DOWNER EDI LIMITED — Annual Report 2021

Aug 11, 2021

Downer EDI Limited ABN 97 003 872 848 Triniti Business Campus 39 Delhi Road North Ryde NSW 2113 1800 DOWNER www.downergroup.com

12 August 2021

Company Announcements Office ASX Limited Exchange Centre Level 4, 20 Bridge Street SYDNEY NSW 2000

Dear Sir/Madam

Please find attached the following documents:

1. Appendix 4E – results for announcement to the market for the year ended 30 June 2021;

2. 2021 Annual Report;

3. Market release dated 12 August 2021;

4. Investor Presentation; and

5. Appendix 4G – Key to Disclosures Corporate Governance Principles and Recommendations.

Yours sincerely, Downer EDI Limited

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Robert Regan Company Secretary

Page 1 of 1

Results for announcement to the market for the year ended 30 June 2021

Appendix 4E

Revenue from ordinary activities Other income Total revenue and other income from ordinary activities Total revenue including joint ventures and other income Basic earnings per share (i) Diluted earnings per share(i) (ii) Net tangible asset backing per ordinary share Earnings before interest and tax Profit / (loss) from ordinary activities after tax before amortisation of acquired intangible assets (NPATA) Earnings before interest and tax and amortisation of acquired intangible assets (EBITA) Profit / (loss) from ordinary activities after tax attributable to members of the parent entity

2021 2020 % $'m $'m change 11,530.2 12,669.4 53.9 73.3 11,584.1 12,742.7 (9.1%) 12,234.2 13,417.9 (8.8%) 334.8 (41.3) >100.0% 401.0 30.0 >100.0% 181.6 (150.3) >100.0% 230.0 (105.8) >100.0% 2021 2020 % cents cents change 25.4 (26.1) >100.0% 24.8 (26.1) >100.0% 37.1 (26.3) >100.0%

(i) Basic and diluted EPS calculation for June 2020 were restated as a result of 106.6 million shares issued from the capital raising as part of the acquisition of the remaining shares in Spotless. Under the entitlement offer, 1 new share for each 5.58 outstanding shares were issued at a discounted price of $3.75 per share. As a result of the new shares issued, the weighted average number of ordinary shares (WANOS) to calculate EPS needs to be adjusted by a theoretical ex-rights price (TERP) factor. The adjustment factor of 0.9817 was utilised to restate the 30 June 2020 WANOS for the basic and diluted EPS calculations.

(ii) At 30 June 2020, the ROADS were deemed anti-dilutive and consequently, diluted EPS remained at (26.1) cents per share.

Dividend		2021	2020
		Final	Final
Dividend per share (cents)		12.0	-
Franked amount per share (cents)		-	-
Conduit foreign income (CFI)(%)		100%	-
Dividend record date		26/08/2021	-
Dividend payable date		23/09/2021	-
Redeemable Optionally Adjustable Distributing Securities (ROADS)
Dividend per ROADS (in Australian cents)		2.88	3.75
New Zealand imputation credit percentage per ROADS		100%	100%
ROADS payment date	Quarter 1	Quarter 2	Quarter 3	Quarter 4
Instalment date FY2021	15/09/2020	15/12/2020	15/03/2021	15/06/2021
Instalment date FY2020	16/09/2019	16/12/2019	16/03/2020	15/06/2020
Downer EDI's Dividend Reinvestment Plan (DRP) has been suspended.

For commentary on the results for the year and review of operations, please refer to the Directors' Report and separate media release.

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Annual 2021 Report

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Downer EDI Limited
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The Waratah fleet is the pride of Sydney’s network, delivering unprecedented reliability, availability, safety and comfort.

Downer has delivered a total of 119 Waratah trains for the New South Wales Government, across Series 1 and Series 2 trains, making the combined fleet the largest of passenger trains in Australia, serving the largest suburban network.

In 2019, Downer achieved the fastest rollout of a passenger train fleet in Australia’s history, delivering 24 world class Waratah Series 2 trains in 31 months. In July 2021, on the 10th anniversary of the first Waratah Series 1 train entering passenger service, the final Series 2 entered passenger service.

Downer is also responsible for the through-life-support of the Waratah trains at the purpose-built Auburn Maintenance Centre.

This Annual Report includes the Downer EDI Limited Directors’ Report, the Annual Financial Report and Independent Audit Report for the financial year ended 30 June 2021. The Annual Report is available on the Downer website

www.downergroup.com.

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CONTENTS Annual Report 2021
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Contents

Directors’ Report

Page 4

Auditor’s signed reports

Page 52 Auditor’s Independence Declaration Page 53 Independent Auditor’s Report

Financial Statements

Page 61 Consolidated Statement of Profit or Loss and Other Comprehensive Income Page 62 Consolidated Statement of Financial Position Page 63 Consolidated Statement of Changes in Equity Page 64 Consolidated Statement of Cash Flows

Notes to the consolidated financial statements

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A B C D E F G
About this Business Operating assets Employee Capital structure Group Other
report performance and liabilities benefits and financing structure
Page 65–66 Page 67–80 Page 81–96 Page 97–99 Page 100–108 Page 109–119 Page 120–130
B1 C1 D1 E1 F1 G1
Segment Reconciliation of Employee benefits Borrowings Joint arrangements New accounting
information cash and cash and associate standards
equivalents entities
B2 C2 D2 E2 F2 G2
Revenue Trade receivables Defined benefit Financing facilities Controlled entities Capital and
and contract assets plan financial risk
management
B3 C3 D3 E3 F3 G3
Individually Inventories Key management Lease liabilities Related party Other financial
significant items personnel information assets and liabilities
compensation
B4 C4 D4 E4 F4
Earnings per share Trade payables and Employee discount Commitments Parent entity
contract liabilities share plan disclosures
B5 C5 E5 F5
Taxation Property, plant and Issued capital Acquisition and
equipment disposals of
businesses
B6 C6 E6 F6
Remuneration Right-of-use assets Non-controlling Disposal group
of auditor interest (NCI) held for sale
B7 C7 E7
Subsequent events Intangible assets Reserves
C8 E8
Lease receivables Dividends
C9
Other provisions
C10
Contingent liabilities
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Page 131 Directors’ Declaration Other information

Page 132 Sustainability Performance Summary 2021 Page 136 Corporate Governance Page 146 Information for Investors

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2 Downer EDI Limited HIGHLIGHTS
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Highlights

Downer’s Urban Services businesses performed well during the 2021 financial year, demonstrating their strength and resilience during a year of COVID-19 disruption. Total revenue was lower than the previous year, primarily due to the divestment of Mining and Laundries businesses, however Downer delivered an increase in earnings, with improved margins, and a very strong cash performance.

Downer reported a statutory net profit after tax of $183.7 million.

This strong overall performance resulted in the Board declaring a final dividend of 12 cents per share, taking total dividends for the year to 21 cents per share, unfranked.

Total 8.8% Revenue[1] decrease $12,234.2m

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Underlying[2] 0.7pp increase 3.8% EBITA Margin

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Underlying[2] 21.4% NPATA increase $261.2m

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EBITDA Cash 54.9pp Conversion increase 92.0%

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1 Total revenue is a non-statutory disclosure and includes revenue from joint ventures, other alliances and other income.

2 Underlying EBITA and NPATA are non-IFRS measures that are used by Management to assess the performance of the business. They have been calculated from the statutory measures by adding back the impact of ISIs net of tax. Non-IFRS measures have not been subject to audit or review.

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HIGHLIGHTS Annual Report 2021 3
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Downer’s strategy is to focus on its core Urban Services businesses. These businesses have:

• demonstrated strength and resilience

• leading market positions and attractive medium and long-term growth opportunities

• a high proportion of government and government-related contracts

• a capital light, services-based business model generating lower risk, more predictable revenues and cash flows.

Downer’s Operating ~~Mod~~ el

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Transport Utiliti e s Facilities Asset Services
R o ad Services Telecommunications Government Power and Energy
Rail and Transit Systems Water Health and Education Industrial and Marine
Projects Power and Gas Defence
Building
Di v ested
Mining
Laundries (Facilities)
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4 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report

for the year ended 30 June 2021

The Directors of Downer EDI Limited submit the Annual Financial Report of the Company for the financial year ended 30 June 2021. In compliance with the provisions of the Corporations Act 2001 (Cth), the Directors’ Report is set out below.

Board of Directors

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RICHARD MICHAEL HARDING (72)

Chairman since November 2010, Independent Non-executive Director since July 2008

Mr Harding has held management positions around the world with British Petroleum (BP), including President and General Manager of BP Exploration Australia.

Mr Harding is currently the Chairman of Horizon Oil Limited and a Director of Cleanaway Waste Management Limited. He is a former Chairman of Lynas Limited, Roc Oil Company Limited, Clough Limited and ARC Energy Limited and a former Director of Santos Limited.

Mr Harding will retire from the Board on 30 September 2021.

Mr Harding holds a Masters in Science, majoring in Mechanical Engineering.

Mr Harding lives in Sydney.

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GRANT ANTHONY FENN (56)

Managing Director and Chief Executive Officer since July 2010

Mr Fenn has over 30 years’ experience in operational management, strategic development and financial management. He joined Downer in October 2009 as Chief Financial Officer and was appointed Chief Executive Officer in July 2010.

He was previously a member of the Qantas Executive Committee, holding a number of senior roles over 14 years, as well as Chairman of Star Track Express and a Director of Australian Air Express. He worked at KPMG for eight years before he joined Qantas.

Mr Fenn is currently a Director of Sydney Airport Limited and Spotless Group Holdings Limited and a Member of the UTS Engineering and IT Industry Advisory Board.

Mr Fenn holds a Bachelor of Economics from Macquarie University and is a member of the Australian Institute of Chartered Accountants.

Mr Fenn lives in Sydney.

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PHILIP STUART GARLING (67)

Independent Non-executive Director since November 2011

Mr Garling has over 40 years’ experience in the infrastructure, construction, development and investment sectors. He was the Global Head of Infrastructure at AMP Capital Investors, a role he held for nine years. Prior to this, Mr Garling was CEO of Tenix Infrastructure and a long-term senior executive at the Lend Lease Group, including five years as CEO of Lend Lease Capital Services.

Mr Garling is currently the Chairman of Tellus Holdings Limited, Energy Queensland Limited and Newcastle Coal Infrastructure Group and a Director of Charter Hall Limited. He is a former Director of Spotless Group Holdings Limited and the NSW electricity distributor, Essential Energy and a past President of Water Polo Australia Limited.

Mr Garling holds a Bachelor of Building from the University of New South Wales and the Advanced Diploma from the Australian Institute of Company Directors. He is a Fellow of the Australian Institute of Building, Australian Institute of Company Directors and Institution of Engineers Australia.

Mr Garling lives in Sydney.

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DIRECTORS’ REPORT Annual Report 2021 5
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TERESA GAYLE HANDICOTT (58)

Independent Non-executive Director since September 2016

Ms Handicott is a former corporate lawyer with over 30 years’ experience in mergers and acquisitions, capital markets and corporate governance. She was a partner of national law firm Corrs Chambers Westgarth for 22 years, serving as a member of its National Board for seven years including four years as National Chairman. She also has extensive experience in governance of local and State government organisations.

Ms Handicott is currently the Chairman of listed company PWR Holdings Limited and of Peak Services Holdings Pty Ltd, which is the subsidiary of the Local Government Association of Queensland that is responsible for its commercial operations. Ms Handicott is also a Divisional Councillor of the Queensland Division of the Australian Institute of Company Directors.

Ms Handicott is a former Director of CS Energy Limited, a former member of the Queensland University of Technology (QUT) Council, the Takeovers Panel and Corporations and Markets Advisory Committee and a former Associate Member of the Australian Competition and Consumer Commission.

A Senior Fellow of FINSIA, Fellow of the Australian Institute of Company Directors and Member of Chief Executive Women, Ms Handicott holds a Bachelor of Laws (Hons) degree from the Queensland University of Technology. Ms Handicott lives in Brisbane.

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NICOLE MAREE HOLLOWS (50)

Independent Non-executive Director since June 2018

Ms Hollows has over 20 years’ experience in the resources sector in a number of senior managerial roles across both the public and private sectors, including in mining, utilities and rail. Her experience spans operational management, accounting and finance, mergers and acquisitions, capital management and corporate governance.

Ms Hollows is the Non-executive Chair of Jameson Resources Limited, a Non-executive Director of Qube Holdings Limited and a member of the CEO Advisory Committee for Dean of Queensland University of Technology (QUT) Business School.

She was formerly the Chief Executive Officer of SunWater Limited, a Queensland Government owned corporation, the Chief Financial Officer and subsequently Chief Executive Officer of Macarthur Coal Limited and Managing Director of AMCI Australia and South East Asia.

A Fellow of the Australian Institute of Company Directors and a Member of Chief Executive Women and the Institute of Chartered Accountants, Ms Hollows holds a Bachelor of Business – Accounting and a Graduate Diploma in Advanced Accounting (Distinction) from the Queensland University of Technology and is a Graduate of Harvard Business School’s Program for Management Development. Ms Hollows lives in Brisbane.

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PETER LAWRENCE WATSON (64)

Independent Non-executive Director since May 2019

Mr Watson has extensive experience in the construction and engineering sectors in senior executive and governance roles, including in the industrial, transport, defence, health, justice and utilities sectors. He was Chief Executive Officer and Managing Director of Transfield Services Limited (now known as Broadspectrum which is owned by Ventia) for 10 years. During this period, he led the business through a successful transition, cultivating a sustainable and successful public company. He also has considerable experience in various Non-executive Director roles.

Mr Watson is currently a Consultant of Schiavello Group, BG&E Group Limited and Stephenson Mansell Group where he provides coaching and mentoring to senior executives.

Mr Watson is a former Chairman of LogiCamms Limited (now known as Verbrec), Watpac Limited, Regional Rail Link Authority in Victoria and AssetCo Management which managed PPP assets, a former Director of the Major Transport Infrastructure Board in Victoria, Yarra Trams and Save the Children Australia and was a Board member of Infrastructure Australia and independent Chair of Ross River Solar Farm.

A Fellow of the Australian Academy of Technological Sciences and Engineering and member of the Institute of Engineers Australia and Australian Institute of Company Directors, Mr Watson holds a Diploma of Civil Engineering from the Caulfield Institute of Technology and is a Graduate of the Wharton Advanced Management Program of the University of Pennsylvania.

Mr Watson lives in Melbourne.

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6 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

Directors’ Shareholdings

The following table sets out each Director’s relevant interest (direct and indirect) in shares, debentures, and rights or options in shares or debentures (if any) of the Company at the date of this report. No Director has any relevant interest in shares, debentures and rights or options in shares or debentures, of a related body corporate as at the date of this report.

	Number of Fully Paid	Number of Fully Paid	Number of Fully Paid
Director	Ordinary Shares	Performance Rights	Performance Options
R M Harding	34,028	–	–
G A Fenn1	2,049,772	625,748	–
P S Garling	23,540	–	–
T G Handicott	20,047	–	–
N M Hollows	15,538	–	–
P L Watson	17,933	–	–

1 Performance rights granted to Mr Fenn are subject to performance and/or service period conditions over the period 2018 to 2023. Further details regarding the conditions relating to these restricted shares and performance rights are outlined in sections 6.4 and 9.2 of the Remuneration Report.

Company Secretary

The Company Secretarial function is responsible for ensuring that the Company complies with its statutory duties and maintains proper documentation, registers and records. It also provides advice to Directors and officers about corporate governance and gives practical effect to any decisions made by the Board.

Mr Robert Regan was appointed Group General Counsel and Company Secretary in January 2019. He has qualifications in law from the University of Sydney and is an admitted solicitor in New South Wales. Mr Regan was formerly a partner of Corrs Chambers Westgarth and has over 30 years of experience in legal practice.

Mr Peter Lyons was appointed joint Company Secretary in July 2011. A member of CPA Australia and the Governance Institute of Australia, he has qualifications in commerce from the University of Western Sydney and corporate governance from the Governance Institute of Australia. Mr Lyons was previously Deputy Company Secretary and has been in financial and secretarial roles at Downer for over 20 years.

Review of Operations

COVID-19

Downer continues to comply with all Government regulations and advice in relation to the COVID-19 pandemic and has robust Business Continuity Plans in place. Senior managers communicate regularly with their teams to ensure they are fully informed about the evolving situation and putting in place appropriate strategies. Downer is committed to working closely with its customers and partners to minimise the impact on operations while keeping its employees and communities safe.

During the 12 months to 30 June 2021, there was no material impact on demand for the businesses within the Group’s Transport, Utilities and Mining service lines. The Hospitality business within the Facilities service line continues to be significantly affected by COVID-19 regulations and some Asset Services customers continue to defer non-essential work.

Principal Activities

Downer EDI Limited (Downer) is a leading provider of integrated services in Australia and New Zealand. Downer employs approximately 44,000 people, mostly in Australia and New Zealand.

Downer’s strategy is to focus on its core Urban Services businesses: Transport, Utilities, Facilities and Asset Services.

These core Urban Services businesses have:

• Demonstrated strength and resilience

• Leading market positions and attractive mediumand long-term growth opportunities

• A high proportion of government and government-related contracts

• A capital light, services-based business model generating lower risk, more predictable revenues and cash flows.

As part of its Urban Services strategy, Downer has made significant progress exiting its capital-intensive Mining businesses. Downer has completed the divestment of its Open Cut Mining West, Underground, Downer Blasting Services and Snowden businesses as well as its share of the RTL JV. It has also entered into a binding sale agreement in relation to its Otraco business, with this divestment expected to complete in FY22. Downer’s remaining mining business, Open Cut East, comprises four profitable contracts which are scheduled to complete between 2022 and 2024, in the event that the business is not sold.

Detailed and up-to-date information about Downer’s response to COVID-19 is provided on the home page of the company’s website (www.downergroup.com) .

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DIRECTORS’ REPORT Annual Report 2021 7
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On 2 December 2020, Downer announced it had entered an agreement to sell 70% of its Laundries business.

For the 2021 financial year, an overview of Downer’s five service lines is set out below.

Transport

Transport comprises Downer’s Road Services, Rollingstock Services and Projects businesses.

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Total revenue [1] (FY21) EBITA [2] (FY21)
43.4% 43.9%
Transport
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• 1 Total revenue is a non-statutory disclosure and includes revenue, other income and notional revenue from joint ventures and other alliances not proportionately consolidated.

• 2 Downer calculates EBITA by adjusting EBIT to add back acquired intangibles amortisation expense. Due to rounding, divisional percentages do not add up precisely to 100%.

Road Services

Downer manages and maintains road networks across Australia and New Zealand and manufactures and supplies products and services to create safe, efficient and reliable journeys. Downer offers one of the largest non-government owned road infrastructure services businesses in Australia and New Zealand, maintaining more than 33,000 kilometres of road in Australia and more than 25,000 kilometres in New Zealand.

Downer creates and delivers solutions to our customers’ challenges through strategic asset management and a leading portfolio of products and services. Downer is a leading manufacturer and supplier of bitumen-based products and an innovator in the sustainable asphalt industry and circular economy, using recycled products and environmentally sustainable methods to produce asphalt.

Downer’s road network solutions are underpinned by industry-leading research, development and innovation, unique asset management tools and a commitment to safety, environment and sustainability through industry awarded Zero Harm programs.

Downer has formed a number of strategic partnerships to meet the changing needs of our customers and markets. Downer has long-term asset stewardship and road management contracts through DM Roads in Australia, and a number of alliances in New Zealand such as the Infrastructure Alliance in Hamilton, Whanganui Alliance, Tararua Alliance, Waikato District Alliance and the Milford Road Alliance.

Downer works for all of Australia’s State road authorities, the New Zealand Transport Agency and a large number of local government councils and authorities in both countries. Customers also include road owners and businesses operating in a wide range of industries.

Rail and Transit Systems

Downer has over 100 years’ rail experience providing end-to-end, innovative transport solutions. Downer is a leading provider of rollingstock asset management services in Australia, with expertise in delivering whole-of-life asset management support to our customers. Downer’s capability spans all sectors, from rollingstock to infrastructure, and every project phase, from design and manufacture to through-life-support, fleet maintenance, operations and comprehensive overhaul of assets.

Downer sets industry best practice with forward-looking technology solutions to deliver safe, efficient and reliable services for the public transport sector.

Downer has formed strategic joint ventures and relationships with leading technology and knowledge providers including Keolis, CRRC, Hitachi and Bombardier.

The Keolis Downer joint venture is Australia’s largest private provider of multi-modal public transport solutions, with contracts to operate and maintain Yarra Trams in Melbourne, the Gold Coast light rail system in Queensland, Adelaide Metro and an integrated public transport system for the city of Newcastle in New South Wales. Keolis Downer is also one of Australia’s most significant bus operators.

Downer’s rollingstock customers include Sydney Trains, Transport for NSW, Public Transport Authority (WA), Metro Trains Melbourne, Public Transport Victoria, and Queensland Rail.

Projects

Downer delivers multi-disciplined infrastructure solutions to customers within the transport sector. The services provided by Downer include the design and construction of light rail, heavy rail, signalling, track and station works, rail safety technology, bridges and roads.

Downer has a long history of delivering transport infrastructure projects under a variety of contracting models. Downer’s integrated capabilities enable intelligent transport solutions, road network management and maintenance, facility maintenance, utilities services and renewable energy technologies.

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8 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

Utilities

Downer offers a range of services to customers across the power and gas, water, telecommunications and renewables sectors.

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Total revenue [1] (FY21) EBITA [2] (FY21)
17.2% 20.2%
Utilities
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• 1 Total revenue is a non-statutory disclosure and includes revenue, other income and notional revenue from joint ventures and other alliances not proportionately consolidated.

• 2 Downer calculates EBITA by adjusting EBIT to add back acquired intangibles amortisation expense. Due to rounding, divisional percentages do not add up precisely to 100%.

Power and Gas

Downer’s services include planning, designing, constructing, operating, maintaining, managing and decommissioning power and gas network assets. A collaborative approach has made Downer a benchmark end-to-end service provider to owners of utility assets.

Downer designs and constructs steel lattice transmission towers, designs and builds substations, constructs and maintains electricity and gas networks, provides asset inspection and monitoring services, connects tens of thousands of new power and gas customers each year and provides meter, energy and water efficiency services for governments, utilities and corporations.

Our performance on the network is benchmarked at activity unit level, repeatedly demonstrable and assessed against continually improving key performance indicators.

Water

Downer is dedicated to delivering complete water lifecycle solutions for municipal and industrial water users. Downer’s expertise includes water treatment, wastewater treatment, water and wastewater network construction and rehabilitation, desalination and biosolids treatment.

As a leading provider of asset management services, Downer supports its customers across the full asset lifecycle from conceptual development through to design, construction, commissioning and into operations and maintenance.

Telecommunications

Downer is a leading provider of end-to-end technology and communications service solutions, offering integrated civil construction, electrical, fibre, copper and radio network deployment capability throughout Australia and New Zealand. Key capabilities include:

• Design, engineering and network construction of fixed and wireless networks

• Mobile deployment, site acquisition, environmental and design services

• Network operations and help desk outsourcing

• Network maintenance

• Warehousing and logistics

• Smart metering

• Network security

• Remedial works and proactive maintenance

• Customer connections, in-premise installations and service activations.

Facilities

The Facilities service line operates in Australia and New Zealand across a range of industry sectors including defence, education, health, government and hospitality.

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Total revenue [1] (FY21) EBITA [2] (FY21)
23.3% 25.5%
Facilities
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• 1 Total revenue is a non-statutory disclosure and includes revenue, other income and notional revenue from joint ventures and other alliances not proportionately consolidated.

• 2 Downer calculates EBITA by adjusting EBIT to add back acquired intangibles amortisation expense. Due to rounding, divisional percentages do not add up precisely to 100%.

Spotless, a Downer company, is the largest integrated facilities management services provider in Australia and New Zealand, delivering property and facilities management services to government departments, agencies and authorities at the Federal, State and municipal level. With around 21 Public Private Partnership projects across the defence, education, health and leisure sectors, Spotless provides innovative management of its customers’ assets across their lifecycle.

Downer collaborates with customers to manage their assets, so they create community benefits that are sustainable, innovative, cost-effective and provide value to all stakeholders.

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DIRECTORS’ REPORT Annual Report 2021 9
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Spotless has a 40-year history of supporting the daily operations of hospitals across Australia and New Zealand, delivering a range of services that create a safe environment for hospital staff, patients and their guests. At leading schools and tertiary institutions, Spotless helps to create world-class learning environments through integrated services such as catering, building and grounds maintenance, conserving energy with air-conditioning and lighting solutions and ensuring a secure environment.

The Facilities services line also includes Hawkins, New Zealand’s leading construction business. Hawkins delivers unique transformational projects across a variety of sectors including education, health, airports, commercial office buildings and heritage restorations.

Engineering, Construction and Maintenance (EC&M)

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Total revenue [1] (FY21) EBITA [2] (FY21)
7.1% 2.3%
EC&M
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Industrial and Marine

Downer provides maintenance, turnaround, shutdown and sustaining capital programs for industrial operations across Australia’s iron ore, minerals and metals, petrochemical, bulk materials handling and processing sectors. Heavy industrial customers include BHP, Queensland Alumina Limited, Bluescope, Orica and CSBP while Downer provides a range of services at major ports including Gladstone Ports, Port Hedland, Port Waratah, Newcastle Coal Infrastructure Group and Kooragang Bulk Facilities.

Mineral Technologies

Downer’s Mineral Technologies business is the world leader in fine physical mineral separation solutions, including spiral gravity concentrators and magnetic and electrostatic separation technology. Mineral Technologies delivers innovative process solutions for iron ore, mineral sands, silica sands, coal, chromite, gold, tin, tungsten, tantalum and several other fine materials.

Engineering and Construction

Downer announced in February 2020 that it will focus its construction efforts on areas where it has a competitive differentiation. As a result, Downer will no longer tender for ‘hard dollar’ construction contracts in the coal, iron ore and industrial E&I (Electrical and Instrumentation) and SMP (Structural, Mechanical, and Piping) sectors.

Mining

• 1 Total revenue is a non-statutory disclosure and includes revenue, other income and notional revenue from joint ventures and other alliances not proportionately consolidated.

• 2 Downer calculates EBITA by adjusting EBIT to add back acquired intangibles amortisation expense. Due to rounding, divisional percentages do not add up precisely to 100%.

