, including its share of any liabilities incurred jointly
16 • Revenue from its share of the output arising from the joint operation • Share of the revenue from the output by the joint operation, and • Expenses, including its share of any expenses incurred jointly The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in accordance with the standards applicable to the particular assets, liabilities, revenues and expenses. When a Group entity transacts with a joint operation in which a group entity is a joint operator (such as a sale or contribution of assets), the Group is considered to be conducting the transaction with the other parties to the joint operation, and gains and losses resulting from the transactions are recognised in the Group’s consolidated financial statements only to the extent of the other parties’ interests in the joint operation. When a Group entity transacts with a joint operation in which a group entity is a joint operator (such as a purchase of assets), the Group does not recognise its share of the gains and losses until it resells those assets to a third party. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, are stated at cost, less accumulated depreciation and accumulated impairment losses. Freehold land is not depreciated. Freehold buildings and other fixed assets are depreciated on a straight-line basis over their expected useful lives to an estimated residual value. The following estimated useful lives are used in the calculation of depreciation: Buildings 10 - 30 years Plant and equipment 2 - 15 years Right-of-use assets Shorter of lease period and asset’s useful life An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected to rise from the use or disposal of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in the statement of profit or loss in the year in which the item is derecognised. The assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end. LEASES Group as a lessee Determining the lease term The Group has determined the lease term as the non-cancellable period of the lease, together with periods covered by an option to extend the lease if the lessee is reasonably certain to exercise that option, and the periods covered by an option to terminate the lease if the lessee is reasonably certain not to exercise that option. The lease term includes any rent-free periods provided to the lessee by the lessor. Short-term leases and leases of low value assets The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases of property, plant and equipment that have a lease term of 12 months or less and leases of low-value assets. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term. Separation of lease components At inception or on reassessment of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of their relative standalone prices. However, for the leases of land and buildings in which it is a lessee, the Group has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component. Right-of-use assets The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentive received. Right-of-use assets recognised under AASB 16 are depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of use assets are determined on the same basis as those property, plant and equipment. Where significant components of an item have different useful lives to the item itself, these parts are depreciated separately if the component’s cost is significant in relation to the cost of the remainder of the asset. Lease payments Lease payments included in the measurement of the lease liability comprise: - fixed payments, including in-substance fixed payments; - variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; - amounts expected to be payable under a residual value guarantee; and - the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early. The lease liability is measured at amortised cost using the effective interest rate method. Remeasurement A lease liability is remeasured when there is a change in future lease payments arising from a change in and index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee of if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the
17 right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. Sub-leases When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. The Group assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the sub-lease as an operating lease. Group as a lessee Determining whether an arrangement contains a lease At inception of an arrangement, the Group determines whether the arrangement is or contains a lease. At inception or on reassessment of an arrangement that contains a lease, the Group separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Group concludes for a finance lease that it is impracticable to separate payments reliably, then the asset and liability are recognised at an amount equal to the fair value of the underlying asset; subsequently, the liability is reduced as payments are made and an imputed finance cost on the liability is recognised using the Group’s incremental borrowing rate. Leased assets Assets held by the Group under leases that transfers to the Group substantially all the risks and rewards of ownership are classified as finance leases. The leased assets are measured initially at an amount equal to the lower of their fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the assets are accounted for in accordance with the accounting policy applicable to that asset. Assets held under other leases are classified as operating leases and are not recognised in the Group’s statement of financial position. Lease payments Payments made under operating leases are recognised in earnings or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Sale and leaseback Where a sale and leaseback transaction results in a finance lease, any excess of sales proceeds over the carrying amount is deferred and amortised over the lease term. Where a sale and leaseback transaction results in an operating lease, the gain or loss on sale is recognised in earnings or loss immediately if (i) the Group does not maintain or maintains only minor continuing involvement in the asset other than the required lease payments, and (ii) the transaction occurs at fair value. If the sales price is below fair value, the shortfall is recognised in earnings immediately except where the loss is compensated for by future lease payments at below market price, in which case it is deferred and amortised in proportion to the lease payments over the period for which the assets are expected to be used. If the sale price is above fair value, the excess over fair value is deferred and amortised over the period the assets are expected to be used. Leases whereby the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rental income is recognised as revenue during the period in which it is earned. GOODWILL AND INTANGIBLES Goodwill Goodwill acquired in a business combination is initially measured at cost being the excess of the consideration transferred over the fair value of the Group’s net identifiable assets acquired and liabilities assumed. If the consideration transferred is lower than the fair value of the net identifiable assets of the subsidiary acquired, the difference is measured in profit and loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups of units. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes and is not larger than an operating segment determined in accordance with AASB 8 Operating Segments. Impairment is determined by assessing the recoverable amount of the cash-generating unit (group of cash-generating units) to which the goodwill relates. When the recoverable amount of the cash-generating unit (group of cash-generating units) is less than the carrying amount, an impairment loss is recognised. When goodwill forms part of cash-generating unit (group of cash-generating units) and an operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this manner is measured based on relative values of the operation disposed of and the portion of the cash-generating retained unit. Impairment losses recognised for goodwill are not subsequently reversed. Intangibles Intangible assets acquired separately or in a business
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