Asset Services

Downer is a leading provider of asset maintenance and specialist services to Australia’s critical economic infrastructure including the oil and gas, power generation and industrial sectors. As a trusted partner with a leading safety record, Downer optimises the reliability, efficiency and whole-of-life costs of its customers’ assets through long-term relationship-based contracts.

Oil and gas

Downer’s state-of-the art equipment and technology, and its people’s expertise, support customers through the full asset lifecycle. Downer is a major provider of maintenance, shutdown and field development services to Coal Seam Gas and Liquefied Natural Gas producers in Australia including Santos, Origin and Chevron.

An important part of Downer’s Urban Services strategy is to exit its capital-intensive Mining business. Downer has completed the divestment of its Open Cut Mining West, Underground, Downer Blasting Services and Snowden businesses as well as its share of the RTL JV. It has also entered into a binding sale agreement in relation to its Otraco business, with this divestment expected to complete in FY22. Downer’s remaining mining business, Open Cut East, comprises four profitable contracts which are scheduled to complete between 2022 and 2024, in the event that the business is not sold.

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Total revenue [1] (FY21) EBITA [2] (FY21)
9.0% 8.2%
Mining
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Power Generation

Downer is one of the largest providers of power generation asset management services in Australia, offering the full range of maintenance, shutdown, turnaround, outage and sustaining capital works. This includes maintenance and shutdown services for over 18GW of Australia’s power generation for customers who supply approximately 60% of the National Energy Market, including CS Energy, Origin, AGL, Synergy and Energy Australia.

• 1 Total revenue is a non-statutory disclosure and includes revenue, other income and notional revenue from joint ventures and other alliances not proportionately consolidated.

• 2 Downer calculates EBITA by adjusting EBIT to add back acquired intangibles amortisation expense. Due to rounding, divisional percentages do not add up precisely to 100%.

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10 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

Group Financial Performance

For the 12 months ended 30 June 2021, Downer reported a decrease in total revenue driven by the loss of revenue contribution from the Mining and Laundries businesses disposed during the year while earnings before interest, tax and amortisation of acquired intangibles (EBITA) and statutory net profit after tax (NPAT) were both higher. Gearing has decreased by 16.7 percentage points (pp) since June 2020, from 35.7% to 19.0%, and statutory EBITA margin has improved from 3.2% at 31 December 2020 to 3.3%.

The main features of the result for the 12 months ended 30 June 2021 were:

• Total revenue of $12.2 billion, down 8.8%

• Statutory EBITA of $401.0 million, up $371.0 million

• EBITA margin of 3.3%, up from 3.2% at 31 December 2020

• Statutory earnings before interest and tax (EBIT) of $334.8 million, up $376.1 million

• Statutory net profit after tax and before amortisation of acquired intangible assets (NPATA) of $230.0 million, up from a loss of $105.8 million

• Statutory net profit after tax (NPAT) of $183.7 million, up from a loss of $155.7 million.

Gearing has decreased by 16.7pp to 19.0% since June 2020 reflecting the strong operating cash flows and a material reduction in debt levels as proceeds from divestments and capital raising in July 2020 were partially utilised to repay borrowings. Gearing also reduced despite $83.3 million deferred interim FY20 dividend paid in the period and a $134.5 million payment made to acquire the remaining 12.2% interest in Spotless.

Cash conversion for the year of 92.0% and 100.8% once adjusted for $79.0 million of cash outflows relating to Individually Significant Items (ISIs) recognised in FY20, has significantly improved from prior year.

ISIs totalled $66.3 million loss before interest and tax for the year, ($31.2 million after tax and interest). These ISIs relate to:

• the fair value movement of the Downer Contingent Share Option (DCSO) as part of the consideration to acquire the remaining 12.2% interest in Spotless

• the impact of derecognition of unamortised deferred financing costs following the termination of the Spotless financing arrangement

• impairment of non-current assets

• the net loss recognised on divestments made during the year (including transaction costs)

• the impact of the adoption of Cloud Computing – Software-as-a-Service (SaaS) interpretations.

Refer to Note B3 to the Financial Report for further details.

The table below provides a comparison of the underlying[ 1] earnings for FY21 versus the results for FY20 and a reconciliation to statutory NPAT.

to statutory NPAT.
Underlying 1 EBITA	Reporting			Variance
(A$m)	**Segment **	FY21	FY20	(%)
Transport	Transport	250.2	235.6	6.2%
Utilities	Utilities	115.1	114.6	0.4%
Facilities2	Facilities	140.0	124.9	12.1%
Asset Services3	EC&M	18.3	27.1	(32.5%)
Core Urban Services Businesses		523.6	502.2	4.3%
Engineering and Construction3	EC&M	(5.1)	(69.2)	92.6%
Businesses in wind down		(5.1)	(69.2)	92.6%
Mining Laundries2 Hospitality2	Mining Facilities Facilities	46.6 5.0 0.4	79.0 9.1 (19.7)	(41.0%) (45.1%) >100%
Businesses under review or to be sold		52.0	68.4	(24.0%)
Corporate	Unallocated	(103.2)	(85.4)	(20.8%)
Group Underlying
EBITA 4		467.3	416.0	12.3%
Amortisation of
acquired intangibles
(pre-tax)		(66.2)	(71.3)	7.2%
Underlying EBIT		401.1	344.7	16.4%
Net interest expense		(100.6)	(112.0)	10.2%
Tax expense		(85.6)	(67.5)	(26.8%)
Underlying NPAT		214.9	165.2	30.1%
Amortisation of
acquired intangibles
(post-tax)		46.3	49.9	(7.2%)
Underlying NPATA 4		261.2	215.1	21.4%
Items outside of
underlying NPATA		(70.6)	(386.0)	81.7%
Tax efect on items
outside NPATA		39.4	65.1	(39.5%)
Statutory NPATA		230.0	(105.8)	>100%
Amortisation of
acquired intangibles
(post-tax)		(46.3)	(49.9)	7.2%
Statutory NPAT		183.7	(155.7)	>100%

• 1 The underlying result is a non-IFRS measure that is used by management to assess the performance of the business. Non-IFRS measures have not been subject to audit or review.

• 2 Total underlying EBITA for the Facilities segment was $145.4m (FY20: $114.3m). Refer to Note B1.

• 3 Total underlying EBITA for the EC&M segment was $13.2m (FY20: loss of $42.1m). Refer to Note B1.

• 4 Downer calculates EBITA and NPATA by adjusting EBIT and NPAT to add back acquired intangible assets amortisation expense. Group FY21: $66.2 million, $46.3 million after-tax. (FY20: $71.3 million, $49.9 million after tax).

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DIRECTORS’ REPORT Annual Report 2021 11
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Revenue

Total revenue for the Group decreased by $1.2 billion or 8.8%, to $12.2 billion.

Transport revenue increased by 12.8%, or $602.9 million, to $5.3 billion due to strong performance in the Projects business, both in Australia and New Zealand, and continuing strong performance in the Road Services business particularly in Australia. These increases were partially offset by lower revenue from Rollingstock Services due to completion of Waratah bogie overhaul activities.

Utilities revenue decreased by 21.6%, or $581.7 million, to $2.1 billion largely due to the continued wind-down of nbn™ contracts and completion of Murra Warra. This was partially offset by increased activities in Power and Gas and Water services.

Facilities revenue decreased by 14.1%, or $466.0 million, to $2.8 billion largely due to the impact of COVID-19 on Hospitality, loss of revenue contribution from the disposal of Laundries and projects completions in both Australia and New Zealand.

EC&M revenue decreased by 25.9%, or $302.7 million, to $0.9 billion as a result of project completions and reduced construction activity in line with Downer’s strategy. The Asset Services business continued to be impacted by COVID-19 resulting in customers deferring non-essential maintenance.

Mining revenue decreased by 29.3%, or $453.7 million, to $1.1 billion as a result of contract completions and the cessation of revenue from those Mining businesses disposed during the year as part of the Group’s Urban Services strategy.

Expenses

Total expenses decreased by 12.0% compared to the pcp and includes $77.0 million of Individually Significant Items (ISIs) outside the underlying result, while the pcp included $367.2 million of ISIs. Excluding the impact of ISIs, total expenses decreased by 10.0% or $1,241.7 million.

Employee benefits expenses decreased by 8.5%, or $357.8 million, to $3.9 billion and represent 34.2% of Downer’s cost base. The decrease is mainly driven by lower costs due to disposal of businesses, contract completions, reduced activities in Hospitality and the benefit of restructuring activities made in FY20.

Subcontractor costs decreased by 6.2%, or $273.3 million, to $4.1 billion and represent 36.7% of Downer’s cost base. This decrease is a result of contract completions during the year particularly in Utilities, disposal of Mining businesses and reduced activities in Hospitality due to COVID-19. This was partially offset by increased contract activities in Transport.

Raw materials and consumables costs decreased by 26.1%, or $563.1 million, to $1.6 billion and represent 14.1% of Downer’s cost base. The decrease is mainly due to contract completions, particularly in the Utilities and EC&M segments, as well as completion of Waratah bogie overhaul activities in Rollingstock Services and the disposal of Mining and Laundries businesses during the year.

Plant and equipment costs decreased by 10.7%, or $70.4 million, to $590.2 million and represent 5.2% of Downer’s cost base. The decrease in plant and equipment costs is attributed to a less capital-intensive business following the disposal of Laundries and Mining as well as from initiatives to drive efficient plant and equipment utilisation and maintenance practices.

Depreciation and amortisation on leased assets increased by 19.0%, or $28.8 million, to $180.6 million and represent 1.6% of Downer’s cost base. This increase is a result of investment in equipment on a lease basis.

Other depreciation and amortisation decreased by 14.1%, or $51.7 million, to $313.8 million and represent 2.8% of Downer’s cost base. The decrease is driven by assets disposed as part of the Laundries and Mining divestments together with the normal run-off of assets useful life.

Included in Other depreciation and amortisation is $3.6 million of pre-tax ISIs benefit in relation to the implementation of SaaS arrangements as described in Note B3 to the Financial Report.

Impairment of non-current assets of $20.2 million represents impairment recognised to adjust the carrying value of the Property, plant and equipment and other assets of the Open Cut Mining West business to its expected recoverable value as described in Note B3 to the Financial Report.

Other expenses, which include communication, travel, occupancy and professional fees costs, decreased by 8.3%, or $52.6 million and represent 5.1% of Downer’s cost base. The decrease is mainly due to reduced travel and discretionary expenses across the Group.

Included in Other expenses is $60.4 million of pre-tax ISIs in relation to SaaS arrangements, fair value movement on DCSO liability and divestment results (including transaction and divestments costs) in relation to the Laundries and Mining divestments as described in Note B3 to the Financial Report.

Earnings

Statutory earnings before interest and tax (EBIT) of $334.8 million up from loss of $41.3 million in pcp.

Statutory EBITA of $401.0 million up from $30.0 million in pcp.

Underlying EBITA for the Group increased by 12.3%, or $51.3 million, to $467.3 million.

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12 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

A reconciliation of the FY21 underlying result to the statutory result is provided in the table below:

					Deduct
					Amortisation
		Net			of acquired
		Interest	Tax		intangibles
	EBITA	expense	expense	NPATA	(post-tax)	NPAT
Underlying results	467.3	(100.6)	(105.5)	261.2	(46.3)	214.9
Fair value on Downer Contingent Share Option (DCSO)1	(16.6)	–	–	(16.6)	–	(16.6)
Termination of Spotless financing arrangements	–	(4.3)	1.3	(3.0)	–	(3.0)
Mining divestments (net of transaction costs)	(19.5)	–	17.5	(2.0)	–	(2.0)
Laundries divestment (net of transaction costs)	(16.2)	–	16.5	0.3	–	0.3
SaaS arrangements	(14.0)	–	4.1	(9.9)	–	(9.9)
Total items outside underlying performance	(66.3)	(4.3)	39.4	(31.2)	–	(31.2)
Statutory result – Profit/(loss)	401.0	(104.9)	(66.1)	230.0	(46.3)	183.7

1 The initial recognition of the fair value of the Downer Contingent Share Option (DCSO) was $16.7 million as at 12 August 2020 and recorded as a current financial liability. The fair value of the DCSO issued as at the date the transaction completed was determined using an option pricing model. The key assumptions used in this assessment were a TERP adjusted share price of $5.59, option volatility of 40%, interest of 0.51% and dividend yield of 4.1%. The DCSO was remeasured to fair value at 30 June 2021, with any fair value movements recognised through the income statement. As the Downer share price has increased from $4.30 to $5.59 at 30 June 2021 this has resulted in a fair value movement of $16.6 million.

Transport EBITA increased by 6.2% to $250.2 million due to continued strong contribution from Australia and New Zealand operations. In Australia, driven by strong contribution from Roads Services, partially offset by lower Rollingstock Services contribution following completion of the construction phase of the Sydney Growth Trains project and completion of Waratah bogie overhaul activities. In New Zealand, from new contracts and higher activities within the Project business.

Utilities EBITA increased by 0.4% to $115.1 million as increased contributions from Water services in Australia and from telecommunications in New Zealand were offset by the wind-down of nbn™ contracts.

Facilities EBITA increased by 39.3% to $145.4 million mainly driven by increased contribution from Government services, including COVID-19 cleaning activities, a recovery of activity levels within the Hospitality sector due to fewer COVID-19 restrictions in 2H21; and a higher contribution from projects in New Zealand.

EC&M EBITA increased by 125.9% to $13.2 million as the pcp included non-recurring contract losses within the Engineering and Construction business that are now complete. This was partially offset by lower contribution from the Asset Services business due to COVID-19 resulting in customers deferring non-essential maintenance activities.

is $4.3 million of pre-tax ISIs in relation to termination of Spotless financing arrangements as described in Note B3 to the Financial Report. Excluding ISIs, net finance costs would have been $11.4 million lower than pcp.

Effective tax rate is 20.1% which is lower than the statutory corporate tax rate of 30% due to the impact of items including non-taxable gains on divestments, recognition of previously unrecognised capital losses, non-taxable distributions from joint ventures and lower tax rates in overseas jurisdictions (e.g. New Zealand).

Operating Cash Flow

Operating cash flow was strong at $708.7 million, a major improvement from the $158.6[ 1] million inflow in the pcp and represents a cash conversion of 92.0% of adjusted earnings before interest, tax, depreciation and amortisation (EBITDA). The improvement in cash was driven by a strong contract performance across the Group including the completion of loss-making contracts in Engineering and Construction.

Included within the operating cash flow is $79.0 million in ISIs recognised in FY20 (mainly restructuring cost and shareholder class action settlement) being the cash outflow incurred during the current period. Excluding the cash outflows for FY20 ISIs, cash conversion would be 100.8%.

Investing Cash

Mining EBITA decreased by 41.0% to $46.6 million due to loss of earnings as a result of divestments made during the year.

Corporate costs increased by $17.8 million to $103.2 million mainly due to higher information technology and insurance costs and from FY21 short-term incentive expense recognised.

Net finance costs decreased by $7.1 million, or 6.3%, to $104.9 million driven by lower levels of debt throughout the year and lower interest rates. Included in net finance costs

Total investing cash inflow of $35.9 million was driven by $447.8 million of proceeds from disposal activities during the year, partially offset by $134.5 million paid in relation to the acquisition of the remaining 12.2% interest in Spotless. Total proceeds from disposal activities includes $395.9 million proceeds from the sale of businesses, $10.9 million net proceeds from the disposal of RTL JV and $41.0 million from sale of Mining’s property plant and equipment.

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DIRECTORS’ REPORT Annual Report 2021 13
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Excluding the cash flow from the major transactions, investing cash flow would have been an outflow of $277.4 million; $100.3 million or 26.6% lower than prior year[ 1] , driven by lower capex requirements following Laundries and Mining businesses divestments, and by $13.1 million lower payments for intangibles.

Debt and Bonding

The Group’s performance bonding facilities totalled $2,009.3 million at 30 June 2021 with $633.0 million undrawn.

As at 30 June 2021, the Group had liquidity of $2.2 billion comprising cash balances of $811.4 million and undrawn committed debt facilities of $1.4 billion.

During the year, the Group raised $390.4 million (net of costs) from the issue of new shares in order to rebalance the Group’s gearing and overall liquidity positions, and in anticipation of the payments for the purchase of the Spotless shares it did not already own. In December 2020, the Group established a new $1.4 billion syndicated sustainability linked loan facility. This new facility replaces the Spotless $888.7 million and Downer $400 million syndicated bank loan facilities as the Group’s primary source of financing. In addition, $145 million of Spotless bilateral bank loan facilities were refinanced at the Downer level.

A buy-back of Downer’s shares was announced to the market on 27 April 2021 and the buy-back commenced on 8 June 2021. As of 30 June 2021, a total of 4,363,398 shares were purchased for total consideration of $24.8 million.

The Group continues to be rated BBB (Stable) by Fitch Ratings.

Balance Sheet

The net assets of Downer increased by $362.4 million, or 14.0% to $3.0 billion, mainly as a result of capital raising funds received in the period.

Net debt is calculated as borrowings (excluding lease liabilities) less the cash and cash equivalents. Net debt has decreased $792.6 million to $670.2 million mainly driven by $569.7 million lower borrowings following debt repayments made as a result of capital raising funds and $222.9 million higher cash position since 30 June 2020. The strong operating cash flow and lower capital expenditure compared to the pcp further contributed to a lower net debt position.

Group gearing at 30 June 2021 was 19.0% (calculated on a pre-AASB 16 basis) which is 16.7pp lower than 30 June 2020. This reduction was achieved despite the payment of the deferred FY20 interim dividend ($83.3 million) and payment of $134.5 million for the remaining 12.2% interest in Spotless.

Total trade receivables and contract assets decreased by 7.5%, or $180.9 million, to $2,230.2 million reflecting the impact of the trade receivables disposed, contract completions and strong cash collections during the year. The decrease also reflects

$24.2 million that has been classified as Assets held for sale in relation to the Otraco divestment described in Note F6 to the Financial Report.

Inventories decreased by 23.9%, or $79.8 million, to $254.2 million largely driven by the disposal of Mining and Laundries businesses while $1.8 million was reclassified to Assets held for sale.

Current tax assets decreased by 25.5%, or $16.6 million, to $48.6 million reflecting tax refund received and timing of tax payments.

Assets held for sale of $41.5 million represent the assets that will be disposed as part of the sale of Otraco business as described in Note F6 to the Financial Report. The completion of the sale of Otraco within 12 months is considered highly probable, and as such the recoverable value of the assets and liabilities is presented separately as Assets/Liabilities held for sale.

Interest in equity accounted investments increased by 40.2%, or $44.5 million, to $155.1 million mainly reflecting $33.4 million for the remaining 30% interest in Laundries and $9.8 million additional investment in Keolis Downer during the year, offset by $8.1 million interest in RTL JV sold and the net impact of profit and distributions received during the period.

Property, plant and equipment decreased by 26.3%, or $355.5 million, to $994.7 million after $340.8 million was disposed of as part of the Laundries and Mining divestments while $9.4 million was transferred to Assets held for sale. Excluding the disposals and transfers, Property, plant and equipment would have decreased by $5.3 million largely from additions of $309.7 million during the year being offset by depreciation and impairment charges of $244.8 million and disposals of $61.4 million.

Right-of-use assets decreased $46.1 million to $546.5 million. The decrease includes $55.2 million that has been disposed as part of Mining and Laundries divestments with $2.2 million classified to Assets held for sale. Excluding these movements, Right-of-use assets would have increased by $11.3 million, reflecting new leases and extensions arrangements entered into during the year.

Intangible assets[ 1] decreased by 2.7%, or $77.1 million, to $2,782.9 million with $89.2 million of amortisation charges during the year, $23.6 million disposed as part of the divestment program and $0.5 million transferred to Assets held for sale. This was partially offset by $28.4 million additional investment in software during the year.

Net deferred tax balances (net of deferred tax assets and liabilities) of $59.5 million increased by 3.3%, or $1.9 million reflecting the net position of deferred tax, including the consolidation of the Spotless tax consolidated group into the Downer tax consolidated group.

1 2020 Consolidated Statement of Financial Position and Consolidated Statement of Cash Flows have been restated to reflect the Group’s change in accounting policy for costs related to configuration and customisation of Software-as-a-Service (SaaS) arrangements. Refer to Note C7 for more details.

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14 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

Total trade payables and contract liabilities decreased by 5.1%, or $129.0 million, to $2,397.2 million primarily due to payment of the deferred 2020 interim dividend ($83.3 million), and settlement of the Spotless shareholder class action, while $27.4 million was disposed as part of the divestment program and $5.9 million has been reclassified to Liabilities held for sale as described in Note F6 to the Financial Report. Trade payables and contract liabilities represent 46.9% of Downer’s total liabilities.

Other financial liabilities increased by 11.8%, or $7.1 million, to $67.3 million, representing 1.3% of Downer’s total liabilities. The increase mainly reflects the recognition of the fair value of the Downer Contingent Share Option (DCSO) arising from the transaction to acquire the shares in Spotless that it did not already own. Refer to Note B3 to the Financial Report.

Lease liabilities decreased by 13.2%, or $100.4 million, to $662.8 million and represent 13.0% of Downer’s total liabilities. The decrease mainly relates to $89.2 million of leases disposed as part of the Laundries and Mining divestments, with $2.4 million reclassified to Liabilities held for sale. Excluding the disposal and reclassification impact, lease liabilities would have decreased by $8.8 million largely reflecting lease arrangements terminated during the year.

Liabilities held for sale of $17.2 million represent total liabilities that will be disposed as part of the sale of Otraco as described in Note F6 to the Financial Report.

Provisions decreased by 13.0%, or $70.7 million, to $474.9 million, representing 9.3% of Downer’s total liabilities. The decrease is mainly driven by $31.1 million of provisions disposed as part of the divestment program and due to employee related provisions utilised during the year. Employee related provisions (annual leave and long service leave) made up 81.9% of this balance with the remainder covering contract provisions, decommissioning, restructuring and warranty obligations.

Total Equity increased by $362.4 million, driven by $393.2 million from the equity raising (net of costs) and $183.7 million of net profit after tax. This was partially offset by $140.9 million derecognition of Non-Controlling Interest (NCI) in Spotless following the acquisition of the remaining 12.2% interest, $24.8 million in shares bought back and by dividends declared during the year. Net foreign currency gains on translation of foreign operations, particularly in New Zealand, resulted in a movement in the foreign currency translation reserve of $0.9 million.

Dividends

The Downer Board resolved to pay a final dividend of 12.0 cents per share, unfranked payable on 23 September 2021 to shareholders on the register at 26 August 2021.

The unfranked dividend will be paid out of Conduit Foreign Income (CFI).

The Board also determined to continue to pay a fully imputed dividend on the ROADS security, which having been reset on 15 June 2021 has a yield of 4.42% per annum payable quarterly in arrears, with the next payment due on 15 September 2021. As this dividend is fully imputed (the New Zealand equivalent of being fully franked), the actual cash yield paid by Downer will be 3.18% per annum until the next reset date.

Consistent with the prior year, the Company’s Dividend Reinvestment Plan remains suspended.

Zero Harm

Downer’s[ 1] Lost Time Injury Frequency Rate (LTIFR) decreased to 0.99 from 1.08 and its Total Recordable Injury Frequency Rate (TRIFR) decreased to 2.60 from 3.10 per million hours worked[ 2] .

Downer Group Safety Performance (12-month rolling frequency rates)

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3.5 2.5
3.10
2.0
3.0
2.60 1.5
2.5
1.0
1.08
0.99
2.0 0.5
LTIFR TRIFR
TRIFR LTIFR
Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21
----- End of picture text -----

• 1 Safety data includes Hawkins and Spotless (Note: Hawkins and Spotless were excluded in the FY20 Annual Report).

• 2 Lost time injuries (LTIs) are defined as injuries that cause the injured person (employee or contractor) to be unfit to perform any work duties for one whole day or shift, or more, after the shift on which the injury occurred, and any injury that results, directly or indirectly, in the death of the person. The Lost Time Injury Frequency Rate (LTIFR) is the number of LTIs per million hours worked. Total Recordable Injuries (TRIs) are the number of LTIs plus medically treated injuries (MTIs) for employees and contractors. Total Recordable Injury Frequency Rate (TRIFR) is the number of TRIs per million hours worked.

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DIRECTORS’ REPORT Annual Report 2021 15
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Group Business Strategies and Prospects for Future Financial Years

Downer’s Purpose is to create and sustain the modern environment by building trusted relationships with our customers.

Our Promise is to work closely with our customers to help them succeed, using world-leading insights and solutions.

Our business is founded on four Pillars :

• Safety: Zero Harm is embedded in Downer’s culture and is fundamental to the Company’s future success

• Delivery: we build trust by delivering on our promises with excellence while focusing on safety, value for money and efficiency

• Relationships: we collaborate to build and sustain enduring relationships based on trust and integrity

• Thought leadership: we remain at the forefront of our industry by employing the best people and having the courage to challenge the status quo.

Downer’s strategic objectives, prospects, and the risks that could adversely affect the achievement of these objectives, are set out in the table below.

Strategic Objective	Prospects	Risks and risk management
Maintain focus	Downer believes that a sustainable and embedded	Downer has a robust Critical Risk program. Risks that
on Zero Harm	Zero Harm culture is fundamental to the Company’s	could cause serious injury to people or harm to the
	ongoing success, and to building trusted	environment, and the controls needed to eliminate or
	relationships with customers and business partners.	manage those risks, are understood. This knowledge
	Downer’s approach to Zero Harm enables it to work	forms the core of Downer’s risk management
	safely and environmentally responsibly in industry	processes, and the monitoring of its critical controls.
	sectors with inherently hazardous environments.	There is a strong commitment to Downer’s Zero Harm
	Zero Harm at Downer means a work environment	objectives across all levels of the business.
	that supports the health and safety of its people	A core objective of The Downer Standard program is
	and allows it to deliver its business activities in an	to unify the way we manage Zero Harm and perform
	environmentally sustainable manner and advance	our work.
	the communities in which it operates.	In an important step, Downer achieved centralised
	This includes continuing to monitor all COVID-19	third-party accreditation to the International
	risks and controls, and supporting the Government’s	Standards ISO 45001 (Safety), ISO 9001 (Quality) and
	vaccination rollout strategy.	ISO 14001 (Environment). This gives Downer a single
		system of work for safety, quality and environment,
		and a framework to develop, implement and monitor
		The Downer Standard.

Establishing this consistent single platform means Downer can deliver consistent best practice information and work processes to our frontline employees, helping them to better manage risk and change in their dynamic workplaces. Downer continues to be vigilant around the management of COVID and maintaining the highest levels of controls in line with expert advice and Government guidance, providing our workforce with relevant up-to-date information. Downer supports the Government’s vaccination initiative and encourages employees to have the vaccination when it is available to them, once they have consulted a health professional on the associated risks and benefits.

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16 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

Strategic Objective	Prospects	Risks and risk management
Embed asset	Downer has developed extensive asset	The expectations of Downer’s customers, and their
management and	management knowledge and expertise and also	customers, continue to grow with regards to reliable,
standardisation as a	adopts and implements world-leading insights	intuitive, and cost-efective assets and services.
cornerstone of the	and solutions.	Downer has invested in capability and talent to
Delivery pillar	Downer strives for standardisation in its risk	improve asset management, standard processes,
	management and project delivery to ensure	data analytics and lifecycle performance
	consistent quality outcomes for its customers.	analytics. A number of these investments have
		Group-wide application in addition to their bespoke
		customer benefits.
		Risks to be managed include: not delivering
		value-added services to customers; scope reduction
		by customers who elect to use pure maintenance/
		blue collar services; and an inability to deliver
		obligations in performance frameworks and service
		outcome contracts.
Focus on engagement	Providing valuable and reliable products and	_Relationships creating success_continues to be
with customers as a	services to customers, and their customers,	Downer’s core operating philosophy that drives
cornerstone of the	is at the heart of Downer’s culture. It enables	delivery of projects and services. It helps to ensure
Relationships pillar	Downer’s customers to focus more on their	investment as initiatives and activities are focused on
	core expertise while Downer delivers non-core	helping Downer’s customers to succeed.
	operational services.	Risks to be managed include: the threat of new
	Through ongoing analysis of markets, customers	competitors and disruptors in traditional markets; not
	and competitors, Downer is well positioned to	keeping pace with changing customer expectations;
	improve value and service for its customers and	and the threat of commoditisation of core products
	their customers.	and services.
Utilise technology in	Technology is an inherent feature of today’s	Downer invests in a range of technology platforms
core service oferings	world and there is therefore greater demand	and partnerships to meet customer needs. Downer
as a cornerstone	for provision of cyber secure technology in the	focuses on selecting the right investments, for
of our Thought	services Downer provides.	example those that can be leveraged across a number
Leadership pillar	Customer operations are growing in complexity	of service lines to maximise value for the greatest
	in an ever-changing threat landscape, and this	number of customers.
	creates opportunities for Downer to connect	Downer remains firmly focused on continuously
	securely, manage, monitor and report on core	protecting against evolving cyber risks and threats,
	services and infrastructure.	demonstrating credibility and trust through secure
		cyber stewardship and custody.
		Risks to be managed include: intensification of
		competition as customers converge into large single
		market procurement channels; introduction of foreign
		and technology-based competitors that bring a
		diferent value proposition; and a need for greater
		investment in technologyand data services.

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DIRECTORS’ REPORT Annual Report 2021 17
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The following table provides an overview of the key prospects relevant to each of Downer’s service lines and summarises Downer’s intended strategic response across each sector to maximise the Company’s performance and realise future opportunities.

Service line	Prospects	Downer’s response
Transport	The multi-billion dollar market for transport	Downer is a market leader in road services in both
	services continues to grow in both Australia and	Australia and New Zealand, light rail construction
	New Zealand. Governments in both countries	in Australia and heavy rail construction and
	continue to invest in a range of projects to reduce	maintenance in Australia.
	congestion, improve mobility, and provide better	Downer maintains strong strategic partnerships
	linkages between communities.	with leading global transport solutions providers
		and, through this model, is pursuing opportunities
		in rollingstock manufacture and maintenance, and
		transport network operations and maintenance.
		The Keolis Downer joint venture is a leading
		Australian multi-modal transport operator.
Utilities	Growth across utility markets is multi-faceted with	Downer has market leading positions in the power,
	a good pipeline of prospects in both Australia	gas, water and telecommunications sectors in both
	and New Zealand.	Australia and New Zealand.
		Downer is strongly positioned to take advantage of
		the growth opportunities available in these sectors,
		with a demonstrable track record of excellence in
		service delivery, and a greater focus on introducing
		operational technology to improve the value Downer
		brings to customers.
Facilities	Large-scale and long-term outsourcing contracts	Through the acquisition of Spotless, Downer is a
	continue to come to market, however the long-term	major force in both Australia and New Zealand with
	nature of contracts in this sector means that a lot of	market leading positions across key sectors including
	work is already under contract.	defence, health, education and government.
	There is a strong pipeline of opportunities on the	Government restrictions imposed to slow the spread
	short-to-medium-term horizon in both Australia	of COVID-19 have had a major impact on Spotless’
	and New Zealand.	Hospitality business. Downer has reduced the
		footprint of Hospitality to reflect the smaller scale of
		operations and is reviewingthe future of this business.
Asset Services	There are opportunities for growth in all areas in	Downer has strong market positions across all these
	which Asset Services operates: Oil and Gas, Power	areas and is well placed to secure at least its share of
	Generation and Industrial. These opportunities	new opportunities.
	include the next generation of LNG maintenance	Downer is also investing in expertise and capability
	contracts and the need to upgrade ageing	to ensure we have the necessary skills to participate
	industrial assets.	wholly in the new Hydrogen economy.
	In addition, all Downer’s customers are actively
	investing in decarbonisation projects and most are
	investigatingHydrogen opportunities.

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18 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

Outlook

Downer expects its core Urban Services to continue to grow in FY22 both in revenue and earnings. Given the changing nature of the COVID pandemic and the ongoing restrictions Downer will not provide specific earnings guidance.

Subsequent Events

Downer’s end markets relate to critical infrastructure and essential services. Downer’s strength in those markets, and their diversity, are a key advantage.

At the date of this report, Downer has not had a material impact from the current COVID-19 lockdowns across Sydney and other metropolitan areas in Australia and will continue to monitor the changing nature of the pandemic and the ongoing COVID-19 restrictions.

Outside the above, at the date of this report, there have been no matters or circumstances other than those referred to in the financial statements or notes thereto, that have arisen since the end of the financial year, that have significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in subsequent financial years.

Changes in state of affairs

During the financial year there was no significant change in the state of affairs of the Group other than that referred to in the financial statements or notes thereto.

Environmental management

Environmental management is an important component of Downer’s Zero Harm philosophy and it places a strong emphasis on meeting its environmental compliance obligations. Downer’s environmental commitments are outlined in its Environmental Sustainability Policy which can be found on the Downer website at www.downergroup.com/board-policies .

Downer’s Urban Services focus delivers many environmental and social benefits, including a move to lower capital intensive and lower carbon activities, which supports Downer’s climate change resilience and decarbonisation pathway. Downer is also conscious of its social licence to operate – and responds to this by improving the sustainability of the Company’s operations, aiming to achieve Zero Harm to its people, minimise harm to the environment, avoid legal liability and always strives to positively impact Downer’s reputation, business value and ultimately shareholder wealth.

Downer’s ability to manage the impacts of its activities on the natural and built environment is fundamental to its long-term success. Downer is committed to helping its customers succeed by developing and delivering environmentally responsible and sustainable solutions, so communities remain resilient for the future.

Downer’s environmental management system is accredited to AS/NZ ISO 14001:2015 and is integrated into its Group-wide management system, The Downer Standard, which ensures a consistent approach to identifying and controlling environmental hazards and risks, and monitoring environmental performance across the entire organisation. In addition, the environment management system is audited, both internally and externally, by independent third parties.

The effective management of Downer’s environmental aspects and impacts is fundamental to the Company’s approach to the delivery of its services. Significant emphasis is placed on ensuring effective controls are implemented through the critical risk program and continuous improvement through lessons learned to sustain the natural environment for future generations.

Each Business Unit is required to have an Environment and Sustainability Improvement Plan and strategies in place supported by suitably qualified environment and sustainability professionals. The Improvement Plans allocate internal responsibilities for reducing the impact of its operations and business activities on the environment.

Employee Discount Share Plan (ESP)

An ESP was instituted in June 2005. In accordance with the provisions of the plan, as approved by shareholders at the 1998 Annual General Meeting, permanent full-time and part-time employees of Downer EDI Limited and its subsidiary companies who have completed six months service may be invited to participate.

No shares were issued under the ESP during the years ended 30 June 2021 or 30 June 2020.

There are no performance rights or performance options, in relation to unissued shares, that are outstanding.

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DIRECTORS’ REPORT Annual Report 2021 19
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Directors’ meetings

The following table sets out the number of Directors’ meetings (including meetings of Board Committees) held during the 2021 financial year and the number of meetings attended by each Director (while they were a Director or Board Committee member). During the year, 17 Board meetings, seven Audit and Risk Committee meetings, four Remuneration Committee meetings, three Zero Harm Committee meetings and two Nominations and Corporate Governance Committee meetings were held. In addition, 29 ad hoc meetings (attended by various Directors) were held in relation to various matters including tender reviews, major projects and due diligence for the on-market share buy-back program and Spotless takeover offer and Entitlement Offer.

			Audit and Risk	Audit and Risk	Remuneration	Remuneration
	Board		Committee		Committee
Director	Held 1	Attended	Held 1	Attended	Held 1	Attended
R M Harding	17	17	–	–	4	4
G A Fenn	17	17	–	–	–	–
P S Garling2	17	17	–	–	4	4
T G Handicott3,6	17	16	7	7	4	4
N M Hollows	17	17	7	7	4	4
C G Thorne5	1	1	–	–	–	–
P L Watson4	17	17	7	7	–	–
			Zero Harm		Nominations and Corporate
			Committee		Governance Committee
Director			Held 1	Attended	Held 1	Attended
R M Harding			–	–	2	2
G A Fenn			3	3	–	–
P S Garling2			3	3	–	–
T G Handicott3			–	–	2	2
N M Hollows			–	–	2	2
C G Thorne5			–	–	–	–
P L Watson4			3	3	–	–

• 1 These columns indicate the number of meetings held during the period each person listed was a Director or member of the relevant Board Committee.

• 2 Mr Garling was also Chairman of the Rail Projects Committee. The Rail Projects Committee ceased in April 2021.

• 3 Ms Handicott is also Chairman of the Disclosure Committee and the Buy-back Committee which meets on an unscheduled basis; and was Chair of the Due Diligence Committee for the Spotless takeover offer and Entitlement Offer.

• 4 Mr Watson is also Chairman of the Tender Risk Evaluation Committee which meets on an unscheduled basis.

• 5 Mr Thorne retired as a Director on 13 July 2020.

• Ms Handicott was unable to attend one unscheduled Board meeting which was convened at short notice.

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20 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

Indemnification of officers and auditors

During the financial year, the Company paid a premium in respect of a contract insuring the Directors of the Company, the Company Secretary, and all officers of the Company and of any related body corporate against a liability incurred as a Director, secretary or executive officer to the extent permitted by the Corporations Act 2001 (Cth).

The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.

Downer’s Constitution includes indemnities, to the extent permitted by law, for each Director and Company Secretary of Downer and its subsidiaries against liability incurred in the performance of their roles as officers. The Directors and the Company Secretaries listed on pages 4 to 6, individuals who act as a Director or Company Secretary of Downer’s subsidiaries and certain individuals who formerly held any of these roles also have the benefit of the indemnity in the Constitution.

The Company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the Company or of any related body corporate against a liability incurred as such an officer or auditor.

Corporate Governance

In recognising the need for the highest standards of corporate behaviour and accountability, the Board endorses the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (ASX Principles). The Group’s corporate governance statement is set out at pages 136 to 145 of this Annual Report.

Non-audit services

Downer is committed to audit independence. The Audit and Risk Committee reviews the independence of the external auditors on an annual basis. This process includes confirmation from the auditors that, in their professional judgement, they are independent of the Group. To ensure that there is no potential conflict of interest in work undertaken by Downer’s external auditor, KPMG, it may only provide services that are consistent with the role of the Company’s auditor.

The Directors are of the opinion that the services as disclosed below do not compromise the external auditor’s independence, based on advice received from the Audit and Risk Committee, for the following reasons:

• All non-audit services have been reviewed and approved to ensure that they do not impact the integrity and objectivity of the auditor

• None of the services undermine the general principles relating to auditor independence as set out in the Institute of Chartered Accountants in Australia and CPA Australia’s Code of Conduct APES 110 Code of Ethics for Professional Accountants issued by the Accounting Professional and Ethical Standards Board, including reviewing or auditing the auditor’s own work, acting in a management or decision-making capacity for the Company, acting as advocate for the Company or jointly sharing economic risks and rewards.

A copy of the Auditor’s Independence Declaration is set out on page 52 of this Annual Report.

During the year, details of the fees paid or payable for non-audit services provided by the auditor of the parent entity, its related practices and related audit firms were as follows:

	2021	2020
Non-audit services	$	$
Tax services	205,795	242,148
Advisoryand due diligence services	506,977	468,318
	712,772	710,466

Rounding of amounts

The Company is of a kind referred to in ASIC Corporations (Rounding in Financial/Directors’ reports) Instrument 2016/191, relating to the ‘rounding off’ of amounts in the Directors’ Report and consolidated financial statements. Unless otherwise stated, amounts have been rounded off to the nearest whole number of millions of dollars and one place of decimals representing hundreds of thousands of dollars.

The Board has considered the position and, in accordance with the advice from the Audit and Risk Committee, is satisfied that the provision of non-audit services during the year is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 (Cth).

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DIRECTORS’ REPORT Annual Report 2021 21
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Remuneration Report

Chairman’s Letter

Dear Shareholders,

Downer’s 2021 Remuneration Report provides information about the remuneration of its most senior executives and explains how performance has been linked to reward outcomes at Downer for the 2021 financial year.

At the last Annual General Meeting in November 2020, 99.3% of all votes cast by shareholders were in favour of the 2020 Remuneration Report. The structure of the 2021 Remuneration Report has been prepared with the same objective of providing readers with a transparent view of key performance and outcomes using the report structure adopted in previous years.

Key remuneration issues in 2021

Staff and management responded well to the COVID-19 pandemic and, continued to work toward our Zero Harm objectives.

As outlined above, our executive team effected significant transformation in 2021 that positions the Company for more sustainable and less volatile revenues, earnings and cash flows and which will maximize long term shareholder value.

The remaining core businesses are scalable, permitting our balance sheet strength to be deployed for further investment, including bolt-on acquisitions.

A strong future

Several decisions have been made since the last Chairman’s Letter with a clear objective to create a stronger platform for long-term, sustainable growth and position Downer as one of the largest integrated providers of Urban Services in Australia and New Zealand.

These include:

• Acquiring the remaining interests in Spotless

• Selling the RTL joint venture, Open Cut Mining West, Blasting Services, Snowden, and Otraco businesses as well as exiting the Underground Mining business and selling 70% of the Laundries business, delivering on the strategy to exit the capital-intensive Mining and Laundries businesses and significantly decreasing the Group’s carbon emissions profile

• Exploring options to sell the Open Cut Mining East and Hospitality businesses

• Commencing an on-market share buy-back to return surplus funds from the divestment program to shareholders.

The acquisition of the remaining shares in Spotless continues the reshaping of Downer as an Urban Services business with resilient earnings, long-term customer relationships and more predictable cash flows.

Many of the activities that Downer’s people perform every day have potential risks and ensuring they remain safe is of paramount importance. Downer’s Lost Time Injury Frequency Rate at 30 June 2021 was 0.99 and the Total Recordable Injury Frequency Rate was 2.60. Downer’s culture and our commitment to continuous improvement in Zero Harm remain core strategic objectives.

These transformative activities should position management well for the 2021 long-term incentive (LTI) grant vesting in 2024. While early into the performance period, current projections are for vesting above 80%.

The Board also considered the base value for the EPS component of the 2021 LTI plan, from which performance will be measured. The Company’s policy is to add back any items that were outside of the underlying statutory result when setting the base value. The Board decided that this adjustment be increased by an additional $10 million of earnings to ensure that any future reward is appropriate.

The impact of major divestments or acquisitions on executive remuneration can be significant. The Board’s overarching concern is to ensure executives:

• Are accountable for delivery of the annual budget and business plan; and

• Consider potential acquisition or divestment opportunities without the influence of their impact on remuneration outcomes.

For these and other reasons, where a transaction is both material and unbudgeted, the Board’s policy is that it should remove the impact of the transaction when calculating the key performance indicators on which executive performance is measured. This ensures that executives are ‘no better or worse off’ as a result of the transaction.

In 2021, adjustments were made in respect of the acquisition of the remaining interests in Spotless and the divestments, in line with policy.

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22 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

There were two items in 2021 which significantly affected statutory results, which were the fair value adjustment on the Downer Contingent Share Options issued as part of the consideration for its acquisition of the remaining interests in Spotless and the implementation of the International Financial Reporting Standards Interpretations Committee (IFRIC) decision on Configuration or Customisation Costs in a Cloud Computing Arrangement which requires certain software development costs to be expensed as they are incurred.

Link between Downer performance and reward outcomes

Downer’s remuneration framework for key senior employees has been very successful in aligning Downer’s strategy and the creation of alignment between senior executives and shareholders. As set out in this Remuneration Report, Downer’s remuneration strategy continues to provide:

• A significant proportion of remuneration being ‘at risk’ linked to clear, objective measures

• A profitability gateway as a precondition to any short-term incentive entitlement

• For deferral of 50% of short-term incentive payments over a further two-year period

• The delivery of a significant proportion of pay in equity.

We trust that this overview and the accompanying detailed analysis are helpful when forming your own views on Downer’s remuneration arrangements.

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R M Harding Chairman

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T G Handicott Remuneration Committee Chairman

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DIRECTORS’ REPORT Annual Report 2021 23
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Remuneration Report – AUDITED

The Remuneration Report provides information about the remuneration arrangements for key management personnel (KMP), which means Non-executive Directors and the Group’s most senior executives, for the year to 30 June 2021. The term ‘executive’ in this Report means KMPs who are not Non-executive Directors.

The Report covers the following matters:

1. Year in Review

2. Details of Key Management Personnel

3. Remuneration Policy, Principles and Practices

4. Relationship Between Remuneration Policy and Company Performance

5. The Board’s Role in Remuneration

6. Description of Executive Remuneration

7. Details of Executive Remuneration

8. Executive Equity Ownership

9. Key Terms of Employment Contracts

10. Related Party Information

11. Description of Non-executive Director Remuneration.

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24 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

1. Year in Review

1.1 Summary of changes to remuneration policy

Downer has continued to refine its remuneration policy during the period. The Board considered Company strategy and reward plans based on performance measurement, competitive position and stakeholder feedback. Changes to policy are noted in the relevant sections of this Report and are summarised in the table below.

Policy	Enhancements since 2020
Short-term incentive (STI) plan	The environmental sustainability, critical risk and Zero Harm leadership measures for the Zero
	Harm element have been further refined, building upon previous improvements to move with
	and support growth in organisational maturity and ensure continual stretch and ongoing Zero
	Harm improvement through requiring executives, in addition to achieving lagging indicator
	performance, to:
	– Undertake a materiality assessment and identify two material Sustainable Development
	Goals, develop improvement plans for them and achieve their first-year targets
	– Evidence that the relevant business unit is on track to achieve its science-based
	decarbonisation target
	– Review all critical controls for at least 2 critical risk activities amongst the top 5 critical risks
	of the business unit and develop a plan to raise the efectiveness for the 5 least efective
	critical controls for each of those activities
	– Lead and finalise a Community of Practice to improve a critical control that has application
	across the Group
	– Achieve independent confirmation that critical control information is fully integrated into all
	aspects of the operating management system and processes, including risk registers, and
	the use of Bow Ties for investigations
	– Complete all actions arising from high potential incidents within a defined timeframe
	– Deliver Critical Control Verification Programs, perform a minimum number of critical
	risk observations by senior executives within their business, across businesses, and in
	partnership with clients and maintain an active program of audits and inspections
	– Continuing from Downer’s implementation of an accredited Group-wide Zero Harm
	management system, achieve independent confirmation of removal of legacy systems as
	well as achievement of all certification requirements.
Long-term incentive (LTI) plan	The Company adds back any items that were outside of the underlying statutory result to the
– EPS component	earnings value when setting the base year value from which performance is measured over the
	performance period. The Board recognised that the calculated starting value was impacted
	by the events of 2020 and accordingly increased the base year earnings by an additional
	$10 million to ensure that anyfuture reward is appropriate.

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DIRECTORS’ REPORT Annual Report 2021 25
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2. Details of Key Management Personnel

The following persons acted as Directors of the Company during or since the end of the most recent financial year:

Director	Role
R M Harding	Chairman, Independent Non-executive Director
G A Fenn	Managing Director and Chief Executive Oficer
P S Garling	Independent Non-executive Director
T G Handicott	Independent Non-executive Director
N M Hollows	Independent Non-executive Director
C G Thorne	Independent Non-executive Director (retired 13 July 2020)
P L Watson	Independent Non-executive Director

The named persons held their current executive position for the whole of the most recent financial year, except as noted:

Executive	Role
S Cinerari	Chief Operating Oficer – Australian Operations
M J Ferguson	Chief Financial Oficer
S L Killeen	Chief Executive Oficer – New Zealand
P J Tompkins	Chief Executive Oficer – Spotless

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26 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

3. Remuneration Policy, Principles and Practices

3.1 Executive remuneration policy

Downer’s executive remuneration policy and practices are summarised in the table below.

Policy	Practices aligned with policy	Practices aligned with policy
Retain experienced, proven	–	Provide remuneration that is internally fair
performers, and those	–	Ensure remuneration is competitive with the external market
considered to have high potential for succession	–	Defer a substantial part of pay contingent on continuing service and sustained performance.
Focus performance	–	Provide a substantial component of pay contingent on performance against targets
	–	Focus attention on the most important drivers of value by linking pay to their achievement
	–	Require profitability to reach a challenging level before any bonus payments can be made
	–	Provide a LTI plan component that rewards consistent Scorecard performance over multiple years
		and over which executives have a clear line of sight.
Provide a Zero Harm	–	Incorporate measures that embody Zero Harm for Downer’s employees, contractors, communities
environment		and the environment as a significant component of reward.
Manage risk	–	Encourage sustainability by balancing incentives for achieving both short-term and longer-term
		results, and deferring equity-based reward vesting after performance has been initially tested
	–	Set stretch targets that finely balance returns with reasonable but not excessive risk taking and cap
		maximum incentive payments
	–	Do not provide excessive ‘clif’ reward vesting that may encourage excessive risk taking as a
		performance threshold is approached
	–	Diversify risk and limit the prospects of unintended consequences from focusing on just one measure
		in both short-term and long-term incentive plans
	–	Stagger vesting of deferred short-term incentive payments to encourage retention and allow
		forfeiture of rewards that are the result of misconduct or material adjustments
	–	Retain full Board discretion to vary incentive payments, including in the event of excessive risk taking
	–	Restrict trading of vested equity rewards to ensure compliance with the Company’s Securities
		TradingPolicy.
Align executive interests	–	Provide that a significant proportion of pay is delivered as equity so part of executive reward is linked
with those of shareholders		to shareholder value performance
	–	Provide a long-term incentive that is based on consistent Scorecard performance against challenging
		targets set each year that reflect sector volatility and prevailing economic conditions as well as
		relative TSR and earnings per share measures directly related to shareholder value
	–	Maintain a guideline minimum shareholding requirement for the Managing Director
	–	Exclude the short-term impact of unbudgeted and opportunistic acquisitions and divestments from
		performance assessment to encourage agility and responsiveness
	–	Encourage holding of shares after vesting via a trading restriction for all executives and payment
		of LTI components in shares
	–	Prohibit hedging of unvested equity and equity subject to a trading lock to ensure alignment with
		shareholder outcomes.
Attract experienced,	–	Provide a total remuneration opportunity suficient to attract proven and experienced executives
provenperformers		from securepositions in other companies and retain existingexecutives.

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DIRECTORS’ REPORT Annual Report 2021 27
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4. Relationship Between Remuneration Policy and Company Performance

4.1 Company strategy and remuneration

Downer’s business strategy includes:

• Maintaining focus on Zero Harm by continually improving health, safety and environmental performance to achieve Downer’s goal of zero work-related injuries and significant environmental incidents

• Driving growth in core markets through focusing on serving existing customers better across multiple products and service offerings, growing capabilities and investing in innovation, research and development and community and Indigenous partnerships

• Creating new strategic positions through enhanced value add services that improve propositions for customers and exporting established core competencies into new overseas markets with current customers of the Company

• Reducing risk and enhancing the Company’s capability to withstand threats, take advantage of opportunities and reduce cyclical volatility

• Obtaining better utilisation of assets and improved margins through simplifying and driving efficiency

• Identifying opportunities to manage the Downer portfolio through partnering, acquisition and divestment that deliver long-term shareholder value

• Maintaining flexibility to be able to adapt to the changing economic and competitive environment to ensure Downer delivers shareholder value.

The Company’s remuneration policy complements this strategy by:

• Incorporating Company-wide performance requirements for both STI and LTI reward vesting for earnings (NPATA), Free Cash Flow (FFO) and People measures to encourage cross- divisional collaboration

• Incorporating performance metrics that focus on cash flow to reduce working capital and debt exposure

• Setting NPATA, EBITA and FFO STI performance and gateway requirements based on effective application of funds employed to run the business for better capital efficiency

• Employing FFO as the cash measure for the STI to provide more emphasis on control of capital expenditure

• Deferring 50% of STI awards to encourage sustainable performance and a longer-term focus

• Incorporating consistent financial performance in the LTIP Scorecard measure

• Emphasis on Zero Harm measures in the STI to maintain the Company’s position as a Zero Harm leader and employer and service provider of choice, thereby delivering a competitive advantage

• Encouraging engagement with, and the development and retention of, its people to help maintain a sustainable supply of talent.

4.2 Remuneration linked to performance

The link to performance is provided by:

• Requiring a significant portion of executive remuneration to vary with short-term and long-term performance

• Applying a profitability gateway to be achieved before an STI calculation for executives is made

• Applying further Zero Harm gateways to be achieved before calculating any reward for safety or environmental performance

• Applying challenging financial and non-financial measures to assess performance

• Ensuring that these measures focus management on strategic business objectives that create shareholder value

• Delivering a significant proportion of payment in equity for alignment with shareholder interests.

Downer measures performance on the following key corporate measures:

• Earnings per share (EPS) growth

• Total shareholder return (TSR) relative to other ASX 100 companies (excluding ASX ‘Financials’ sector companies)

• Group NPATA

• Divisional EBITA

• FFO

• Engagement with Downer’s people

• Zero Harm measures of safety and environmental sustainability.

Remuneration for all executives varies with performance on these key measures.

• Excluding the short-term impacts of opportunistic and unbudgeted acquisitions and divestments on incentive outcomes to encourage flexibility, responsiveness and growth consistent with strategy

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28 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued for the year ended 30 June 2021

The following graph shows the Company’s performance compared to the median performance of the ASX 100 over the five-year period to 30 June 2021.

Downer EDI TSR compared to S&P/ASX 100 median*

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300
250
200
150
100
50
0
Jun Dec Jun Dec Jun Dec Jun Dec Jun Dec Jun
2016 2016 2017 2017 2018 2018 2019 2019 2020 2020 2021
Downer EDI TSR S&P/ASX 100 median TSR
Total Shareholder Return (Indexed to 100)
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• S&P/ASX 100 companies as at 30/06/2018

The graphs below illustrate Downer’s performance against key financial and non-financial performance indicators over the last five years.

Net profit after tax

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300
247.8 [1] 258.3 [2] 235.5 [1]
200 181.5
100
0
-100
(155.7)
-200
2017 2018 2019 2020 2021
$’m
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• 1 Adjusted for material unbudgeted transactions and individually significant items.

• 2 Adjusted for material unbudgeted transactions.

Free cash flow

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500
431.5 [3]
400
300
203.0 [3] 178.3 [3] 185.7 [4]
200
100
0
-100
-200
(219.1)
-300
2017 2018 2019 2020 2021
$’m
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• 3 Adjusted for material unbudgeted transactions, including payment for Spotless shares.

• 4 Adjusted for material unbudgeted transactions.

Basic earnings per share[ 5]

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50
42.1
40 35.1
30 25.4
20
10.5
10
0
-10
-20
-30 (26.1)
2017 2018 2019 2020 2021
Cents per share
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• 5 Historical basic earnings per share were restated as a result of 106.6 million shares issued from the capital raising as part of the acquisition of the remaining shares in Spotless. The weighted average number of shares (WANOS) to calculate EPS was adjusted by an adjustment factor of 0.9817.

Safety[ 6]

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1.2 12
0.99
1.0 10
0.8 0.78 8
0.67
0.6 0.55 0.57 6
0.4 4
0.2 2
0.0 0
2017 2018 2019 2020 2021
LTIFR TRIFR
Lost Time Injuries per 1,000,000 hours
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• 6 Safety data for 2021 includes Hawkins and Spotless. Safety data for 2017 to 2020 excludes Hawkins and Spotless.

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DIRECTORS’ REPORT Annual Report 2021 29
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5. The Board’s Role in Remuneration

The Board engages with shareholders, management and other stakeholders as required, to continuously refine and improve executive and Director remuneration policies and practices.

Two Board Committees deal with remuneration matters. They are the Remuneration Committee and the Nominations and Corporate Governance Committee.

The role of the Remuneration Committee is to review and make recommendations to the Board in relation to executives in respect of:

• Executive remuneration and incentive policy

• Remuneration of senior executives of the Company

• Executive reward and its impact on risk management

• Executive incentive plans

• Equity-based incentive plans

• Superannuation arrangements

• Recruitment, retention, performance measurement and termination policies and procedures for all Key Management Personnel and senior executives reporting directly to the Managing Director

• Disclosure of remuneration in the Company’s public materials including ASX filings and the Annual Report

• Retirement payments for all Key Management Personnel and senior executives reporting directly to the Managing Director.

The Nominations and Corporate Governance Committee is responsible for recommending and reviewing remuneration arrangements for the Executive Director and Non-executive Directors of the Company.

Each Committee has the authority to engage external professional advisors without seeking approval of the Board or management. During the reporting period, the Remuneration Committee retained Guerdon Associates Pty Ltd as its advisor. Guerdon Associates Pty Ltd does not provide services to management and is considered to be independent.

Directors’ Report – continued

for the year ended 30 June 2021

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30 Downer EDI Limited DIRECTORS’ REPORT
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6. Description of Executive Remuneration

6.1 Executive remuneration structure

Executive remuneration has a fixed component and a component that varies with performance.

The variable component ensures that a proportion of pay varies with performance. Performance is assessed annually for performance periods covering one year and three years. Payment for performance assessed over one year is an STI. Payment for performance over a three-year period is an LTI.

In order for maximum STIs to be awarded, performance must achieve a stretch goal that is a clear margin above the planned budget for the period. This enables the Company to attract and retain better performing executives, and ensures pay outcomes are aligned with shareholder returns.

Target STIs are less than the maximum STI. Target STI is payable on achievement of planned objectives. For executives, the target STI is 75% of the maximum STI. The maximum total remuneration that can be earned by an executive is capped. The maximums are determined as a percentage of fixed remuneration.

				Maximum total
				performance
	Target STI	Maximum STI	Maximum LTI	based pay as a
	% of fixed	% of fixed	% of fixed	% of fixed
Executive position	remuneration	remuneration	remuneration	remuneration
Managing Director	75	100	100	200
Executives appointed prior to 2011	75	100	75	175
Executives appointed from 2011	56.25	75	50	125

The proportions of STI to LTI take into account:

• Market practice

• The service period before executives can receive equity rewards

• The behaviours that the Board seeks to encourage through direct key performance indicators

• The guideline for the Managing Director to maintain a shareholding as a multiple of pay after long-term incentive rewards have vested.

6.2 Fixed remuneration

Fixed remuneration is the sum of salary and the direct cost of providing employee benefits, including superannuation, motor vehicles, car parking, living away from home expenses and fringe benefits tax.

The level of remuneration is set to be able to retain proven performers and when necessary to attract the most suitable external candidates from secure employment elsewhere.

Remuneration is benchmarked against a peer group of direct competitors and a sector peer group. While market levels of remuneration are monitored on a regular basis, there is no contractual requirement or expectation that any adjustments will be made.

No adjustment has been made to remuneration for the Managing Director since July 2012, other than a voluntarily reduction in his fixed remuneration by 50% for the period 1 March 2020 to 30 June 2020 in recognition of the likely impact of the coronavirus pandemic on Downer and its people. The funds from this voluntary remuneration reduction, along with contributions from Directors and other executives, were used to establish a fund to provide financial assistance to Downer and Spotless employees experiencing severe hardship.

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DIRECTORS’ REPORT Annual Report 2021 31
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6.3 Short-term Incentive

6.3.1 STI tabular summary

The following table outlines the major features of the 2021 STI plan.

Purpose of STI plan	– Focus performance on drivers of shareholder value over 12-month period
	– Improve Zero Harm and people related results
	– Ensure apart of remuneration costs varies with the Company’s 12-monthperformance.
Minimum performance ‘gateway’	Achievement of a gateway based on budgeted Group NPATA for corporate executives and
before any payments can be made	Division EBITA for divisional heads.
Maximum STI that can be earned	– KMP appointed pre-2011: up to 100% of fixed remuneration
	– KMP appointed from 2011: upto 75% of fixed remuneration.
Percentage of STI that can be	75% of the maximum. For an executive to receive more, performance in excess of target
earned on achieving target	expectations will be required.
expectations
Individual Performance Modifier	– An IPM may be applied based on an executive’s individual key performance indicators
(IPM)	and relative performance
	– Moderate individual performance may result in an IPM of less than 1 or outstanding
	performance may result in an IPM greater than 1. The IPM must average 1 across
	all participants
	– Application of an IPM cannot result in an award greater than the maximum STI% level set out
	in Section 6.1.
Discretion to vary payments	The Board, in its discretion, may vary STI payments by up to + or – 100% from the payment
	applicable to the level ofperformance achieved, upto the maximum for that executive.
Performanceperiod	1 July2020 to 30 June 2021.
Performance assessed	August 2021, followingaudit of accounts.
Additional service period after	50% of the award is deferred with the first tranche of 25% vesting one year following award and
performance period for payment	the second tranche of 25% vesting two years following award.
to be made
Payment timing	September 2021 for the first cash payment of 50% of the award. The deferred components of
	the STI payments will be paid one and two years following the award, in equal tranches of 25%
	of the award.
Form of payment	Cash for initial payment.
	The value of deferred components will be settled in cash or shares, net of personal tax. An
	eligible leaver’s deferred components will be settled in shares or in cash in the sole and absolute
	discretion of the Board.
Performance requirements	GroupNPATA and divisional EBITA, FFO, Zero Harm andpeople measures.
Board discretion	The Board may exercise discretion to:
	– Reduce partly or fully the value of the deferred components that are due to vest in certain
	circumstances, including where an executive has acted inappropriately or where the Board
	considers that the financial results against which the STI performance measures were tested
	were incorrect in a material respect or have been reversed or restated
	– Settle deferred components in shares or cash.
New recruits	New executives (either new starts or promoted employees) are eligible to participate in the STI
	in theyear in which theycommence in theirposition with apro-rata entitlement.
Terminating executives	There is no STI entitlement where an executive’s employment terminates prior to the end of
	the financial year. Where an executive’s employment terminates prior to the vesting date, the
	unvested deferred components will be forfeited. However, the Board has retained discretion
	to vest deferred awards, in the form of shares or cash, in their ordinary course where the
	executive isjudged to be an eligible leaver.

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32 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

6.3.2 STI overview

The STI plan provides for an annual payment that varies with annual performance. This has been applied to performance measured over the Company’s financial year to 30 June 2021.

The basis of the plan is designed to align STI outcomes with financial results. No STI is paid unless a minimum profit gateway is met. For corporate executives, the gateway is based on the Group budgeted profit target. For Divisional executives, the gateway is based on the Division budgeted profit target. Profit for this purpose is defined as NPATA for Corporate executives and EBITA for Divisional executives. This minimum must be at a challenging level to justify the payment of STI to an executive and deliver an acceptable return for the funds employed in running the business. Positive and negative impacts from material but unbudgeted and opportunistic transactions are excluded from gateway assessment. Whether to exclude the impact of significant items (positive or negative) is considered on a case by case basis.

As noted in Section 6.1, the maximum STI that can be earned is capped to minimise excessive risk taking.

Deferral is a key feature as part of the STI structure. Payment of 50% of the award is paid at the time of award in cash and the remaining 50% of the award earned is deferred over two years.

The first payment of 50% of the award will be in cash after finalisation of the annual audited results. The payment of the deferred component of the award will be in the form of two tranches, each to the value of 25% of the award.

The deferred components represent an entitlement to cash or shares, subject to the satisfaction of a continued employment condition. The first tranche will vest one year following award and the second tranche will vest two years following award, provided an executive remains employed by the Group at the time of vesting.

The value of deferred components will generally be settled in shares, net of applicable personal tax. This is designed to encourage executive share ownership, and not adversely impact executives who have to meet their taxation obligations arising from the vesting of the deferred components. However, the Board retains the discretion to vest deferred awards, in the form of shares or cash, and will generally have regard to an executive’s individual circumstances and existing level of equity ownership.

No dividend entitlements are attached to the deferred components during the vesting period.

Where an executive ceases employment with the Group prior to the vesting date, the deferred components will be forfeited. However, the Board has retained the discretion to vest deferred awards, in the form of shares or cash, in their ordinary course where the executive is judged to be an eligible leaver.

6.3.3 How STI payments are assessed

Target STI plan percentage of pay	An individual’s target incentive under the STI plan is expressed as a percentage of fixed
	remuneration. The STIplanpercentage is set accordingtopolicytabulated in Section 6.1.
Organisational or divisional	As a principle, ‘target’ achievement would be represented at budget. Thresholds and maximums
scorecard result	are also set.
Individual Performance Modifier	At the end of the plan year, eligible employees are provided with an IPM against their key
(IPM)	performance indicators and relative performance. Individual key performance indicators are set
	between the individual and the Managing Director (if reporting to the Managing Director) or the
	Board (if the ManagingDirector) at the start of theperformanceperiod. IPMs must average to 1.
STIplan incentive calculation	Fixed remuneration x maximum STIplanpercentage x scorecard result x IPM.

6.3.4 STI performance requirements

Overall performance is assessed on Group NPATA, Divisional EBITA, FFO, Zero Harm and a measure of employee engagement.

NPATA and EBITA include joint ventures and associates and include, inter alia, changes in accounting policy. NPATA and EBITA provide transparency on operational business performance, align with how Downer presents its results to the market and allow for easier understanding of alignment between performance and remuneration outcomes. The Board considers this approach to be appropriate as:

• The Board is the ultimate decision maker for transactions that give rise to acquired intangibles that result in the amortisation expense

• The impact of amortisation of acquired intangibles, which in nature relate to long-term strategic decisions, remains reflected in incentive outcomes through the EPS measure in the LTI plan.

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DIRECTORS’ REPORT Annual Report 2021 33
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FFO is defined as net cash from operating activities (i.e. EBIT plus non-cash items in operating profit plus distributions received from JVs or associates plus movements in working capital plus movements in operating assets less net interest less tax paid), less investing cash flow.

Zero Harm reflects Downer’s commitment to safety and environmental, social and governance matters. The Zero Harm element includes safety and environmental measures, underscoring Downer’s commitment to customers, employees, regulators and the communities in which it operates.

The measures for the Zero Harm element of the scorecard are as follows:

Measure	Target
Safety
Total Recordable Injury	Achieve TRIFR and LTIFR below defined threshold for area of responsibility. TRIFR is calculated
Frequency Rate (TRIFR)	as the number of recordable injuries per million hours calculated over 12 months.
Lost Time Injury Frequency Rate	LTIFR is calculated as the number of lost time injuries per million hours calculated over 12 months.
(LTIFR)
Environmental	Undertake a materiality assessment and identify two material Sustainable Development Goals,
Sustainability and GHG emissions	develop improvement plans for them and achieve their first-year targets.
reduction	Evidence that the relevant business unit is on track to achieve its science-based decarbonisation
	target.
Critical Risk	Review all critical controls for at least 2 critical risk activities amongst the top 5 critical risks of the
	business unit and develop a plan to raise the efectiveness for the 5 least efective critical controls
	for each of those activities.
	Lead and finalise a Community of Practice to improve a critical control that has application
	across the Group.
	Achieve independent confirmation that critical control information is fully integrated into all
	aspects of the operating management system and processes, including risk registers, and the
	use of Bow Ties for investigations.
Zero Harm Leadership	Completion of all actions arising from high potential incidents within a defined timeframe.
	Delivery of Critical Control Verification Programs, performance of a minimum number of
	critical risk observations by senior executives within their business, across businesses, and
	in partnership with clients; and maintenance of an active program of audits and inspections.
	Continuing from Downer’s implementation of a single accredited Group-wide Zero Harm
	management system, achieve independent confirmation of removal of legacy systems as well
	as achievement of all certification requirements.

Should a workplace fatality or serious environmental incident occur, the relevant safety or environmental portion of the STI is foregone.

Weightings applied to the 2021 STI scorecard measures for all executives, including the Managing Director, are set out in the table below.

Executive	Group NPATA	Divisional EBITA	Free cash flow	Zero Harm	People
Corporate	30%	–	30%	30%	10%
Business Unit	7.5%	22.5%	30%	30%	10%
			(7.5% Group,		(3% Group,
			22.5% Division)		7% Division)

The Board has discretion to vary STI payments by up to + or – 100% from the payment applicable to the level of performance achieved, up to the maximum for that executive.

Specific details of STI performance outcomes are set out in Section 7.3.

The Board retains the right to vary from policy in exceptional circumstances. However, any variation from policy and the reasons for it will be disclosed.

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34 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

6.4 Long-term Incentive

6.4.1 LTI tabular summary

The following table outlines the major features of the 2021 LTI plan.

Purpose of LTI plan	– Focus performance on drivers of shareholder value over three-year period – Manage risk by countering any tendency to over-emphasise short-term performance to the detriment of longer-term growth and sustainability – Ensure apart of remuneration costs varies with the Company’s longer-termperformance.
Maximum value of equity that can be granted	– Managing Director: 100% of fixed remuneration – KMP appointed pre-2011: 75% of fixed remuneration – KMP appointed from 2011: 50% of fixed remuneration.
Performanceperiod	1 July2020 to 30 June 2023.
Performance assessed	August 2023.
Additional service period after performance period for shares to vest	Performance rights for which the relevant performance vesting condition is satisfied will not vest unless executives remain employed with the Group on 30 June 2024.
Performance rights vest	July2024.
Form of award andpayment	Performance rights.
Performance conditions	There are three performance conditions. Each applies to one-third of the performance rights granted to each executive. Relative TSR The relative TSR performance condition is based on the Company’s TSR performance relative to the TSR of companies comprising the ASX 100 index, excluding financial services companies, at the start of the performance period, measured over the three years to 30 June 2023. The performance vesting scale that will apply to the performance rights subject to the relative TSR test is shown in the table below: Downer EDI Limited’s TSR Ranking Percentage of performance rights subject to TSR condition that qualify for vesting
	< 50thpercentile 0%
	50thpercentile 30%
	Above 50th and below 75th percentile Pro-rata so that 2.8% of the performance rights in the tranche will vest for every 1 percentile increase between the 50th percentile and 75thpercentile
	75thpercentile and above 100%

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DIRECTORS’ REPORT Annual Report 2021 35
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Performance conditions

EPS growth

The EPS growth performance condition is based on the Company’s compound annual EPS growth over the three years to 30 June 2023.

The performance vesting scale that will apply to the performance rights subject to the EPS growth test is shown in the table below:

is shown in the table below:
Downer EDI Limited’s EPS	Percentage of performance rights subject to EPS condition
compound annual growth	that qualify for vesting
< 5%	0%
5%	30%
Above 5% to < 10%	Pro-rata so that 14% of the performance rights in the tranche will vest
	for every1% increase in EPSgrowth between 5% and 10%
10% or more	100%

Scorecard

The Scorecard performance condition is based on the Group’s NPATA and FFO for each of the three years to 30 June 2023. These measures are considered to be key drivers of shareholder value. Accordingly, they have been included in the LTI plan to reward sustainable financial performance. The performance vesting scale that will apply to the performance rights subject to the Scorecard test is shown in the table below:

	Scorecard result Percentage of performance rights subject to Scorecard condition that qualify for vesting
	< 90% 0%
	90% 30%
	Above 90% to < 110% Pro-rata so that 3.5% of the performance rights in the tranche will vest for every1% increase in the Scorecard result between 90% and 110%
	110% or more 100%
How performance rights and shares are acquired	The rights are issued by the Company and held by the participant subject to the satisfaction of the vesting conditions. The number of rights held may be adjusted pro-rata, consistent with ASX adjustment factors, for any capital restructures. If the rights vest, executives can exercise them to receive shares that are normally acquired on-market. The Board retains the discretion to vest awards in the form of cash.
Treatment of dividends and voting rights on performance rights	Performance rights do not have voting rights or accrue dividends.
Restriction on hedging	Hedgingof entitlements under theplan byexecutives is notpermitted.
Restriction on trading	Vested shares arising from the rights may only be traded with the approval of the Remuneration Committee. Approval requires that tradingcomplies with the Company’s Securities TradingPolicy.
New participants	New executives (either new starters or promoted employees) are eligible to participate in the LTI on the first grant date applicable to all executives after they commence in their position. An additional pro-rata entitlement if their employment commenced after the grant date in the prior calendar year may be made on a discretionarybasis.
Ceasing executives	Where an executive ceases employment with the Group prior to the vesting date, the rights will be forfeited. However, the Board will retain the discretion to retain executives in the plan in certain circumstances including the death, total and permanent disability or retirement of an executive. In these circumstances, the Board will also retain the discretion to vest awards in the form of cash.
Change of control	On the occurrence of a change of control event and providing at least 12 months of the grants’ performance period have elapsed, unvested performance rights pro-rated with the elapsed service period are tested for vesting with performance against the relevant relative TSR, EPS growth or Scorecard requirements for that relevant period. Vesting will occur to the extent the performance conditions are met. Performance rights that have already been tested, have met performance requirements and are subject to the completion of the service condition, fullyvest.

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36 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

6.4.2 LTI overview

Executives participate in a LTI plan. This is an equity-based plan that provides for a reward that varies with Company performance over three-year measures of performance. Three-year measures of performance are considered to be the maximum reasonable time period for setting incentive targets for earnings per share and are generally consistent with market practice in the Company’s sector.

The payment is in the form of performance rights. The performance rights do not have any dividend entitlements or voting rights. If all the vesting requirements are satisfied, the performance rights will vest and the executives will receive shares in the Company or cash at the discretion of the Board.

The 2021 LTI represents an entitlement to performance rights to ordinary shares exercisable subject to satisfaction of both a performance condition and a continued employment condition. Grants will be in three equal tranches, with each tranche subject to an independent performance requirement. The performance requirements for each tranche will share two common features:

• Once minimum performance conditions are met, the proportion of performance rights that qualify for vesting commences at 30% and gradually increases pro-rata with performance. This approach provides a strong motivation for meeting minimum performance, but avoids a large ‘cliff’ which may encourage excessive risk taking

• The maximum reward is capped at a ‘stretch’ performance level that is considered attainable without excessive risk taking.

Performance for the 2021 LTI grants will be measured over the three-year period to 30 June 2023.

The proportion of performance rights that can vest will be calculated in August 2023, but executives will be required to remain in service until 30 June 2024 to be eligible to receive any shares.

Where an executive ceases employment with the Group prior to the vesting date, the rights will be forfeited. However, the Board will retain the discretion to retain executives in the plan in certain circumstances such as the death, total and permanent disability or retirement of an executive. In these circumstances, the Board will also retain the discretion to vest awards in the form of cash.

After vesting, any shares will remain subject to a trading restriction that is governed by the Company’s Securities Trading Policy.

All unvested performance rights will be forfeited if the Board determines that an executive has committed an act of fraud, defalcation or gross misconduct or in other circumstances at the discretion of the Board.

6.4.3 Performance requirements

One tranche of performance rights in the 2021 LTI grant will qualify for vesting subject to performance relative to other companies, while the other two tranches of performance rights will qualify for vesting subject to separate, independent absolute performance requirements.

The relative performance requirement applicable to the first tranche of performance rights is based on total shareholder return (TSR). TSR is calculated as the difference in share price over the performance period, plus the value of shares earned from reinvesting dividends received over this period, expressed as a percentage of the share price at the beginning of the performance period. If the TSR for each company in the comparator group is ranked from highest to lowest, the median TSR is the percentage return to shareholders that exceeds the TSR for half of the comparison companies. The 75th percentile TSR is the percentage return required to exceed the TSR for 75% of the comparison companies.

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DIRECTORS’ REPORT Annual Report 2021 37
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Performance rights in the tranche to which the relative TSR performance requirement applies will vest pro-rata between the median and 75th percentile. That is, 30% of the tranche vest at the 50th percentile, 32.8% at the 51st percentile, 35.6% at the 52nd percentile and so on until 100% vest at the 75th percentile.

The comparator group for the 2021 LTI grants will be the companies, excluding financial services companies, in the ASX 100 index as at the start of the performance period on 1 July 2020. Consideration has been given to using a smaller group of direct competitors for comparison, however:

• Limiting the comparator group to a small number of direct competitors could result in very volatile outcomes from period to period

• Management’s strong focus on improving the Company’s ranking among ASX 100 companies has become embedded in Company culture, so reinforcing this rather than trying to dislodge it with another focus was considered desirable.

The absolute performance requirement applicable to the second tranche of performance rights is based on Earnings per Share (EPS) growth over the three-year performance period to 30 June 2023. The EPS measure is based on AASB 133 Earnings per Share .

The tranche of performance rights dependent on the EPS performance condition will vest pro-rata between 5% compound annual EPS growth and 10% compound annual EPS growth.

Vesting applies on a pro-rata basis from 30% upon meeting the minimum compound annual EPS growth performance level of 5% to 100% at 10% compound annual EPS growth. Capping reduces the tendency for excessive risk taking and volatility that may be encouraged if the annual compound EPS growth bar is set above 10%.

The absolute performance requirement applicable to the third tranche of performance rights is based on the Scorecard condition over the three-year performance period to 30 June 2023.

The Scorecard condition is designed to:

• Strengthen retention through the setting of challenging targets on an annual basis that reflect prevailing market conditions, for a portion of LTI awards

• Align with the STI plan to encourage a long-term approach to achieving annual financial performance targets

• Improve the line of sight for executives so as to increase motivation and focus on consistent performance

• Focus on performance sustainability through reward of consistent achievement of absolute performance targets over the long term.

The Scorecard condition is comprised of two independent absolute components of equal weighting. These components are based on Group NPATA and Group FFO.

The performance of each component will be measured over the three-year period to 30 June 2023.

NPATA and FFO targets are set at the beginning of each of the three financial years. The performance of each component will be assessed each year relative to the targets. Performance of each component will be determined as the average of the annual performance assessments for the three years. The performance rights will vest on a pro-rata basis from 30% upon meeting the minimum three-year average component performance level of 90% of target to 100% at the capped maximum three-year average component performance level of 110% of target.

The processes and timing applicable for the Scorecard measure are outlined below:

Timing	Actions
At the beginning	Weighting of components is
of the plan	determined. In 2021 the components
	are equallyweighted.
At the beginning of	NPATA and FFO target performance
each financialyear	levels are set.
At the end of each	– Calculate actual performance
financial year	– Assess actual performance compared
	to target to determine performance
	percentage for theyear.
At the end of	– Calculate average annual performance
three years	for each component
	– Calculate award based on performance
	against the vestingrange.
At the end of	Consider the continued service condition
fouryears	and determine vesting.

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38 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

6.4.4 Post-vesting shareholding guideline

The Managing Director is required to continue to hold shares after they have vested until the shareholding guideline has been attained. This guideline requires that the Managing Director holds vested long-term incentive shares equal in value to 100% of his fixed remuneration. The Managing Director’s shareholding is currently well in excess of the guideline.

The guideline requirement has been developed to reinforce alignment with shareholder interests. The Remuneration Committee has discretion to allow variations from this guideline requirement.

The Board retains the right to vary from policy in exceptional circumstances. However, any variation from policy and the reasons for it will be disclosed.

6.5 Treatment of major transactions

Downer has delivered significant shareholder value through a long history of strategic mergers, acquisitions and divestments. On each occasion, the Board considers the impact of these transactions. Where a transaction is both material and unbudgeted, the Board considers whether it is appropriate to adjust for its impact on the key performance indicators on which executive performance is measured. The objective of any adjustment is to ensure that opportunities to add value through an opportunistic divestment or acquisition should not be fettered by consideration of the impact on incentive payments. That is, executives should be ‘no better or worse off’ as a result of the transaction. No adjustments are made for market reactions to a transaction as the Board believes that management is accountable for those outcomes.

In assessing Zero Harm performance of executives, the results of acquired businesses are excluded for a period of 12 months post acquisition to ensure that management is accountable for the objectives set in the annual business planning process and in recognition that an integration period during which Downer’s Zero Harm framework (including systems, processes, definitions and measurement and reporting methods) is implemented through the acquired business is appropriate. Where this transition to Downer’s framework takes place over a longer period due to the complexity of the implementation or the maturity profile of the acquired business, the Board will consider an extension to a more appropriate period. During 2021, the integration of Hawkins and Spotless into the Downer Zero Harm Framework reached an appropriate stage for their inclusion in the Group’s lagging performance measures.

6.6 Treatment of significant items

From time to time, Downer’s performance is impacted by significant items. Where these occur, the Board considers whether to adjust for their impact (positive or negative) on a case by case basis, having regard to the circumstances relevant to each item.

The Board considers this approach to be appropriate as it ensures that executives and the Board make decisions solely based on the best interests of Downer.

The Board considers this approach to be appropriate as it:

• Ensures that executives and the Board consider these transactions solely based on the best interests of Downer

• Means executives remain accountable for transaction execution and post-transaction performance from the next budget cycle

• Ensures that executives complete opportunistic transactions that are in the long-term interests of shareholders

• Is consistent with the Board’s long-term view when considering the value of major transactions to Downer’s shareholders

• Ensures Downer remains agile and responsive in managing its portfolio by pursuing opportunities as and when they emerge rather than being constrained by the annual budget process.

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DIRECTORS’ REPORT Annual Report 2021 39
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7. Details of Executive Remuneration

7.1 Remuneration received in relation to the 2021 financial year

Executives receive a mix of remuneration during the year, comprising fixed remuneration, an STI paid in cash, and a LTI in the form of performance rights that vest four years later, subject to meeting performance and continued employment conditions.

The table below lists the remuneration actually received in relation to the 2021 financial year, comprising fixed remuneration, cash STIs relating to 2021, deferred STIs payable in 2021 in respect of prior years and the value of LTI grants that vested during the 2021 financial year. This information differs to that provided in the statutory remuneration table at Section 7.2 which shows the accounting expense of LTIs and deferred STIs for 2021 determined in accordance with accounting standards rather than the value of LTI grants that vested during the year.

		Cash Bonus
		paid or	Deferred Bonus
		payable in	paid or payable		Equity that	Total
	Fixed	respect of	in respect of	Total	vested during	remuneration
	Remuneration 1	current year 2	prior years 4	payments	2021 3	received
	$	$	$	$	$	$
G A Fenn	2,084,302	861,500	373,400	3,319,202	1,195,746	4,514,948
S Cinerari	1,119,923	473,825	240,790	1,834,538	448,400	2,282,938
M J Ferguson	1,000,000	323,063	140,025	1,463,088	224,204	1,687,292
S L Killeen	938,299	306,360	150,573	1,395,232	–	1,395,232
P J Tompkins	1,000,000	321,225	99,779	1,421,004	209,251	1,630,255
	6,142,524	2,285,973	1,004,567	9,433,064	2,077,601	11,510,665

1 Fixed remuneration comprises salary and fees, payment of leave entitlements, non-monetary benefits and superannuation payments.

2 Cash Bonus paid or payable in respect of current year represents cash payments in relation to the 2021 financial year. These comprise the 50% cash component of the award. The remaining 50% of the total award is deferred as described in Section 6.3.

3 Represents the value of performance rights granted in previous years that vested during the year, calculated as the number of performance rights that vested multiplied by the closing market prices of Downer shares on the vesting date.

4 Deferred Bonus represents the deferred cash bonus amount to be paid in September 2021, being the second deferred component of the 2019 award, being 25% of the award.

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40 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

7.2 Remuneration of executive key management personnel required under the Corporations Act 2001 (Cth)

2021	Short-term employee benefits	Short-term employee benefits	Short-term employee benefits	Short-term employee benefits	Post-employment	Post-employment	benefits
		Cash
		Bonus
		paid or							Share-
		payable	Deferred						based
		in respect	Bonus				Term-		payment
	Salary	of current	paid or	Non-	Super-	Other	ination		transac-
	and fees	year 1	payable 3	monetary	annuation	benefits	Benefits	Subtotal	tions 2	Total
	$	$	$	$	$	$	$	$	$	$
G A Fenn	1,723,306	861,500	483,425	339,302	21,694	–	–	3,429,227	(116,059)	3,313,168
S Cinerari	1,078,306	473,825	277,691	15,566	26,051	–	–	1,871,439	(61,165)	1,810,274
M J Ferguson	965,904	323,063	181,284	12,402	21,694	–	–	1,504,347	4,098	1,508,445
S L Killeen	905,749	306,360	177,841	72	32,478	–	–	1,422,500	1,733	1,424,233
P J Tompkins	959,525	321,225	167,103	18,781	21,694	–	–	1,488,328	21,039	1,509,367
	**5,632,790 **	**2,285,973 **	1,287,344	386,123	123,611	–	–	9,715,841	(150,354)	9,565,487

1 Cash Bonus paid or payable in respect of current year represents cash payments in relation to the 2021 financial year. These comprise the 50% cash component of the award.

2 Represents the value of vested and unvested equity expensed during the period including reversal for forfeited equity incentives and the probability of the incentives vesting, in accordance with AASB 2 Share-based Payment , related to grants made to the executive, as outlined in Section 8.3. Vesting of the majority of securities remains subject to significant performance and service conditions as outlined in Section 6.4.

3 Deferred Bonus represents the value of deferred components attributable to the 2021 financial year based on amortisation of deferred components over the period from the commencement of the relevant performance year to the end of financial year to which payment of the relevant deferred component relates.

In recognition of the likely impact of COVID-19 on Downer and its people, the Managing Director, Chief Executive Officer – New Zealand and Chief Executive Officer – Spotless decided to voluntarily reduce their fixed remuneration by 50% for the period 1 March 2020 to 30 June 2020 and the other KMP decided to voluntarily reduce their fixed remuneration by 30% for the same period.

2020	Short-term employee benefits	Short-term employee benefits	Short-term employee benefits	Short-term employee benefits	Post-employment	Post-employment	benefits
		Cash
		Bonus
		paid or							Share-
		payable	Deferred						based
		in respect	Bonus				Term-		payment
	Salary	of current	paid or	Non-	Super-	Other	ination		transac-
	and fees	year 2	payable 4	monetary	annuation	benefits	Benefits	Subtotal	tions 3	Total
	$	$	$	$	$	$	$	$	$	$
G A Fenn	1,490,664	–	451,217	316,821	21,003	–	–	2,279,705	793,520	3,073,225
S Cinerari	996,497	–	282,755	16,301	30,063	–	–	1,325,616	332,556	1,658,172
M J Ferguson	891,596	–	161,328	12,402	21,003	–	–	1,086,329	208,578	1,294,907
S L Killeen	804,223	–	161,745	–	37,368	–	–	1,003,336	278,369	1,281,705
B C Petersen1	162,430	–	30,976	–	3,162	–	–	196,568	51,454	248,022
P J Tompkins	843,346	–	116,541	13,277	21,003	–	–	994,167	213,766	1,207,933
	5,188,756	**– **	1,204,562	358,801	133,602	–	**- **	**6,885,721 **	**1,878,243 **	8,763,964

1 Amounts represent the expense relating to the period during which the individual was a KMP.

2 Cash Bonus paid or payable in respect of current year represents cash payments in relation to the 2020 financial year. These comprise the 50% cash component of the award. 3 Represents the value of vested and unvested equity expensed during the period including reversal for forfeited equity incentives and the probability of the incentives vesting, in accordance with AASB 2 Share-based Payment , related to grants made to the executive, as outlined in Section 8.3 and an estimate of the fair value of grants to be made in respect of the 2020 financial year attributable to the period. Vesting of the majority of securities remains subject to significant performance and service conditions as outlined in Section 6.4.

4 Deferred Bonus represents the value of deferred components attributable to the 2020 financial year based on amortisation of deferred components over the period from the commencement of the relevant performance year to the end of financial year to which payment of the relevant deferred component relates.

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7.3 Performance related remuneration

7.3.1 Performance outcomes required under the Corporations Act 2001 (Cth)

The table below lists the proportions of remuneration paid during the year ended 30 June 2021 that are performance and non-performance related and the proportion of STIs that were earned during the year ended 30 June 2021 due to the achievement of the relevant performance targets.

	Proportion of 2021 remuneration 2021 Short-term incentive
	Performance Related % Non-performance Related % Paid % Forfeited %
G A Fenn1 S Cinerari1 M J Ferguson S L Killeen P J Tompkins1	37% 63% 86% 14% 38% 62% 86% 14% 34% 66% 86% 14% 34% 66% 88% 12% 34% 66% 86% 14%

1 Performance related portion includes the reversal of expense for forfeited equity incentives described in Section 6.4.

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42 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

7.3.2 STI performance outcomes

In order for an STI to be paid, a minimum of 90% of the budgeted profit target must be met. For Corporate executives, the hurdle is 90% of the Group budgeted profit target. Profit for this purpose is defined as NPATA. For Divisional executives, the hurdle is 90% of the Division budgeted profit target. Profit for this purpose is defined as EBITA.

Specific STI financial and commercial targets remain commercially sensitive and so have not been reported.

The following table summarises the average performance achieved by the KMP across each element of the scorecard.

		Group	Divisional	Group	Divisional	Zero
		NPATA	EBITA	FFO	FFO	Harm	People
Weighting of scorecard element	Corporate	30.0		30.0		30.0	10.0
	Division	7.5	22.5	7.5	22.5	30.0	10.0
Percentage of the element achieved	Corporate	77.2		100.0		100.0	30.0
	Division1	77.2	89.9	100.0	100.0	93.8	24.8

1 Performance includes the results for each Division for each element, even if the EBITA gateway was not achieved.

The following table sets out the performance achieved by each KMP across each element of the scorecard.

G A Fenn, M J Ferguson and S Cinerari

Element Measure Zero Harm Safetyand Environmental People Employee engagement Financial Profit (NPATA) FFO S L Killeen Element Measure Zero Harm Safetyand Environmental People Employee engagement Financial Profit (NPATA/EBITA) FFO P J Tompkins Element Measure Zero Harm Safetyand Environmental People Employee engagement Financial Profit (NPATA/EBITA) FFO	Below Threshold Threshold Target Maximum	Below Threshold Threshold Target Maximum	Below Threshold Threshold Target Maximum	Below Threshold Threshold Target Maximum	Below Threshold Threshold Target Maximum
	Below Threshold Threshold Target Maximum
	Below Threshold Threshold Target Maximum

For 2021, the IPM applied to each member of the KMP remained at 1.

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7.3.3 LTI performance outcomes

The table below summarises LTI performance measures tested and the outcomes for each executive.

Relevant executives 1	Relevant LTI measure Performance outcome % LTI tranche that vested
G A Fenn, S Cinerari, M J Ferguson, P J Tompkins	2018plan –performanceperiod 1 July 2017 to 30 June 2020
	TSR tranche – percentile ranking of Downer’s TSR relative to the constituents of the ASX 100 over a three-yearperiod. Actual performance ranked at the 18th percentile based on a TSR result of –17.9%. 0% became provisionally qualified. 100% were forfeited.
	EPS tranche – compound annual earnings per share growth against absolute targets over a three-yearperiod. Actual performance was –186.6%. 0% became provisionally qualified. 100% were forfeited.
	Scorecard tranche – sustained NPAT and FFO performance against budget over a three-yearperiod. Actual performance was 41.1% for NPAT and 49.7% for FFO. 0% became provisionally qualified. 100% were forfeited.
G A Fenn, S Cinerari, M J Ferguson, P J Tompkins	2019plan –performanceperiod 1 July 2018 to 30 June 2021 2
	TSR tranche – percentile ranking of Downer’s TSR relative to the constituents of the ASX 100 over a three-yearperiod. Actual performance ranked at the 30th percentile based on a TSR result of –8.4%. 0% became provisionally qualified. 100% were forfeited.
	EPS tranche – compound annual earnings per share growth against absolute targets over a three-yearperiod. Actual performance was –4.3%. 0% became provisionally qualified. 100% were forfeited.
	Scorecard tranche – sustained NPAT and FFO performance against budget over a three-yearperiod. Actual performance was 54.3% for NPAT and 63.6% for FFO. 0% became provisionally qualified. 100% were forfeited.

1 Relevant executive refers to members of the KMP who are participants in the plan tested.

2 Test outcomes for the 2019 plan are provisional and will be confirmed following release of the Company’s audited 2021 results. Accordingly, the outcomes are not reflected in the disclosures in Section 8.

7.4 Major transactions and significant items

7.4.1 Major transactions

In 2021 Downer continued to optimise its portfolio in keeping with its urban services strategy, creating efficient market positions to deliver long-term shareholder value through restructuring, partnering, divestments and acquisitions.

Downer undertook three transactions during 2021. These transactions were the acquisition of the remaining interests in Spotless and divestment of Mining businesses of Snowden, Downer Blasting Services, Open Cut Mining West and Downer’s 50% interest in the RTL joint venture, and 70% of the Laundries business.

In accordance with its policy, the Board considered the impact of each transaction on incentive outcomes and determined that:

• The acquisition of the remaining interests in Spotless was a material, unbudgeted transaction for which it was appropriate to adjust incentive outcomes

• The divestment of the Mining businesses of Snowden, Downer Blasting Services, Open Cut Mining West and 50% interest in the RTL joint venture were material, unbudgeted transactions for which it was appropriate to adjust incentive outcomes

• The divestment of 70% of the Laundries business was a material, unbudgeted transaction for which it was appropriate to adjust incentive outcomes.

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44 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

7.4.2 Significant items

During the year, two items had a significant impact. The Board considers such items at the end of each performance period and whether it is appropriate to adjust for their impact on incentive outcomes.

The Board considered it was appropriate to adjust incentive outcomes for the following items:

Item	Description
Fair value adjustment on	In September 2020, Downer issued contingent share options as part of the consideration for its
the Downer Contingent	acquisition of the remaining interests in Spotless.
Share Options	The options are required to be remeasured to fair value at each reporting date. For 2021, the options
	were revalued upwards by $16.6 million post-tax, resulting in an unbudgeted expense.
	Issuing the securities in order to acquire the remaining interests in Spotless was considered to be in the
	best interests of Downer.
	It was determined that it was appropriate to adjust incentive outcomes for this item.
Software-as-a-Service	In March 2021 the International Financial Reporting Standards Interpretations Committee (IFRIC) issued
(SaaS) arrangements	a decision on Configuration or Customisation Costs in a Cloud Computing Arrangement (IAS 138
	Intangible Assets). The decision requires that where a customer does not control a Software-as-a-Service
	product, customisation costs are required to be expensed rather than capitalised.
	Downer’s accounting policy has historically been to capitalise all costs related to SaaS arrangements
	as intangible assets in the Statement of Financial Position. The adoption of the decision resulted in the
	classification of costs incurred in the year as unbudgeted expense of $9.9 million post-tax.
	It was determined that it was appropriate to adjust incentive outcomes for this item.

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7.4.3 Adjustments made to incentive calculations for major transactions and significant items

The Board determined that the following adjustments be made to KPI calculations for the impact of major transactions and significant items. The adjustments mean that executives are ‘no better or worse off’ as a result of the transactions and significant items so that performance is measured against delivery of the Company’s budget and business plan.

Measure	Adjustment	Adjustment	Impact on STI	Impact on STI	Impact on LTI
NPATA	Net increase of $51.8 million comprised of:		For	Corporate scorecard	No change.
	–	Exclusion of $16.6 million of fair value movement on Downer	participants:
		Contingent Share Option (DCSO) liability	–	The gateway was met; and
	–	Exclusion of the costs of termination of Spotless financing	–	77.2% of the NPATA measure
		arrangement of $3.0 million (post-tax)		was achieved.
	–	Exclusion of net loss on divestment of Mining division,	For	New Zealand scorecard
		including the loss of operating earnings since the	participants, a decrease from
		divestment net of interest expense of $20.6 million	100.0% to 90.0% of the measure
		(post-tax)	being achieved.
	–	Exclusion of net impact on divestment of Laundries	For	Spotless scorecard
		business, including the loss of operating earnings since the	participants:
		divestment net of interest expense of $1.7 million (post-tax)	–	The gateway was met; and
	–	Exclusion of customisation costs on SaaS arrangements as	–	89.8% of the NPATA measure
		a result of the change in accounting policy of $9.9 million		was achieved.
		(post-tax).
FFO	Net decrease of $313.1 million comprised of:		No change.		No change.
	–	Exclusion of $134.5 million payment of consideration for
		Spotless acquisition and $4.4 million transaction costs paid
	–	Exclusion of $311.6 million proceeds from the divestment of
		Mining businesses net of transaction costs and $2.9 million
		net interest benefits
	–	Exclusion of $136.2 million proceeds from the divestment of
		Laundries business net of transaction costs and $1.3 million
		net interest benefits.
EPS	The use of NPAT adjusted as set out above.		Not applicable.		No change.
TSR	No	adjustments were made.	Not applicable.		Not applicable.

7.4.4 Future periods

For major transactions completed in 2021, the impact on operational performance is included in the 2022 budget and accordingly no adjustments are expected in respect of FY22 operational performance.

7.5 Variances from policy

There was one variation from policy in 2021.

2021 Long-term Incentive plan EPS measure

The Company’s policy is to add back any items that were outside of the underlying statutory result to the earnings value when setting the base value EPS from which performance will be measured. The Board recognised that the calculated starting value was impacted by the events of 2020 and accordingly decided that this adjustment be increased by an additional $10 million of earnings when calculating the base year EPS in order to ensure that any future reward is appropriate.

Directors’ Report – continued

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46 Downer EDI Limited DIRECTORS’ REPORT
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for the year ended 30 June 2021

8. Executive Equity Ownership

8.1 Ordinary shares

KMP equity holdings in fully paid ordinary shares and performance rights issued by Downer EDI Limited are as follows:

	Ordinary shares Performance rights
	Balance at 1 July 2020 No. Net Change No. Balance at 30 June 2021 No. Balance at 1 July 2020 No. Net Change No. Balance at 30 June 2021 No.
G A Fenn S Cinerari M J Ferguson S L Killeen P J Tompkins	1,582,218 467,554 2,049,772 923,646 (297,898) 625,748 263,219 (90,354) 172,865 358,823 (112,237) 246,586 2,000 90,694 92,694 196,577 (43,986) 152,591 15,528 35,198 50,726 132,045 9,430 141,475 185,511 100,493 286,004 192,576 (36,139) 156,437

8.2 Preference shares

KMP equity holdings in fully paid preference shares issued by Works Finance (NZ) Limited, a wholly owned subsidiary of Downer EDI Limited, are as follows:

	Preference shares
	Balance at 1 July 2020 No. Net change No. Balance at 30 June 2021 No.
S L Killeen	3,000 – 3,000

8.3 Options and rights

No performance options were granted by Downer EDI Limited or exercised during the 2021 financial year.

As foreshadowed in 2020, grants in relation to 2020 were made during the 2021 financial year.

As outlined in section 6.4.1, the LTI plan for the 2021 financial year is in the form of performance rights. Relief from certain regulatory requirements was applied for and has been received from the Australian Securities and Investments Commission. During the year, the LTI plan for the 2021 financial year was approved as outlined in section 6.4 of this report; however due to restructuring of the Group, grants of performance rights have not yet been made to KMP, however they are expected to be made in early 2022. This means that grants in relation to 2021 and 2022 are expected to be made during the 2022 financial year.

Consistent with the ASX Listing Rules for the adjustment of the quantity of rights and options on issue at the time of new share issues, the quantity of unlapsed rights granted to executives under the 2018 and 2019 plans was adjusted by the ASX Adjustment Factor of 0.9812 in respect of the bonus element of the accelerated non-renounceable entitlement offer made during the year.

The following table shows the number of performance rights granted by Downer EDI Limited and percentage of performance rights that vested or were forfeited during the year for each grant that affects compensation in this or future reporting periods.

	2017 Plan 2018 Plan
	Number of performance rights 1 Vested % Forfeited % Number of performance rights 2 Vested % Forfeited %
G A Fenn S Cinerari M J Ferguson S L Killeen P J Tompkins	503,526 57.5 – 338,524 – 100 188,822 57.5 – 139,641 – 100 94,411 57.5 – 71,936 – 100 – – – 67,509 – 100 88,116 57.5 – 67,705 – 100

1 Grant date 21 June 2017. Expiry date is 1 July 2020. The fair value of shares granted was $5.29 per share for the EPS and Scorecard tranches and $4.61 per share for the TSR tranche.

2 Grant date 21 June 2018. Expiry date is 1 July 2021. The fair value of shares granted was $6.12 per share for the EPS and Scorecard tranches and $3.38 per share for the TSR tranche.

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	2019 Plan 2020 Plan
	Number of performance rights 1 Vested % Forfeited % Number of performance rights 2 Vested % Forfeited %
G A Fenn S Cinerari M J Ferguson S L Killeen P J Tompkins	307,573 – – 318,175 – – 115,340 – – 131,246 – – 73,048 – – 79,543 – – 67,066 – – 74,409 – – 76,894 – – 79,543 – –

1 Grant date 3 June 2019. Expiry date is 1 July 2022. The fair value of shares granted was $5.93 per share for the EPS and Scorecard tranches and $2.22 per share for the TSR tranche. 2 Grant date 21 October 2020. Expiry date is 1 July 2023. The fair value of shares granted was $4.36 per share for the EPS and Scorecard tranches and $1.14 per share for the TSR tranche.

The maximum number of performance options and rights that may vest in future years that will be recognised as share-based payments in future years is set out in the table below:

payments in future years is set out in the table below:
	Maximum number of shares for the vesting year 1
	2022 2023 2024
G A Fenn S Cinerari M J Ferguson S L Killeen P J Tompkins	– 307,573 318,175 – 115,340 131,246 – 73,048 79,543 – 67,066 74,409 – 76,894 79,543

• 1 The quantity of performance rights that may vest in future years has been adjusted in the 2021 financial year to reflect the discount to the market price of the Company’s shares offered to shareholders in the equity raising announced on 21 July 2020. The adjustment factor of 0.9812 is based on the theoretical ex-rights price (TERP) of $4.18 divided by the last share price prior to the announcement of the equity raising. The quantities in this table are after this adjustment.

The maximum expense for performance options and rights that may vest in future years that will be recognised as share-based payments in future years is set out in the table below. The amount reported is the value of share-based payments calculated in accordance with AASB 2 Share-based Payment over the vesting period. In respect of the 2021 plan an estimated expense has been recognised that will be trued up following formal valuation after the grants have been made.

	2022	2023	2024
G A Fenn	885,059	530,711	269,277
S Cinerari	351,796	218,915	111,075
M J Ferguson	216,835	132,677	67,319
S L Killeen	201,377	124,112	62,973
P J Tompkins	221,263	132,677	67,319

8.4 Remuneration consultants

Guerdon Associates Pty Ltd was engaged by the Board Remuneration Committee to provide remuneration advice in relation to KMP, but did not provide the Board Remuneration Committee with remuneration recommendations as defined under Division 1, Part 1.2, 9B (1) of the Corporations Act 2001 (Cth).

The Board was satisfied that advice received was free from any undue influence by KMP to whom the advice may relate, because strict protocols were observed and complied with regarding any interaction between Guerdon Associates Pty Ltd and management, and because all remuneration advice was provided to the Board Remuneration Committee chair.

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48 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

9. Key Terms of Employment Contracts

9.1 Notice and termination payments

Executives are on contracts with no fixed end date.

The following table captures the notice periods applicable to termination of the employment of executives.

	Termination notice	Termination notice	Termination payments
	period by Downer	period by employee	payable under contract
Managing Director	12 months	6 months	12 months
Other Executives	12 months	6 months	12 months

Termination payments are calculated based upon total fixed remuneration at the date of termination. No payment is made for termination due to gross misconduct.

9.2 Managing Director and Chief Executive Officer of Downer’s employment agreement

Mr Fenn was appointed as the Managing Director of Downer commencing on 30 July 2010. The following table sets out the key terms of the Managing Director’s employment agreement.

Term	Until terminated byeitherparty.
Fixed remuneration	$2.0 million per annum. This has remained unchanged since July 2012.
	Fixed remuneration includes superannuation and non-cash benefits but excludes entitlements to reimbursement
	for Mr Fenn’s home telephone rental and call costs, home internet costs and medical, life and salary continuance
	insurance. Mr Fenn may also be accompanied by his wife when travelling on business, at the Chairman’s discretion.
	There was no such travel duringtheyear.
STI opportunity	Mr Fenn is eligible to receive an annual STI and the maximum STI opportunity is 100% of fixed remuneration.
	Any entitlement to an STI is at the discretion of the Board, having regard to performance measures and targets
	developed in consultation with Mr Fenn including Downer’s financial performance, safety, people, environmental
	and sustainability targets and adherence to risk management policies and practices. The Board also retains the
	right to vary the STI by + or – 100% (up to the 100% maximum) based on its assessment of performance. The STI
	deferral arrangements in place for KMP apply to Mr Fenn.
	There is no STI entitlement where the Managing Director’s employment terminates prior to the end of the financial
	year, other than in the event of a change in control or bymutual agreement.
LTI opportunity	Mr Fenn is eligible to participate in the annual LTI plan and the value of the award is 100% of fixed remuneration
	calculated using the volume weighted average price after each year’s half yearly results announcement.
	Mr Fenn’s performance requirements have been described in Section 6.4.
	In the event of a change of control, providing at least 12 months of a grant’s performance period have elapsed,
	unvested shares and performance rights pro-rated with the elapsed service period are tested for vesting with
	performance against the relevant hurdles for that period and vest, as appropriate. Shares that have already been
	tested, have metperformance requirements, and are subject to the completion of the service condition, fullyvest.

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Termination	Mr Fenn can resign:
	(a) By providing six months’ written notice; or
	(b) Immediately in circumstances where there is a fundamental change in his role or responsibilities.
	In these circumstances, Mr Fenn is entitled to a payment in lieu of 12 months’ notice.
	Downer can terminate Mr Fenn’s employment:
	(a) Immediately for misconduct or other circumstances justifying summary dismissal; or
	(b) By providing 12 months’ written notice.
	When notice is required, Downer can make a payment in lieu of notice of all or part of any notice period
	(calculated based on Mr Fenn’s fixed annual remuneration).
	If Mr Fenn resigns because ill health prevents him from continuing his duties, he will receive a payment in
	recognition of his past services equivalent to 12 months’ fixed remuneration. At the discretion of the Board,
	his shares under the LTI plan may also vest.
	If Downer terminates Mr Fenn’s employment on account of redundancy, in addition to the notice (or payment
	in lieu of notice) required to be given by Downer, Mr Fenn will receive a payment in recognition of his past
	services equivalent to 12 months’ fixed remuneration.
	If Mr Fenn resigns he will be subject to a six-month post-employment restraint in certain areas where the
	Downer Groupoperates, where he is restricted from workingfor competitive businesses.
Other	The agreement contains provisions regarding leave entitlements, duties, confidentiality, intellectual property, moral
	rights and other facilitative and ancillary clauses. It also contains provisions regarding corporate governance and a
	provision dealingwith the_Corporations Act 2001_(Cth) limits on termination benefits to be made to Mr Fenn.

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50 Downer EDI Limited DIRECTORS’ REPORT
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Directors’ Report – continued

for the year ended 30 June 2021

10. Related Party Information

10.1 Transactions with other related parties

Transactions entered into during the year with Directors of Downer EDI Limited and the Group are within normal employee, customer or supplier relationships on terms and conditions no more favourable than dealings in the same circumstances on an arm’s length basis and included:

• The receipt of dividends from Downer EDI Limited

• Participation in the Long-Term Incentive Plan

• Terms and conditions of employment

• Reimbursement of expenses.

A number of Directors of the Company hold directorships in other entities. Several of these entities transacted with the Group on terms and conditions no more favourable than those available on an arm’s length basis.

11. Description of Non-executive Director Remuneration

11.1 Non-executive Director remuneration policy

Downer’s Non-executive Director remuneration policy is to provide fair remuneration that is sufficient to attract and retain Directors with the experience, knowledge, skills and judgement to steward the Company.

Fees for Non-executive Directors are fixed and are not linked to the financial performance of the Company. The Board believes this is necessary for Non-executive Directors to maintain their independence.

There was no change to the level of Non-executive Director fees since the prior reporting period.

Shareholders approved an annual aggregate cap of $2.0 million for Non-executive Director fees at the 2008 AGM. The allocation of fees to Non-executive Directors within this cap has been determined after consideration of a number of factors, including the time commitment of Directors, the size and scale of the Company’s operations, the skill sets of Board members, the quantum of fees paid to Non-executive Directors of comparable companies and participation in Board Committee work.

The basis of fees and the fee pool are reviewed when new Directors are appointed to the Board, when the structure of the Board changes, or at least every three years. Reference is made to individual Non-executive Director fee levels and workload (i.e. number of meetings and the number of Directors) at comparably sized companies from all industries other than the financial services sector, and the fee pools at these companies. In addition, an assessment is made on the extent of flexibility provided by the fee pool to recruit any additional Directors for planned succession after allocation of fees to existing Directors.

A review of fees was conducted during the year. The review found that base fees paid to the Chairman and Non-executive Directors remained appropriate however fees paid for chairing or serving as a member of a committee were below market levels. Accordingly it was determined that the following changes in fees apply from 1 July 2021:

• Fees be set at a fixed value inclusive of superannuation, rather than a fee plus superannuation at the superannuation guarantee rate

• Increase in the Chairman fees for the Remuneration Committee to $27,000 from $16,425

• Increase in the Chairman fees for the Zero Harm Committee to $27,000 from $16,425

• Increase in the Chairman fees for the Tender Risk Evaluation Committee to $17,000 from $16,425

• Introducing of fees for committee members at the rate of 50% of the respective committee Chairman fee.

The impact of these changes based on the current configuration of the Board is approximately $92,626 per annum.

Non-executive Directors are not entitled to retirement benefits. All Non-executive Directors are entitled to payment of statutory superannuation entitlements in addition to Directors’ fees.

The Chairman receives a base fee of $375,000 per annum (inclusive of all Committee fees) plus superannuation. The other Non-executive Directors each receive a base fee of $150,000 per annum plus superannuation. Additional fees are paid for Committee duties: $35,000 for the chair of the Audit and Risk Committee; and $15,000 for the chair of each of the Zero Harm Committee, Remuneration Committee, Rail Projects Committee and Tender Risk Evaluation Committee.

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DIRECTORS’ REPORT Annual Report 2021 51
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11.2 Non-executive Directors’ remuneration

The table below sets out the remuneration paid to Non-executive Directors for the 2021 and 2020 financial years.

In recognition of the impact of the coronavirus pandemic on the Company and its people, Directors’ fees were reduced for the period 1 April 2020 to 30 June 2020 by 50% for the Chairman and 30% for the other Non-executive Directors.

1 April 2020 to 30 June 2020 by 50% for the	Chairman and 30% for the other Non-executive Directors.
Year	Short-term benefits Post-employment benefits
	Board fee $ Chair fee $ Total fees $ Super- annuation $ Termination benefits $ Total $
R M Harding 2021 2020	375,000 – 375,000 35,625 – 410,625 328,125 – 328,125 31,172 – 359,297
P S Garling 2021 2020	150,000 13,750 163,750 15,556 – 179,306 138,750 13,875 152,625 14,499 – 167,124
T G Handicott 2021 2020	150,000 15,000 165,000 15,675 – 180,675 138,750 13,875 152,625 14,499 – 167,124
N M Hollows 2021 2020	150,000 35,000 185,000 17,575 – 202,575 138,750 32,375 171,125 16,257 – 187,382
C G Thorne1 2021 2020	5,766 – 5,766 548 – 6,314 138,750 19,167 157,917 15,002 – 172,919
P L Watson 2021 2020	150,000 28,347 178,347 16,943 – 195,290 138,750 8,583 147,333 13,997 – 161,330

1 Amounts represent the payments relating to the period during which the individual was a Non-executive Director.

11.3 Equity held by Non-executive Directors

The table below sets out the equity in Downer held by Non-executive Directors for the 2021 and 2020 financial years.

	2021 2020
	Balance at 1 July 2020 Net change Balance at 30 June 2021 Balance at 1 July 2019 Net change Balance at 30 June 2020
R M Harding P S Garling T G Handicott N M Hollows P L Watson	28,856 5,172 34,028 28,856 – 28,856 19,962 3,578 23,540 19,962 – 19,962 17,000 3,047 20,047 14,000 3,000 17,000 3,000 12,538 15,538 3,000 – 3,000 6,329 11,604 17,933 – 6,329 6,329

Signed in accordance with a resolution of the Directors made pursuant to section 298(2) of the Corporations Act 2001 (Cth).

On behalf of the Directors.

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R M Harding Chairman

Sydney, 12 August 2021

Auditor’s Independence Declaration

for the year ended 30 June 2021

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52 Downer EDI Limited AUDITOR’S INDEPENDENCE DECLARATION
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Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001

To the Directors of Downer EDI Limited

I declare that, to the best of my knowledge and belief, in relation to the audit of Downer EDI Limited for the financial year ended 30 June 2021 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.

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KPMG

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Nigel Virgo Partner

Sydney 12 August 2021

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.

Independent Auditor’s Report

for the year ended 30 June 2021

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INDEPENDENT AUDITOR’S REPORT Annual Report 2021 53
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Independent Auditor’s Report

To the shareholders of Downer EDI Limited

Report on the audit of the Financial Report

Opinion

We have audited the Financial Report of The Financial Report comprises: Downer EDI Limited (the Company).

  - Consolidated statement of financial position as at 30 June 2021

• In our opinion, the accompanying Financial June 2021 Report of the Company is in accordance  Consolidated statement of profit or loss and other

• with the Corporations Act 2001 , including: comprehensive income, Consolidated statement of

• giving a true and fair view of the changes in equity, and Consolidated statement of Group ’s financial position as at 30 cash flows for the year then ended

• giving a true and fair view of the Group ’s financial position as at 30 June 2021 and of its financial

• Notes including a summary of significant accounting

• performance for the year ended on policies

• that date; and

  • Directors’ Declaration.

• complying with Australian Accounting Standards and the Corporations The Group consists of the Company and the entities it Regulations 2001 . controlled at the year-end or from time to time during the financial year.

Basis for opinion

We conducted our audit in accordance with Australian Auditing Standards . We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report.

We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including Independence Standards) (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.

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.

Independent Auditor’s Report – continued for the year ended 30 June 2021

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54 Downer EDI Limited INDEPENDENT AUDITOR’S REPORT
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Key Audit Matters

The Key Audit Matters we identified are:

• Recognition of revenue

• Value of goodwill

Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Recognition of revenue

Refer to Note B2 ‘Revenue’ ($11,530.2m)

The key audit matter

How the matter was addressed in our audit

Recognition of revenue	Recognition of revenue
Refer to Note B2 ‘Revenue’ ($11,530.2m)
The key audit matter	How the matter was addressed in our audit
Recognition of revenue is a key audit matter due to the: • Significance of revenue to the financial statements; and • Large number of contracts with numerous estimation events potentially occurring over the course of the contract’s life. This results in complex and judgemental revenue recognition from rendering of services and construction contracts and therefore significant audit effort is required to gather sufficient audit evidence for revenue recognition. We focused on the Group’s assessment of the following elements of revenue recognition for rendering of services and construction contracts, as applicable: • Revisions to total expected costs for certain events or conditions occurring during the performance of the contract, or are expected to occur to complete the contract, which is difficult to estimate; • The Group’s assessment of when a modification to the contract scope and/or price for variations and claims is approved and enforceable. The Group’s consideration of the enforceability or approval may include evidence that is written, oral or implied by customary business practice and therefore requires a degree of judgement. The Group’s assessment of the enforceability of variations and claims can
	Our procedures included: • We obtained an understanding of the Group’s process of accounting for rendering of services and construction contract revenues. We considered the appropriateness of the Group’s accounting policy for rendering of services and construction contract revenues, including variations and claims and variable consideration, against the requirements of the accounting standards. We tested key controls such as: ‒ Management’s review and approval of bid information including estimated project milestones, projected Earnings Before Interest and Tax (EBIT), Net Present Value (NPV), Return On Funds Employed (ROFE), and potential legal risks; ‒ Management’s review of key contracts where events or conditions have occurred that require changes to revenue recognition; ‒ The Group’s requirement to obtain customer acceptance prior to billing an invoice. • We selected a statistical sample of revenue recognised and checked to customer approval of the service being performed or cash received. • We used data analytic routines to select a sample of contracts for testing based on a number of quantitative and qualitative factors. These factors included contracts with

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INDEPENDENT AUDITOR’S REPORT Annual Report 2021 55
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drive different accounting treatments, increasing the risk of inappropriately recognising revenue; and

• The Group’s policy for the determination of the amount of revenue recognised from variable consideration which is highly probable of not reversing. Variable consideration is contingent on the Group’s performance and includes key performance payments, abatements offsetting revenue under the contract and liquidated damages. The Group's determination that variable consideration is highly probable requires a degree of estimation and judgement. This increased the audit effort we applied to gather sufficient audit evidence.

significant deterioration in margin, significant variations and claims or variable consideration. We also included factors which indicated to us a greater level of judgement was required by the Group when assessing the revenue recognition based on the estimates developed for current and forecast contract performance. For the samples selected, where relevant:

• we read the selected contract terms and conditions to evaluate the individual characteristics of each contract reflected in the Group’s estimate of revenue;

• we assessed the estimation of total expected costs, including cost contingencies for contracting risks, by challenging the Group’s project and finance managers on their estimations. We also checked key forecast cost assumptions to underlying documentation such as Enterprise Bargaining Agreements for wage rates, salary costs and agreements with subcontractors;

• we assessed the Group’s ability to forecast margins on contracts by analysing the accuracy of previous margin forecasts to actual outcomes;

• we evaluated the Group’s assessment of when a modification to the contract scope and/or price for variations and claims is approved and enforceable. This included assessing the underlying records, legal documents, customer correspondence and contracts. We recalculated the amount of revenue using the modified features of the contract. We compared the recalculated amounts against the amounts recorded by the Group;

• ‒ we assessed the Group’s estimation of the highly probable amount of revenue for variations and claims. This included comparing underlying evidence such as correspondence with customers, and reports from objective time and cost claim experts (where applicable) for consistency with contract terms;

• ‒ we evaluated the Group’s legal and external experts’ reports received on contentious matters to identify conditions indicating inappropriate recognition of variations and claims. We checked the

Independent Auditor’s Report – continued for the year ended 30 June 2021

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56 Downer EDI Limited INDEPENDENT AUDITOR’S REPORT
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consistency of this to the inclusion or not of an amount in the estimates used for revenue recognition;

• we assessed the scope, competency and objectivity of the legal and external experts engaged by the Group; and

• We evaluated the method applied by the Group to estimate the highly probable amount of the key performance payments, liquidated damages and abatements against the specific contract terms. This included gathering underlying evidence in relation to the Group’s performance against the terms of the contract. We then recalculated the amount of variable consideration. We compared the recalculated amounts to the amounts recorded by the Group as offsets to revenue.

Value of goodwill

Refer to Note C7 ‘Intangible assets’ ($2,280.8m)

• The key audit matter How the matter was addressed in our audit The value of goodwill is a key audit matter due Our procedures included: to the size of the balance (being 28.3% of total • We obtained an understanding of the Group’s

• assets) and the significant audit effort arising goodwill impairment assessment process and

• from: tested key controls such as the review and

• • The Group having 8 groups of Cash approval of the budget by management and the Generating Units (CGUs) for which the Board. impairment of goodwill is assessed; • We considered the appropriateness of the value

• • The Spotless CGU recorded an impairment in use and fair value less cost of disposal charge in the prior year, increasing the risk (FVLCOD) methods applied by the Group to that an unfavourable change in certain key perform the annual test of goodwill for assumptions, in the absence of any impairment against the requirements of the mitigating factors, may result in impairment accounting standards. in the current year. • We considered independently prepared

• We focused on the following key forward valuations of the Spotless CGU prepared on a looking assumptions in the Group’s value in use FVLCOD basis during the year to identify any models and fair value less cost of disposal contradictory evidence for further consideration model including: in our testing. • Forecast cash flows including budgeted • We assessed the integrity of the value in use EBIT – including the improvement in and FVLCOD models used, including the forecast cash flows compared to the prior accuracy of the underlying calculation formulas. year forecasts which contained a higher degree of uncertainty due to the COVID-19 • We assessed the accuracy of previous Group pandemic. forecasting to inform our evaluation of forecasts

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INDEPENDENT AUDITOR’S REPORT Annual Report 2021 57
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• Discount rates – these are complicated in nature and vary according to the conditions and environment the specific CGU is subject to from time to time; and • Long-term growth rates – certain valuations for CGUs of the Group are highly sensitive to changes in this assumption. Using forward-looking assumptions tends to be prone to greater risk for potential bias, error and inconsistent application. These conditions necessitate additional scrutiny by us, in particular to address the objectivity of sources used for assumptions, and their consistent application. The significant judgement involved in key assumptions required the involvement of valuation specialists to supplement our senior audit team members in assessing this key audit matter. included in the value in use and FVLCOD models. We applied increased scepticism to current period forecasts in areas where previous forecasts were not achieved and/or where future uncertainty is greater, or volatility is expected. • We obtained the Group’s value in use models and FVLCOD model and checked amounts to the Board approved FY22 budget and the FY23- FY24 business plan. We challenged the Group’s projected cash flows by comparing the budget and business plan to our understanding of the business. We compared actual performance in FY21 to the budget for FY21. We also considered the compound annual growth rate between FY21 and the terminal year in the models through our sensitivity analysis. • We considered the sensitivity of the models by varying key assumptions including budgeted EBIT, long-term growth rates and discount rates, within a reasonably possible range. We considered the interdependencies of key assumptions when performing the sensitivity analysis. We did this to identify those CGUs at higher risk of impairment and those assumptions at higher risk of bias or inconsistency in application to focus our further procedures. • Working with our valuation specialists we: ‒ independently developed a discount rate range using publicly available market data for comparable entities, adjusted by risk factors specific to the Group and the industry it operates in; and ‒ independently assessed the long-term growth rate for each of the CGUs against publicly available market data for comparable entities and compared this to the Group’s assumption; • We assessed the Group’s disclosures of the quantitative and qualitative considerations in relation to the valuation of goodwill, by comparing these disclosures to our understanding and the requirements of the accounting standards.

Independent Auditor’s Report – continued for the year ended 30 June 2021

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58 Downer EDI Limited INDEPENDENT AUDITOR’S REPORT
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Other Information

Other Information is financial and non-financial information in Downer EDI Limited’s annual reporting which is provided in addition to the Financial Report and the Auditor's Report. The Directors are responsible for the Other Information.

Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.

In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report.

Responsibilities of the Directors for the Financial Report

The Directors are responsible for:

• preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001

• implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error

• assessing the Group and Company’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the Financial Report

Our objective is:

• to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and

• to issue an Auditor’s Report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report.

A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf This description forms part of our Auditor’s Report.

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INDEPENDENT AUDITOR’S REPORT Annual Report 2021 59
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Report on the Remuneration Report

Opinion

In our opinion, the Remuneration Report of Downer EDI Limited for the year ended 30 June 2021, complies with Section 300A of the Corporations Act 200 1.

Directors’ responsibilities

The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001 .

Our responsibilities

We have audited the Remuneration Report included in pages 23 to 51 of the Directors’ report for the year ended 30 June 2021.

Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards .

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KPM_INI_01
KPM_INI_01
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KPMG

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Nigel Virgo Partner Sydney 12 August 2021

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Stephen Isaac Partner

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60 Downer EDI Limited FINANCIAL STATEMENTS
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Financial Statements

for the year ended 30 June 2021

Page 61 Consolidated Statement of Profit or Loss and Other Comprehensive Income Page 62 Consolidated Statement of Financial Position Page 63 Consolidated Statement of Changes in Equity Page 64 Consolidated Statement of Cash Flows

Notes to the consolidated financial statements

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A B C D E F G
About this Business Operating assets Employee Capital structure Group Other
report performance and liabilities benefits and financing structure
Page 65–66 Page 67–80 Page 81–96 Page 97–99 Page 100–108 Page 109–119 Page 120–130
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A About this report Page 65–66	B Business performance Page 67–80	C Operating assets and liabilities Page 81–96	D Employee benefits Page 97–99	E Capital structure and financing Page 100–108	F Group structure Page 109–119	G Other Page 120–130
	B1 Segment information	C1 Reconciliation of cash and cash equivalents	D1 Employee benefits	E1 Borrowings	F1 Joint arrangements and associate entities	G1 New accounting standards
	B2 Revenue	C2 Trade receivables and contract assets	D2 Defined benefit plan	E2 Financing facilities	F2 Controlled entities	G2 Capital and financial risk management
	B3 Individually significant items	C3 Inventories	D3 Key management personnel compensation	E3 Lease liabilities	F3 Related party information	G3 Other financial assets and liabilities
	B4 Earnings per share	C4 Trade payables and contract liabilities	D4 Employee discount share plan	E4 Commitments	F4 Parent entity disclosures
	B5 Taxation	C5 Property, plant and equipment		E5 Issued capital	F5 Acquisition and disposals of businesses
	B6 Remuneration of auditor	C6 Right-of-use assets		E6 Non-controlling interest (NCI)	F6 Disposal group held for sale
	B7 Subsequent events	C7 Intangible assets		E7 Reserves
		C8 Lease receivables		E8 Dividends
		C9 Other provisions
		C10 Contingent liabilities

Page 131 Directors’ Declaration Other information

Page 132 Sustainability Performance Summary 2021 Page 136 Corporate Governance Page 146 Information for Investors

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FINANCIAL STATEMENTS Annual Report 2021 61
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Consolidated Statement of Profit or Loss and Other Comprehensive Income

for the year ended 30 June 2021

		2021	2020
	Note	$’m	$’m
Revenue	B2	11,530.2	12,669.4
Other income	B2	53.9	73.3
Total revenue and other income		11,584.1	12,742.7
Employee benefits expense	D1	(3,859.5)	(4,217.3)
Subcontractor costs		(4,132.7)	(4,406.0)
Raw materials and consumables used		(1,594.6)	(2,157.7)
Plant and equipment costs		(590.2)	(660.6)
Depreciation on leased assets	C6	(180.6)	(151.8)
Other depreciation and amortisation	C5,C7	(313.8)	(365.5)
Impairment of non-current assets	B3	(20.2)	(212.0)
Other expenses from ordinaryactivities		(579.9)	(632.5)
Total expenses		(11,271.5)	(12,803.4)
Share of netprofit ofjoint ventures and associates	F1(a)	22.2	19.4
Earnings before interest and tax		334.8	(41.3)
Finance income		4.2	6.0
Lease finance costs		(27.7)	(26.4)
Other finance costs		(81.4)	(91.6)
Net finance costs		(104.9)	(112.0)
Profit/(loss) before income tax		229.9	(153.3)
Income tax expense	B5(a)	(46.2)	(2.4)
Profit/(loss) after income tax		183.7	(155.7)
Profit/(loss) for the year that is attributable to:
– Non-controlling interest		2.1	(5.4)
– Members of theparent entity		181.6	(150.3)
Totalprofit/(loss) for theyear		183.7	(155.7)
Other comprehensive income
Items that will not be reclassified subsequently to profit or loss:
– Actuarial movement on net defined benefit plan obligations	D2	5.0	0.7
– Income tax efect of actuarial movement on defined benefit plan obligations		(1.5)	(0.2)
Items that will be reclassified subsequently to profit or loss:
– Exchange diferences arising on translation of foreign operations		1.1	(14.6)
– Net gain/(loss) on foreign currency forward contracts taken to equity		1.4	(3.3)
– Net gain/(loss) on cross currency and interest rate swaps taken to equity		8.4	(5.3)
– Income tax efect of items above		(2.9)	2.9
Other comprehensive income/(loss) for theyear(net of tax)		11.5	(19.8)
Other comprehensive income/(loss) for the year is attributable to:
– Non-controlling interest		0.5	(1.0)
– Members of theparent entity		11.0	(18.8)
Other comprehensive income/(loss) for theyear		11.5	(19.8)
Total comprehensive income/(loss) for theyear		195.2	(175.5)
			Restated
Earnings per share (cents)
Basic earnings per share(i)	B4	25.4	(26.1)
Diluted earningsper share(i) (ii)	B4	24.8	(26.1)

(i) FY20 figures have been adjusted to reflect the impact of the equity raising as part of the acquisition of the remaining shares in Spotless. Refer to Note B4.

(ii) At 30 June 2020, the ROADS were deemed anti-dilutive and consequently, diluted EPS remained at (26.1) cents per share.

The consolidated statement of profit or loss and other comprehensive income should be read in conjunction with the accompanying notes on pages 65 to 130.

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62 Downer EDI Limited FINANCIAL STATEMENTS
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Consolidated Statement of Financial Position

as at 30 June 2021

			Restated (i)
		30 June	30 June
		2021	2020
	Note	$’m	$’m
ASSETS
Current assets
Cash and cash equivalents	C1(a)	811.4	588.5
Trade receivables and contract assets	C2	2,121.0	2,315.9
Other financial assets	G3	62.7	26.2
Inventories	C3	254.2	334.0
Lease receivables	C8	0.1	18.5
Current tax assets		48.6	65.2
Prepayments and other assets		63.7	56.4
Assets held for sale	F6	41.5	–
Total current assets		3,403.2	3,404.7
Non-current assets
Trade receivables and contract assets	C2	109.2	95.2
Equity accounted investments	F1(a)	155.1	110.6
Property, plant and equipment	C5	994.7	1,350.2
Right-of-use assets	C6	546.5	592.6
Intangible assets	C7	2,782.9	2,860.0
Other financial assets	G3	7.8	21.4
Lease receivables	C8	–	48.3
Deferred tax assets	B5(b)	65.3	152.1
Prepayments and other assets		7.4	11.9
Total non-current assets		4,668.9	5,242.3
Total assets		8,072.1	8,647.0
LIABILITIES
Current liabilities
Trade payables and contract liabilities	C4	2,363.0	2,497.4
Borrowings	E1	296.2	1.4
Lease liabilities	E3	157.7	168.9
Other financial liabilities	G3	49.0	45.8
Employee benefits provision	D1	353.6	377.1
Other provisions	C9	64.4	74.1
Current tax liabilities		7.9	11.0
Liabilities held for sale	F6	17.2	–
Total current liabilities		3,309.0	3,175.7
Non-current liabilities
Trade payables and contract liabilities	C4	34.2	28.8
Borrowings	E1	1,185.4	2,049.9
Lease liabilities	E3	505.1	594.3
Other financial liabilities	G3	18.3	14.4
Employee benefits provision	D1	35.3	55.0
Other provisions	C9	21.6	39.4
Deferred tax liabilities	B5(b)	5.8	94.5
Total non-current liabilities		1,805.7	2,876.3
Total liabilities		5,114.7	6,052.0
Net assets		2,957.4	2,595.0
EQUITY
Issued capital	E5	2,802.6	2,429.7
Reserves	E7	(31.2)	(47.7)
Retained earnings		181.5	68.8
Parent interests		2,952.9	2,450.8
Non-controlling interest	E6	4.5	144.2
Total equity		2,957.4	2,595.0

(i) 2020 balances have been restated to reflect the Group’s change in accounting policy for costs related to configuration and customisation of Software-as-a-Service (SaaS) arrangements. Refer to Note C7 for more details.

The consolidated statement of financial position should be read in conjunction with the accompanying notes on pages 65 to 130.

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FINANCIAL STATEMENTS Annual Report 2021 63
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Consolidated Statement of Changes in Equity

for the year ended 30 June 2021

				Total
				attributable	Non-
2021	Issued		Retained	to owners of	controlling
$’m	capital	Reserves	earnings	the parent	interest	Total
Balance at 1 July 2020	2,429.7	(47.7)	68.8	2,450.8	144.2	2,595.0
Profit after income tax	–	–	181.6	181.6	2.1	183.7
Other comprehensive income for the
year (net of tax)	–	11.0	–	11.0	0.5	11.5
Total comprehensive income for the year	–	11.0	181.6	192.6	2.6	195.2
Capital raising (net of transaction costs
and tax)	393.2	–	–	393.2	–	393.2
Vested executive incentive share
transactions	4.5	(4.5)	–	–	–	–
Share-based employee benefits expense	–	(0.4)	–	(0.4)	–	(0.4)
Income tax relating to share-based
transactions during the year	–	1.2	–	1.2	–	1.2
Payment of dividends(i)	–	–	(68.9)	(68.9)	(1.4)	(70.3)
Group on-market share buy-back	(24.8)	–	–	(24.8)	–	(24.8)
Acquisition of non-controllinginterest	–	9.2	–	9.2	(140.9)	(131.7)
Balance at 30 June 2021	2,802.6	(31.2)	181.5	2,952.9	4.5	2,957.4

(i) Relates to the 2021 interim dividend and $5.8 million ROADS dividends paid during the financial year.

				Total
				attributable	Non-
2020	Issued		Retained	to owners of	controlling
$’m	capital	Reserves	earnings	the parent	interest	Total
Restated balance as at 30 June 2019(i)	2,425.1	(27.5)	481.4	2,879.0	153.8	3,032.8
Opening balance adjustment on application
of IFRS Interpretation Committee decision(ii)	–	–	(25.5)	(25.5)	–	(25.5)
Opening balance adjustment on application
of AASB 16 (net of tax)(iii)	–	–	(62.8)	(62.8)	(3.2)	(66.0)
Balance at 1 July 2019	2,425.1	(27.5)	393.1	2,790.7	150.6	2,941.3
Loss after income tax	–	–	(150.3)	(150.3)	(5.4)	(155.7)
Other comprehensive loss for the year
(net of tax)	–	(18.8)	–	(18.8)	(1.0)	(19.8)
Total comprehensive income for the year	–	(18.8)	(150.3)	(169.1)	(6.4)	(175.5)
Vested executive incentive share transactions	4.6	(4.6)	–	–	–	–
Share-based employee benefits expense	–	4.8	–	4.8	–	4.8
Income tax relating to share-based
transactions during the year	–	(1.6)	–	(1.6)	–	(1.6)
Declared dividends(iv)	–	–	(174.0)	(174.0)	–	(174.0)
Balance at 30 June 2020	2,429.7	(47.7)	68.8	2,450.8	144.2	2,595.0

(i) June 2019 balances have been restated following review of the Group’s compliance with Enterprise Agreements (EAs) and Modern Award obligations. Refer to Note D1 of the 30 June 2020 Annual Report.

(ii) 2020 balances have been restated to reflect the Group’s change in accounting policy for costs related to configuration and customisation of Software-as-a-Service (SaaS) arrangements. Refer to Note C7 for more details.

(iii) Refer to Annual Report as at 30 June 2020 for details on opening balance adjustments made on application of new accounting standard AASB 16.

(iv) Relates to the 2019 final dividend and $7.4 million ROADS dividends paid during the financial year. The payment of 2020 interim dividend of $83.3 million was deferred to 25 September 2020 (refer to Note E8).

The consolidated statement of changes in equity should be read in conjunction with the accompanying notes on pages 65 to 130.

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64 Downer EDI Limited FINANCIAL STATEMENTS
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Consolidated Statement of Cash Flows

for the year ended 30 June 2021

			Restated (i)
		2021	2020
	Note	$’m	$’m
Cash flows from operating activities
Receipts from customers		12,988.8	13,841.5
Payments to suppliers and employees		(12,173.2)	(13,538.5)
Distributions from equityaccounted investees	F1(a)	11.6	17.2
Operating cash flow before interest and tax		827.2	320.2
Interest received		2.9	4.7
Interest paid on lease liabilities		(27.7)	(26.4)
Interest and other costs of finance paid		(73.8)	(82.0)
Income taxpaid		(19.9)	(57.9)
Net cashgenerated by operating activities	C1(c)	708.7	158.6
Cash flows from investing activities
Proceeds from sale of property, plant and equipment		69.6	21.9
Payments for property, plant and equipment		(250.2)	(290.7)
Payments for intangible assets		(28.4)	(41.5)
Payment to acquire remaining shares in NCI	E6	(134.5)	–
Payments of deferred consideration on acquisition of businesses	F5	(14.3)	(29.8)
Proceeds from sale of business (net of cash disposed)	F5	395.9	–
Proceeds from sale of equity accounted investments		20.2	–
Investment in equity accounted investments	F1(a)	(9.8)	–
Advances to equity accounted investments		(5.9)	(3.6)
Purchases of assets as a lessor		(6.7)	(34.0)
Net cashgenerated from/(used in) investing activities		35.9	(377.7)
Cash flows from financing activities
Group on-market share buy-back	E5	(24.8)	–
Proceeds from issue of shares (net of costs)		390.4	–
Proceeds from borrowings		6,653.0	7,411.9
Repayments of borrowings		(7,193.7)	(7,063.2)
Payment of principal of lease liabilities	C1(b)	(194.5)	(152.9)
Dividendspaid		(153.6)	(90.7)
Net cash (used in)/generated by financing activities		(523.2)	105.1
Net increase/(decrease) in cash and cash equivalents		221.4	(114.0)
Cash and cash equivalents at the beginning of the year		588.5	710.7
Efect of exchange rate changes		1.5	(8.2)
Cash and cash equivalents at the end of theyear	C1(a)	811.4	588.5

(i) 2020 balances have been restated to reflect the Group’s change in accounting policy for costs related to configuration and customisation of Software-as-a-Service (SaaS) arrangements. Refer to Note C7 for more details.

The consolidated statement of cash flows should be read in conjunction with the accompanying notes on pages 65 to 130.

Notes to the consolidated financial statements

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 65
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for the year ended 30 June 2021

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A About this report

Statement of compliance

These financial statements represent the consolidated results of Downer EDI Limited (ABN 97 003 872 848). The consolidated Financial Report (Financial Report) is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (AASBs) adopted by the Australian Accounting Standards Board (AASB) and the Corporations Act 2001 (Cth). The Financial Report complies with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB).

The Financial Report was authorised for issue by the Board of Directors on 12 August 2021.

Rounding of amounts

Downer is a company of the kind referred to in ASIC Corporations (Rounding in Financial/Directors’ reports) Instrument 2016/191, relating to the ‘rounding off’ of amounts in the Directors’ Report and consolidated financial statements. Unless otherwise expressly stated, amounts have been rounded off to the nearest whole number of millions of dollars and one place of decimals representing hundreds of thousands of dollars in accordance with that Instrument. Amounts shown as $- represent amounts less than $50,000 which have been rounded down.

Basis of preparation

The Financial Report has been prepared on a historical cost basis, except for the revaluation of certain financial instruments. Cost is based on the fair value of the consideration given in exchange for assets. All amounts are presented in Australian dollars, unless otherwise noted.

The accounting policies used in the preparation of the Financial Report are consistent with those adopted and disclosed in Downer’s Annual Report for the financial year ended 30 June 2020, except changes to a significant accounting policy as disclosed below.

Changes to significant accounting policy

The IFRIC has issued two final agenda decisions which impact Software-as-a-Service (SaaS) arrangements:

• Customer’s right to receive access to the supplier’s software hosted on the cloud (March 2019) – this decision considers whether a customer receives a software asset at the contract commencement date or a service over the contract term.

• Configuration or customisation costs in a cloud computing arrangement (April 2021) – this decision discusses whether configuration or customisation expenditure relating to SaaS arrangements can be recognised as an intangible asset and if not, over what time period the expenditure is expensed.

The Group’s accounting policy has historically been to capitalise costs related to the configuration and customisation of SaaS arrangements as intangible assets in the Statement of Financial Position. The adoption of the above agenda decisions has resulted in an expense in the Consolidated Statement of Profit or Loss and Other Comprehensive Income in the current year and derecognition of previously capitalised costs as an opening balance adjustment to prior year.

The new accounting policy and impact of adoption is presented in Note C7.

Accounting estimates and judgements

Preparation of the Financial Report requires management to make judgements, estimates and assumptions about future events. Information on material estimates and judgements considered when applying the accounting policies can be found in the following notes:

Accounting estimates and

	Accounting estimates and
	judgements	Note	Page
	Revenue recognition	B2	73
	Recoveryof deferred tax assets	B5	78
	Income taxes	B5	78
	Credit risk Useful lives and residual values SaaS arrangements	C2 C5 to C7 C7	84 87, 88, 92 92
	Impairment of assets	C7	92
	Otherprovisions Employee benefits obligations Valuation of the defined benefit plan assets and obligations	C9 D1 D2	95 98 98
	Lease liabilities	E3	103
	Allocable Cost Amount (ACA)
	calculation	E6	106
	Acquisition of businesses	F5	118
	Disposalgroupheld for sale	F6	119
	Valuation of asset held for sale	F6	119

Notes to the consolidated financial statements – continued

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66 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

A. About this report – continued

Significant accounting policies

Accounting policies are selected and applied in a manner that ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported. Other significant accounting policies are contained in the notes to the Financial Report to which they relate.

(i) Principles of consolidation

The Financial Report incorporates the financial statements of the Company and entities controlled by the Group and its subsidiaries. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

The Financial Report includes the information and results of each subsidiary from the date on which the Company obtains control and until such time as the Company ceases to control such entity.

On consolidation the assets, liabilities, income and expenses of foreign operations are translated into Australian dollars using the following applicable exchange rates:

Foreign currency amount	Applicable exchange rate
Income and expenses	Average exchange rate
Assets and liabilities	Reportingdate
Equity	Historical date

Foreign exchange differences resulting from translation are initially recognised in the foreign currency translation reserve and subsequently transferred to the profit or loss on disposal of the foreign operation.

(iii) Finance and borrowing costs

Finance costs comprise interest expense on borrowings, unwind of discount on provisions, costs to establish financing facilities (which are expensed over the term of the facility), losses on ineffective hedging instruments that are recognised in profit or loss and lease charges.

In preparing the Financial Report, all intercompany balances and transactions, and unrealised profits arising within the consolidated entity, are eliminated in full.

(ii) Foreign currency

Transactions, assets and liabilities denominated in foreign currencies are translated into Australian dollars at reporting date using the following applicable exchange rates:

Foreign currency amount	Applicable exchange rate
Transactions	Date of transaction
Monetaryassets and liabilities	Reportingdate
Non-monetary assets and	Date fair value is determined
liabilities carried at fair value

Foreign exchange gains and losses resulting from translation are recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income, except for qualifying cash flow hedges which are deferred to equity.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 67
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B

Business performance

This section provides the information that is most relevant to understanding the financial performance of the Group during the financial year and, where relevant, the accounting policies applied and the critical judgements and estimates made.

B1. Segment information B5. Taxation B2. Revenue B6. Remuneration of auditor B3. Individually significant items B7. Subsequent events B4. Earnings per share

B1. Segment information

Identification of reportable segments

An operating segment is a component of an entity that engages in business activities from which it may earn revenue and incur expenses, whose operating results are regularly reviewed by the Group’s chief operating decision maker in order to effectively allocate Group resources and assess performance.

The reportable segments are based on a combination of operating segments determined by the similarity of the services provided, and the sources of the Group’s major risks that could therefore have the greatest effect on the rates of return. Downer has determined that reportable segments are best represented as service lines.

The Group has identified its operating segments based on the internal reports that are reviewed and used by the Group CEO in assessing performance and in determining the allocation of resources. The operating segments are identified by the Group based on the nature of the services provided. Discrete financial information about each of these operating businesses is reported to the Group CEO on a recurring basis.

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68 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

B1. Segment information – continued

There have been no changes to the composition of the Group’s reportable segments since last reported in the 2020 Annual Report. The reportable segments identified within the Group are outlined as follows:

Service line	Segment description
Transport	Comprises the Group’s road services, transport infrastructure and rail businesses. Downer’s road and transport
	infrastructure services include: road network management; routine road maintenance; asset management systems;
	spray sealing; asphalt laying; manufacture and supply of bitumen-based products and asphalt products; the use
	of recycled products and environmentally sustainable methods to produce asphalt; landfill diversion solutions;
	intelligent transport systems; design and construction of light rail and heavy rail networks; signalling; track and
	station works; rail safety technology; and bridges. The Rail business spans all light rail and heavy rail sectors, from
	rollingstock to infrastructure; from design and manufacture to through-life-support including fleet maintenance,
	operations and comprehensive overhaul of assets.
Utilities	Comprises the Group’s power, gas, water, renewable energy and telecommunications businesses. This includes:
	planning, designing, constructing, operating, maintaining, managing and decommissioning power and gas network
	assets; providing complete water lifecycle solutions for municipal and industrial water users including water and
	wastewater treatment, network construction and rehabilitation; design, construction and maintenance services for
	a range of renewable assets in the wind, solar and power system storage sectors; and end-to-end technology and
	communications solutions including design, civil construction, network construction, operations and maintenance
	across fibre, copper and radio networks.
Facilities	Facilities operates in Australia and New Zealand and provides outsourced facility services to customers across a
	diverse range of industry sectors including: defence; education; government; healthcare; resources; leisure; and
	hospitality. Facilities provides catering and laundry services; technical and engineering services; maintenance and
	asset management services and refrigeration solutions to various industries; as well as building and construction
	solutions across a variety of sectors in New Zealand. The Laundries business within the Facilities segment was
	disposed of on 31 March 2021.
Engineering,	Provides design, engineering, construction, shutdowns, turnaround and outage delivery, operations maintenance
Construction	and ongoing management of strategic assets across a range of sectors and in all stages of the project lifecycle
and Maintenance	including: feasibility studies; engineering design; procurement and construction; structural, mechanical and piping;
(EC&M)	electrical and instrumentation; commissioning and decommissioning services; and design and manufacture of
	mineral process equipment.
Mining	Provides services across all stages of the mining lifecycle including: resource definition; exploration drilling and
	mine feasibility studies; open cut and underground mining services; drilling, explosives manufacture and supply;
	blasting and crushing; asset management; tyre management; and mine closure and rehabilitation. Snowden,
	RTL JV, Open Cut Mining West, Underground and Downer Blasting Services have each been disposed of during
	the year. Refer to Note F5.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 69
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B1. Segment information – continued

2021						Un-
$’m	Transport	Utilities	Facilities	EC&M	Mining	allocated	Total
Segment revenue and other income	4,658.2	2,106.3	2,844.1	865.3	1,088.6	21.6	11,584.1
Share of sales revenue from joint ventures
and associates(i)	637.0	–	5.6	–	7.5	–	650.1
Total revenue including joint ventures
and other income (i)	5,295.2	2,106.3	2,849.7	865.3	1,096.1	21.6	12,234.2
Share of net profit from joint ventures
and associates	22.0	–	(0.1)	–	0.3	–	22.2
Depreciation and amortisation	168.5	37.1	91.7	12.8	103.5	80.8	494.4
EBIT before amortisation of acquired
intangibles (EBITA)	250.2	115.1	145.4	13.2	46.6	(169.5)	401.0
Amortisation of acquired intangibles	(7.3)	(2.5)	(6.8)	–	–	(49.6)	(66.2)
Total reported segment results (EBIT)	242.9	112.6	138.6	13.2	46.6	(219.1)	334.8
Net finance costs							(104.9)
Totalprofit before income tax							229.9
Acquisition of segment assets	199.9	19.8	42.0	4.3	42.0	30.1	338.1
Segment assets	3,178.4	1,088.7	2,190.3	462.9	411.2	740.6	8,072.1
Segment liabilities	1,628.0	442.1	734.2	196.9	176.3	1,937.2	5,114.7
Carryingvalue of equityaccounted investees	121.7	–	33.4	–	–	–	155.1
2020						Un-
$’m	Transport	Utilities	Facilities	EC&M	Mining	allocated	Total
Segment revenue and other income	4,081.1	2,688.0	3,308.4	1,168.0	1,493.1	4.1	12,742.7
Share of sales revenue from joint ventures
and associates(i)	611.2	–	7.3	–	56.7	–	675.2
Total revenue including joint ventures
and other income (i)	4,692.3	2,688.0	3,315.7	1,168.0	1,549.8	4.1	13,417.9
Share of net profit from joint ventures
and associates	15.3	–	0.3	–	3.8	–	19.4
Depreciation and amortisation	150.2	40.1	109.8	15.3	119.2	82.7	517.3
EBIT before amortisation of acquired
intangibles and historical contract claims
adjustments	235.6	114.6	114.3	(42.1)	79.0	(452.6)	48.8
Historical contract claims adjustments(ii)	–	–	(9.9)	(8.9)	–	–	(18.8)
EBITA	235.6	114.6	104.4	(51.0)	79.0	(452.6)	30.0
Amortisation of acquired intangibles	(10.9)	(2.6)	(9.8)	–	–	(48.0)	(71.3)
Total reported segment results (EBIT)	224.7	112.0	94.6	(51.0)	79.0	(500.6)	(41.3)
Net finance costs							(112.0)
Total loss before income tax							(153.3)
Acquisition of segment assets	98.3	34.9	68.5	3.8	107.0	30.2	342.7
Segment assets	2,649.1	1,186.0	2,621.6	617.4	939.0	633.9	8,647.0
Segment liabilities	1,278.6	478.5	1,751.2	345.6	339.8	1,858.3	6,052.0
Carryingvalue of equityaccounted investees	101.1	–	1.2	–	8.3	–	110.6

(i) This is a non-statutory disclosure as it relates to Downer’s share of revenue from equity accounted joint ventures and associates.

(ii) Relates to historical Spotless contracts on foot at the time of Downer acquisition which are separately monitored by the Group’s Chief Operating Decision Maker.

Notes to the consolidated financial statements – continued

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70 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

B1. Segment information – continued

Reconciliation of segment EBIT to net profit/(loss) after tax:

Reconciliation of segment EBIT to net profit/(loss) after tax:
Note	Segment results
	2021 $’m 2020 $’m
Segment EBIT Unallocated: Fair value movement on DCSO liability B3 SaaS arrangements B3 Laundries divestment B3 Mining divestment B3 Portfolio restructure and exit costs B3 Payroll remediation costs B3 Goodwill impairment B3 Spotless Shareholder class action B3 Legal settlement B3 Amortisation of Spotless and Tenix acquired intangible assets Corporate costs	553.9 459.3 (16.6) – (14.0) – (16.2) – (19.5) – – (142.4) – (16.3) – (165.0) – (34.0) – (9.5) (49.6) (48.0) (103.2) (85.4)
Total unallocated Earnings/(loss) before interest and tax Net finance costs	(219.1) (500.6) 334.8 (41.3) (104.9) (112.0)
Profit/(loss) before income tax 229.9 (153.3) Income tax expense B5(a) (46.2) (2.4)
Profit/(loss) after income tax 183.7 (155.7)

Segment assets by geographical location

Segment assets by geographical location
	Segment assets Non-current (ii) Acquisition of segment assets Non-current
	2021 $’m 2020 $’m 2021 $’m 2020 $’m
Geographical location (i) Australia New Zealand and Pacific Rest of the world	3,925.5 4,371.3 271.9 273.1 554.3 546.5 65.7 64.8 6.8 7.5 0.5 4.8
Total	4,486.6 4,925.3 338.1 342.7

(i) Assets are allocated based on the geographical location of the legal entity.

(ii) Total of non-current assets other than deferred tax assets, financial instruments and trade and other receivables.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 71
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B2. Revenue

Revenue and other income

Revenue and other income
2021						Un-
$’m	Transport	Utilities	Facilities	EC&M	Mining	allocated	Total
Rendering of services	2,908.8	1,911.8	2,083.2	599.2	1,054.6	0.1	8,557.7
Construction contracts	1,540.6	188.3	695.5	251.7	–	–	2,676.1
Sale ofgoods	188.8	5.0	57.7	13.6	13.9	–	279.0
Total revenue from contracts with customers	4,638.2	2,105.1	2,836.4	864.5	1,068.5	0.1	11,512.8
Other revenue	4.8	0.2	–	0.1	7.4	4.9	17.4
Total revenue	4,643.0	2,105.3	2,836.4	864.6	1,075.9	5.0	11,530.2
Government grants(i)	0.3	0.3	4.4	–	–	–	5.0
Gain on divestments of equity accounted investee
(Note B3)	–	–	0.9	–	10.7	–	11.6
Insurance recoveries	10.2	–	–	–	–	13.6	23.8
Other	4.7	0.7	2.4	0.7	2.0	3.0	13.5
Other income	15.2	1.0	7.7	0.7	12.7	16.6	53.9
Total revenue and other income	4,658.2	2,106.3	2,844.1	865.3	1,088.6	21.6	11,584.1
Share of sales revenue from joint ventures
and associates(ii)	637.0	–	5.6	–	7.5	–	650.1
Total revenue including joint ventures
and other income (ii)	5,295.2	2,106.3	2,849.7	865.3	1,096.1	21.6	12,234.2
2020						Un-
$’m	Transport	Utilities	Facilities	EC&M	Mining	allocated	Total
Rendering of services	2,837.0	1,730.4	2,425.8	833.5	1,446.1	–	9,272.8
Construction contracts	1,025.2	936.7	749.7	315.4	–	–	3,027.0
Sale ofgoods	191.7	1.1	108.5	13.9	42.6	–	357.8
Total revenue from contracts with customers	4,053.9	2,668.2	3,284.0	1,162.8	1,488.7	–	12,657.6
Other revenue	2.9	1.1	–	3.7	–	4.1	11.8
Total revenue	4,056.8	2,669.3	3,284.0	1,166.5	1,488.7	4.1	12,669.4
Government grants(i)	21.1	17.1	24.4	–	–	–	62.6
Other	3.2	1.6	–	1.5	4.4	–	10.7
Other income	24.3	18.7	24.4	1.5	4.4	–	73.3
Total revenue and other income	4,081.1	2,688.0	3,308.4	1,168.0	1,493.1	4.1	12,742.7
Share of sales revenue from joint ventures
and associates(ii)	611.2	–	7.3	–	56.7	–	675.2
Total revenue including joint ventures
and other income (ii)	4,692.3	2,688.0	3,315.7	1,168.0	1,549.8	4.1	13,417.9

(i) Government grants represents incentives received under the New Zealand Government’s wage subsidy scheme available to eligible businesses impacted by the COVID-19 pandemic.

(ii) This is a non-statutory disclosure as it relates to Downer’s share of revenue from equity accounted joint ventures and associates.

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72 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

B2. Revenue – continued

Revenue from contracts with customers by geographical location:

2021						Un-
$’m	Transport	Utilities	Facilities	EC&M	Mining	allocated	Total
Geographical location (i)
Australia	3,353.8	1,542.6	2,162.6	847.3	1,034.8	0.1	8,941.2
New Zealand and Pacific	1,284.4	562.5	673.8	–	–	–	2,520.7
Rest of the world	–	–	–	17.2	33.7	–	50.9
Total revenue from contracts
with customers	4,638.2	2,105.1	2,836.4	864.5	1,068.5	0.1	11,512.8
2020						Un-
$’m	Transport	Utilities	Facilities	EC&M	Mining	allocated	Total
Geographical location (i)
Australia	2,883.8	2,098.1	2,549.5	1,124.5	1,429.2	–	10,085.1
New Zealand and Pacific	1,170.0	570.1	734.5	–	–	–	2,474.6
Rest of the world	0.1	–	–	38.3	59.5	–	97.9
Total revenue from contracts
with customers	4,053.9	2,668.2	3,284.0	1,162.8	1,488.7	–	12,657.6

(i) Revenue is allocated based on the geographical location of the legal entity.

Recognition and measurement

Revenue

The Group recognises revenue when a customer obtains control of the goods or services, in accordance with AASB 15 Revenue from Contracts with Customers . Revenue is measured at the fair value of the consideration received or receivable. Determining the timing of the transfer of control – at a point in time or over time – requires judgement. Revenue is recognised if it meets the criteria below.

(i) Rendering of services

The Group primarily generates service revenue from the following activities:

• Maintenance and management of transport infrastructure

• Utilities infrastructure maintenance services (gas, power and water)

• Maintenance and installation of infrastructure in the telecommunications sector

• Industrial plant maintenance

• Rollingstock maintenance and rail asset management services

• Engineering and consultancy services

• Facilities management

• Contract mining services, mining assets maintenance services, tyre management and blasting.

Typically, under the performance obligations of a service contract, the customer consumes and receives the benefit of the service as it is provided. As such, service revenue is recognised over time as the services are provided.

(ii) Construction contracts

The contractual terms and the way in which the Group operates its construction contracts are predominantly derived from projects containing one performance obligation. Under these performance obligations, customers either simultaneously receive and consume the benefits as the Group performs them or performance creates or enhances an asset that the customer controls as the asset is created or enhanced. Therefore, contracted revenue is recognised over time based on stage of completion of the contract.

(iii) Sale of goods

Revenue is recognised at a point in time when the customer obtains control of goods.

(iv) Other revenue

Other revenue primarily includes rental income.

(v) Other income

Other income primarily includes insurance recoveries and government grants.

Insurance recoveries relates to insurance refunds received for claims lodged that met the recoverability criteria of being ‘virtually certain’ following confirmation of indemnity received from insurers.

Government grants relates to income received under the New Zealand Government’s Wage Subsidy Scheme available to eligible businesses that were adversely impacted by the COVID-19 pandemic. The Group elects to present these subsidies in ‘Other income’ as allowed under AASB 120 Accounting for Government grants and disclosure of Government assistance .

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 73
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B2. Revenue – continued

Recognition and measurement – continued

Contract modifications

For services and construction contracts, revenue from variations and claims is recognised to the extent they are approved or enforceable under the contract. The amount of revenue is then recognised to the extent it is highly probable that a significant reversal of revenue will not occur.

In making this assessment, the Group considers a number of factors including nature of the claim, formal or informal acceptance by the customer of the validity of the claim, stage of negotiations, or the historical outcome of similar claims to determine whether the enforceable and ‘highly probable’ threshold has been met.

Revenue in relation to modifications, such as a change in the scope of the contract, will only be included in the transaction price when it is approved by the parties to the contract or the modification is enforceable and the amount becomes highly probable. Modifications may also be recognised when client instruction has been received in line with customary business practice for the customer.

AASB 15 provides guidance in respect of the term over which revenue may be recognised and is limited to the period for which the parties have enforceable rights and obligations. When the customer can terminate a contract for convenience (without a substantive penalty), the contract term and related revenue is limited to the termination period.

The Group has elected to apply the practical expedient to not adjust the total consideration over the contract term for the effect of a financing component if the period between the transfer of services to the customer and the customer’s payment for the service is expected to be one year or less.

Measure of progress

The Group recognises revenue using the measure of progress that best reflects the Group’s performance in satisfying the performance obligation within the contracts over time. The different methods of measuring progress include an input method (e.g. costs incurred) or an output method (e.g. milestones reached). The same method of measuring progress will be consistently applied to similar performance obligations.

Contract costs (tender costs)

Costs incurred during the tender/bid process are expensed, unless they are incremental to obtaining the contract and the Group expects to recover those costs or where they are explicitly chargeable to the customer regardless of whether the contract is obtained.

Performance obligations and contract duration

Revenue is allocated to each performance obligation and recognised as the performance obligation is satisfied which may be at a point in time or over time.

AASB 15 requires a granular approach to identify the different revenue streams (i.e. performance obligations) in a contract by identifying the different activities that are being undertaken and then aggregating only those where the different activities are significantly integrated or highly interdependent. Revenue will be recognised, on certain contracts over time, as a single performance obligation when the services are part of a series of distinct goods and services that are substantially integrated with the same pattern of transfer.

Variable consideration

Variable consideration that is contingent on the Group’s performance, including key performance payments, liquidated damages and abatements that offset revenue under the contract, is recognised only when it is highly probable that a reversal of that revenue will not occur.

In addition, where the identified revenue stream is determined to be a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer (for example maintenance services), variable consideration is recognised in the period/(s) in which the series of distinct goods or services subject to the variable consideration are completed.

Loss-making contracts

Loss-making contracts are recognised under AASB 137 Provisions, Contingent Liabilities and Contingent Assets as onerous contracts.

Key estimates and judgements: Revenue recognition

Stage of completion

Determining the stage of completion requires an estimate of expenses incurred to date as a percentage of total estimated costs. Modifications

When a contract modification exists and the Group has an approved enforceable right to payment, revenue in relation to claims and variations is only included in the transaction price when the amount claimable becomes highly probable. Management uses judgement in determining whether an approved enforceable right exists.

Variable consideration

Determining the amount of variable consideration requires an estimate based on either the ‘expected value’ or the ‘most likely amount’. The estimate of variable consideration can only be recognised to the extent it is highly probable that a significant revenue reversal will not occur in future. Changes in these estimates or judgements could have a material impact on the financial statements of the Group.

Notes to the consolidated financial statements – continued

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74 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

B3. Individually significant items

The following material items of expenses, forming part of the unallocated segment are relevant to an understanding of the Group’s financial performance:

		Termin-	Software-
		ation of	as-a-
	Fair value	Spotless	Service
	movement	financing	(SaaS)	Mining
2021	on DCSO	arrange-	arrange-	divest-	Laundries
$’m	liability	ments	ments	ments	divestment	Total
Loss on disposal of businesses Gain on divestment of equity accounted investee Depreciation and amortisation Impairment of non-current assets Other expenses from ordinaryactivities	– – – – 16.6	– – – – –	– – (3.6) – 17.6	7.1 (10.7) – 20.2 2.9	16.2 – – – –	23.3 (10.7) (3.6) 20.2 37.1
Loss before interest and tax	16.6	–	14.0	19.5	16.2	66.3
Other finance costs Income tax benefit	– –	4.3 (1.3)	– (4.1)	– (17.5)	– (16.5)	4.3 (39.4)
Loss/(profit) after income tax	16.6	3.0	9.9	2.0	(0.3)	31.2

Refer to Note F5 for additional information on disposal of businesses.

Fair value movement on Downer Contingent Share Option (DCSO) liability

As part of the consideration to acquire the shares in Spotless that it did not already own, the Group granted three tranches of 2.5 million share options to the previous minority interest shareholders which are exercisable within four years of issue on achievement of three prescribed share price targets (the Downer Contingent Share Options or DCSO). The fair value at issue date of these options was recognised as a liability arising on the acquisition of the shares. The DCSO are classified as a liability, with subsequent changes in the fair value recognised in the Consolidated Statement of Profit or Loss and Other Comprehensive Income. Since grant date, and primarily driven by the movement in Downer’s share price from $4.30 at grant date to $5.59 at 30 June 2021, the fair value of the DCSO increased by $16.6 million, which has been expensed through ‘Other expenses’ in the Consolidated Statement of Profit or Loss and Other Comprehensive Income (refer to Note E6).

Termination of Spotless financing arrangements

Following the purchase of the Non-Controlling Interest (NCI) in Spotless, the Group extinguished the Spotless financing arrangements. As a result, the unamortised deferred financing costs related to the extinguished facilities were immediately written-off to the ‘Other finance costs’ line in the Consolidated Statement of Profit or Loss and Other Comprehensive Income, with the tax effect of $1.3 million being credited to the income tax expense line.

Mining divestments

The divestment program for the Mining division has resulted in a number of material transactions netting to a pre-tax $19.5 million expense. These include:

• $7.1 million representing the net loss made from the disposal of Open Cut Mining West, Downer Blasting Services, Underground and Snowden businesses. This individually significant item is disclosed as part of ‘Other expenses from ordinary activities’ in the Consolidated Statement of Profit or Loss and Other Comprehensive Income

• $10.7 million gain on the divestment of the equity accounted investment in RTL JV. This individually significant item is disclosed as part of ‘Other income’ in the Consolidated Statement of Profit or Loss and Other Comprehensive Income

• $20.2 million impairment charge to adjust the carrying value of the property, plant and equipment and other assets of the Open Cut Mining West business to its expected recoverable value on the earlier classification of this business as a Disposal group held for sale

• $2.9 million representing transaction, redundancies and other costs incurred as part of the divestment program.

The net income tax benefit arising on the Mining divestments is $17.5 million. This is comprised of a tax benefit of $5.4 million attributable to net non-taxable accounting gains on divestments and a net tax benefit of $5.9 million arising on associated divestment costs. A tax benefit of $6.2 million has also been recognised in respect of previously unbooked capital losses used to offset capital gains arising on the Mining divestments.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 75
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B3. Individually significant items – continued

Laundries divestment

On 31 March 2021, the Group completed the share sale of 70% of Spotless’ Laundries business to Adamantem Capital (Adamantem) and recognised a 30% interest in the remaining Laundries business as an equity accounted investment (refer to Note F1(a)). The transaction resulted in a pre-tax loss of $16.2 million net of transaction costs and stamp duty costs incurred. This individually significant item is disclosed as part of ‘Other expenses from ordinary activities’ in the Consolidated Statement of Profit or Loss and Other Comprehensive Income.

The net income tax benefit arising on the Laundries divestment is $16.5 million. This is primarily comprised of a tax benefit of $12.8 million in respect of capital losses arising on the divestment and a net tax benefit of $3.7 million arising on associated divestment costs.

Software-as-a-Service (SaaS) arrangements

IFRS Interpretations Committee (IFRIC) has recently issued an agenda decision which impacts whether a customer can recognise an intangible asset in relation to configuration or customisation of cloud computing arrangements (CCA), specifically for Software-as-a-Service (SaaS). The Group’s accounting policy has historically been to capitalise costs related to the configuration and customisation of SaaS arrangements as intangible assets in the Statement of Financial Position.

Downer used SaaS across a range of businesses and functions. Following the adoption of the above IFRIC agenda decision, current SaaS arrangements were identified and assessed to determine if the Group has control of the software. For those arrangements where control does not exist, the Group derecognised the intangible previously capitalised.

The adoption of the above agenda decisions has resulted in recognition of costs to configure SaaS arrangements as a pre-tax expense of $14.0 million in the Consolidated Statement of Profit or Loss and Other Comprehensive Income in the current year. The opening retained earnings adjustment is presented in Note C7.

2020

The Group recognised the following items as individually significant items as at 30 June 2020:

	Portfolio
	restructure	Payroll		Spotless
	and exit	remediation	Goodwill	shareholder	Legal
$’m	costs	on costs	impairment	class action	settlement	Total
Employee benefits expense	42.1	8.9	–	–	–	51.0
Raw materials and consumables used	9.7	–	–	–	–	9.7
Impairment of non-current assets	46.6	–	165.0	–	–	211.6
Other expenses from ordinaryactivities	44.0	7.4	–	34.0	9.5	94.9
Loss before interest and tax	142.4	16.3	165.0	34.0	9.5	367.2
Income tax benefit	(42.2)	(4.5)	–	(10.2)	(2.7)	(59.6)
Loss after income tax	100.2	11.8	165.0	23.8	6.8	307.6

Portfolio restructure and exit costs

Represents restructuring costs incurred following management’s decision to scale back the Group’s construction service offerings as well as costs associated in rightsizing the business to reflect the new business model and remain competitive in a postCOVID-19 environment. The material elements of the costs associated with the portfolio restructure program are as follows:

• $46.4 million restructure costs to cover redundancies, asset impairments, stock write-offs, onerous contracts and other exit costs in Hospitality business.

• $15.0 million restructure costs to cover redundancies and other exit costs as the Group has exited the resource based electrical and mechanical major construction market within the Engineering and Construction (E&C) business unit.

• $9.3 million restructure costs to cover redundancies and other exit costs as Spotless has exited the facilities based electrical and mechanical major construction market within the Infrastructure and Construction (I&C) business unit.

• $35.6 million restructure costs in relation to the Group’s management overhead reduction through reduction in management layers, headcount, property footprint, systems and discretionary spend to better reflect the new operating model.

• $10.0 million transaction costs related to the portfolio review of Mining and Laundries.

• $26.1 million impairment on carrying value of information systems related to applications and infrastructure in businesses that are being wound down.

Notes to the consolidated financial statements – continued

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76 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

B3. Individually significant items – continued

2020

Payroll remediation costs

During the year ended 30 June 2020, Spotless commenced a review of the applicable Enterprise Agreements (EAs) and Modern Award obligations, together with the assumptions regarding their interpretation and application in its payroll systems in order to validate the correct application of pay rates to employees as well as identify historical underpayments and overpayments.

On 1 July 2020, Spotless lost a Federal Court case with respect to Ordinary and Customary Turnover of Labour rate (OCTL) redundancy payments for employees made redundant on cessation of specific contracts.

Goodwill impairment

$165.0 million goodwill impairment was recognised following the identification of possible impairment indicators on the carrying value of the Spotless group of CGUs.

Spotless shareholder class action

$34.0 million expense (net of insurance recoveries) to settle the shareholder class action commenced against Spotless in the Federal Court of Australia in May 2017. This claim was previously disclosed as a contingent liability.

Legal settlement

$9.5 million expense for a settlement agreement in relation to a legacy leaky building claim in New Zealand. This claim was previously disclosed as a contingent liability.

Spotless has recognised an employee benefits provision of $41.1 million in relation to these matters, including interest and other remediation costs. Of this amount, $24.8 million relating to the EAs and Modern Award obligations that should have been incurred in previous years, was recognised as a prior period error in opening retained earnings, with $16.3 million being recognised as an expense in the period. The $16.3 million comprises all the estimated OCTL redundancy amounts and EAs and Modern Award obligation amounts relating to FY20.

B4. Earnings per share

Basic earnings per share

The calculation of basic earnings per share (EPS) is based on the profit attributable to ordinary shareholders and the weighted-average number of ordinary shares outstanding.

		Restated (i)
2021	2021	2020
Profit attributable to members of the parent entity ($’m)	181.6	(150.3)
Adjustment to reflect ROADS dividendspaid ($’m)	(5.8)	(7.4)
Profit attributable to members of theparent entityused in calculatingEPS ($’m)	175.8	(157.7)
Weighted average number of ordinaryshares (WANOS) on issue (m’s)(ii)	692.9	603.3
Basic earnings per share (cents)	25.4	(26.1)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 77
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B4. Earnings per share – continued

Diluted earnings per share

The calculation of diluted earnings per share is based on the following profit attributable to ordinary shareholders and the weightedaverage number of ordinary shares outstanding after adjustments for the effects of all dilutive potential ordinary shares.

		Restated (i)
2021	2021	2020
Profit attributable to members of theparent entityused in calculatingbasic EPS ($’m)	181.6	(150.3)
Weighted average number of ordinary shares
– Weighted average number of ordinary shares (WANOS) on issue (m’s)(ii)	692.9	604.1
– WANOS adjustment to reflectpotential dilution for ROADS (m’s)(iii)	38.0	29.4
WANOS used in the calculation of diluted EPS (m’s)	730.9	633.5
Diluted earnings per share (cents) (iv)	24.8	(26.1)

(i) Basic and diluted EPS calculations for June 2020 were restated as a result of 106.6 million shares issued from the capital raising as part of the acquisition of the remaining shares in Spotless. Under the entitlement offer, 1 new share for each 5.58 outstanding shares were issued at a discounted price of $3.75 per share. As a result of the new shares issued, the weighted average number of ordinary shares (WANOS) to calculate EPS needs to be adjusted by a theoretical ex-rights price (TERP) factor. The adjustment factor of 0.9817 was utilised to restate the 30 June 2020 WANOS for the basic and diluted EPS calculations.

(ii) The WANOS on issue has been adjusted by the weighted average effect of on-market share buy-back and the unvested executive incentive shares.

(iii) The WANOS adjustment is the value of ROADS that could potentially be converted into ordinary shares at the reporting date. It is calculated based on the issued value of ROADS in New Zealand dollars converted to Australian dollars at the spot rate prevailing at the reporting date, which was $186.2 million (2020: $186.9 million), divided by the average market price of the Company’s ordinary shares for the period 1 July 2020 to 30 June 2021 discounted by 2.5% according to the ROADS contract terms, which was $4.90 (2020: $6.37).

(iv) At 30 June 2020, the ROADS were deemed anti-dilutive and consequently, diluted EPS remained at (26.1) cents per share.

B5. Taxation

(a) Reconciliation of income tax expense

The prima facie income tax expense on profit before income tax expense/(benefit) in the financial statements as follows:

	2021	2020
	$’m	$’m
Profit/(loss) before income tax	229.9	(153.3)
Tax using the Company’s statutory tax rate	69.0	(46.0)
Efect of tax rates in foreign jurisdictions	(2.6)	(1.4)
Non-deductible expenses	5.6	0.9
Profits and franked distributions from joint ventures and associates	(5.2)	(4.2)
Impairment of goodwill	–	49.5
Tax efect of divestments	(17.1)	–
Tax efect of previously unrecognised capital losses	(6.2)	–
Other items	0.9	2.9
Underprovision of income tax inpreviousyear	1.8	0.7
Total income tax expense	46.2	2.4
Current tax expense	36.7	45.0
Deferred tax expense/(benefit)	9.5	(42.6)

The tax rate used in the above reconciliation is the corporate tax rate of 30% payable by Australian corporate entities on taxable profits under Australian tax law. There has been no change in the corporate tax rate when compared with the previous year.

Notes to the consolidated financial statements – continued

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78 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

B5. Taxation – continued

(a) Reconciliation of income tax expense – continued

Recognition and measurement

Current tax

Current tax assets and liabilities are measured at the amount of income taxes payable or recoverable in respect of the taxable profit or tax loss for the period; this is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date.

Deferred tax

Deferred tax is accounted for in respect of temporary differences arising from differences between the carrying amount of assets and liabilities and the corresponding tax base.

Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, unused tax and capital losses and tax offsets, to the extent that it is probable that sufficient taxable profits will be available to utilise them.

Deferred tax assets and liabilities are not recognised for:

• Temporary differences that arise from the initial recognition of assets or liabilities in a transaction that is not a business combination which affects neither taxable income nor accounting profit

• Temporary differences relating to investments in subsidiaries, associates and joint ventures to the extent that the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future

• Temporary differences arising from goodwill.

Deferred tax assets and liabilities are measured at the tax rates and tax laws that are expected to apply in the year when the asset is utilised or liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.

Income taxes relating to items recognised directly in equity are recognised in equity and not in the income statement.

Offsetting deferred tax balances

Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Company/consolidated entity intends to settle its current tax assets and liabilities on a net basis.

Tax consolidation

Downer EDI Limited and its wholly owned Australian entities are part of a tax consolidated group under Australian taxation law. Downer EDI Limited is the head entity in the tax consolidated group. Entities within the tax consolidated group have entered into a tax funding agreement and a tax sharing agreement with the head entity. Under the terms of the tax funding agreement, Downer EDI Limited and each of the entities in the tax consolidated group have agreed to pay (or receive) a tax equivalent payment to (or from) the head entity, based on the current tax liability or current tax asset of the entity.

Key estimates and judgements:

Recovery of deferred tax assets

Deferred tax assets are recognised for deductible temporary differences, unused tax and capital losses and tax offsets, to the extent it is probable that sufficient future taxable profits will be available to utilise them. Judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing, nature and the level of future taxable profits.

Income taxes

The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Judgement is required to determine the worldwide provision for income taxes and to assess whether deferred tax balances are recognised on the statement of financial position. Changes in circumstances will alter expectations, which may impact the amount of provision for income taxes and deferred tax balances recognised.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 79
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2021 $’m At 30 June 2020 Recognised in profit or loss Recognised in other comprehensive income Recognised in equity Net foreign currency exchange diferences Acquisition and disposal Assets Held For Sale Net balance at 30 June 2021 Deferred tax assets Deferred tax liabilities	(129.5) (36.5) (83.9) – – – –	(249.9)	244.1	(5.8)	2020 $’m At 30 June 2019 Application of AASB 16 Adjustment on application of IFRS Interpretation Committee decision (i) At 1 July 2019 Recognised in profit or loss Recognised in other comprehensive income Net foreign currency exchange diferences Acquisition and disposal Net balance at 30 June 2020 Deferred tax assets Deferred tax liabilities	Trade receivables and contract assets (63.4) – – (63.4) (70.3) – 0.4 – (133.3) – (133.3) Property, plant and equipment, Right-of-use assets and Lease liabilities (40.9) 28.9 – (12.0) (29.9) – (0.2) – (42.1) – (42.1) Intangible assets (153.7) – 10.6 (143.1) 34.6 – 0.1 – (108.4) – (108.4) Income tax losses 28.3 – – 28.3 68.3 – – – 96.6 96.6 – Trade payables and contract liabilities 27.9 – – 27.9 9.1 – 0.1 – 37.1 37.1 – Employee benefits and other provisions 154.0 – – 154.0 27.4 (0.2) 0.5 11.2 192.9 192.9 – Other 11.1 – – 11.1 3.4 1.3 (1.0) – 14.8 14.8 –	Net deferred tax assets/ (liabilities) (36.7) 28.9 10.6 2.8 42.6 1.1 (0.1) 11.2 57.6 341.4 (283.8)	Set-of of DTA against DTL (189.3) 189.3	Net tax assets/(liabilities) 57.6 152.1 (94.5)	(i) 2020 balances have been restated to reflect the Group’s change in accounting policy for costs related to configuration and customisation of Software-as-a-Service (SaaS) arrangements. Refer to Note C7 for more details.
	– – – 87.5 15.1 182.1 24.7	309.4	(244.1)	65.3
	(129.5) (36.5) (83.9) 87.5 15.1 182.1 24.7	59.5		59.5
	– (1.6) – – – – –	(1.6)
	(0.2) 0.8 – – (0.8) (9.0) (0.3)	(9.5)
	0.1 (0.1) – – – (0.1) 0.2	0.1
	11.2 13.3 – – – – 0.3	24.8
	0.9 – – – (0.2) (1.5) (1.6)	(2.4)
	(8.2) (6.8) 24.5 (9.1) (21.0) (0.2) 11.3	(9.5)
	(133.3) (42.1) (108.4) 96.6 37.1 192.9 14.8	57.6
	Trade receivables and contract assets Property, plant and equipment, Right-of-use assets and Lease liabilities Intangible assets Tax losses and other attributes Trade payables and contract liabilities Employee benefits and other provisions Other	Net deferred tax assets/(liabilities)	Set-of of DTA against DTL	Net tax assets/(liabilities)

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80 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

B6. Remuneration of auditor

B6. Remuneration of auditor
	2021	2020
	$	$
Audit and review of financial statements	5,355,264	5,224,180
Assurance services:
Regulatory assurance services	20,000	50,000
Other assurance services	325,566	340,211
Total assurance services	345,566	390,211
Other services:
Tax services	205,795	242,148
Advisoryservices	506,977	468,318
Total other services	712,772	710,466

The auditor of the Group is KPMG.

B7. Subsequent events

Downer’s end markets relate to critical infrastructure and essential services. Downer’s strength in those markets, and their diversity, are a key advantage.

At the date of this report, Downer has not had a material impact from the current COVID-19 lockdowns across Sydney and other metropolitan areas in Australia and will continue to monitor the changing nature of the pandemic and the ongoing COVID-19 restrictions.

Outside the above, at the date of this report, there is no other matter or circumstance that has arisen since the end of the financial year, that has significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in subsequent financial years.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 81
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C

Operating assets and liabilities

This section provides information relating to the operating assets and liabilities of the Group. Downer has a strong focus on maintaining a strong balance sheet through continued focus on cash conversion. The Group’s strategy also considers expenditure, growth and acquisition requirements.

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C1. Reconciliation of cash and cash equivalents C6. Right-of-use assets
C2. Trade receivables and contract assets C7. Intangible assets
C3. Inventories C8. Lease receivables
C4. Trade payables and contract liabilities C9. Other provisions
C5. Property, plant and equipment C10. Contingent liabilities
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C1. Reconciliation of cash and cash equivalents

(a) Cash and cash equivalents

(a) Cash and cash equivalents
	2021	2020
	$’m	$’m
For the purpose of the statement of cash flows, cash and cash equivalents comprises:
Cash	563.8	567.9
Short-term deposits	247.6	20.6
Total cash and cash equivalents	811.4	588.5

(b) Reconciliation of liabilities arising from financing activities

						Transferred
						to disposal
			Lease net	Amortisation		group
		Net	additions	and foreign		assets
	1 July	cash	and	exchange	Disposal of	held for	30 June
$’m	2020	flows	remeasure	movement	businesses	sale	2021
Interest bearing loans	2,051.3	(540.7)	–	(29.0)	–	–	1,481.6
Lease liabilities	763.2	(194.5)	187.1	(1.4)	(89.2)	(2.4)	662.8
Total liabilities from
financing activities	2,814.5	(735.2)	187.1	(30.4)	(89.2)	(2.4)	2,144.4

Notes to the consolidated financial statements – continued

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82 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

C1. Reconciliation of cash and cash equivalents – continued

(c) Reconciliation of cash flows from operating activities

(c) Reconciliation of cash flows from operating activities
		Restated (i)
	2021	2020
	Note $’m	$’m
Profit/(loss) after tax for the year	183.7	(155.7)
Adjustments for:
Share of joint ventures and associates’ profits net of distributions	F1(a) (10.6)	(2.2)
Depreciation on leased assets	C6 180.6	151.8
Depreciation and amortisation of other non-current assets	C5,C7 313.8	365.5
Impairment of goodwill	C7 –	165.0
Impairment of other non-current assets	C5,C6,C7 20.2	47.0
Amortisation of deferred borrowing costs	8.4	6.7
Net gain on sale of property, plant and equipment	(8.2)	(5.7)
Movement in current tax balances	14.3	(11.9)
Movement in deferred tax balances	1.0	(43.7)
Movements on net defined benefit plan obligation	D2 1.7	7.0
Share-based employee benefits expense	D1 (0.4)	4.8
Adjustment on application of IFRS Interpretation Committee decision	–	(20.2)
Other	1.2	(0.2)
Changes in net assets and liabilities, net of efects from acquisition and disposal of businesses:	522.0	663.9
(Increase)/decrease in assets:
Current trade receivables and contract assets	115.7	(315.1)
Current inventories	–	(31.9)
Other current assets	(9.5)	(4.3)
Non-current trade receivables and contract assets	(14.0)	(21.0)
Other non-current assets	4.7	8.1
Increase/(decrease) in liabilities:
Current trade payables and contract liabilities	(15.6)	15.8
Current financial liabilities	(16.4)	4.8
Shareholder class action payable	C4 (34.0)	34.0
Current provisions	0.7	(18.8)
Non-current trade payables and contract liabilities	4.2	(22.3)
Non-current financial liabilities	3.8	8.3
Non-currentprovisions	(36.6)	(7.2)
	3.0	(349.6)
Net cashgenerated by operating activities	708.7	158.6

(i) 2020 balances have been restated to reflect the Group’s change in accounting policy for costs related to configuration and customisation of Software-as-a-Service (SaaS) arrangements. Refer to Note C7 for more details.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 83
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C2. Trade receivables and contract assets

C2. Trade receivables and contract assets
	2021	2020
	$’m	$’m
Trade receivables	685.4	792.1
Contract assets(i)	1,493.8	1,573.5
	2,179.2	2,365.6
Other receivables	71.6	64.7
Loss allowance on trade receivables and contract assets arisingfrom contracts with customers	(20.6)	(19.2)
Total	2,230.2	2,411.1
Included in the financial statements as:
Current(i)	2,121.0	2,315.9
Non-current	109.2	95.2

(i) Current contract assets: $1,386.5 million (2020: $1,482.9 million).

Allowance for credit losses:

The Group’s trade receivables and contract assets are disaggregated based on their expected credit risks between Government and Private (non-government) customers. An analysis of the balances is presented below:

2021	2020
$’m	$’m
Government – not due 938.7	1,015.8
Government – less than 90 days past due 29.5	31.4
Government – more than 90 days past due 35.0	35.9
Private – not due 1,078.6	1,191.5
Private – less than 90 days past due 63.0	55.2
Private – more than 90 dayspast due 34.4	35.8
Total Gross Carrying Amount 2,179.2	2,365.6
Credit impaired – specific allowance 13.2	6.9
Not credit impaired – lifetime expected credit loss 7.4	12.3
Loss allowance on trade receivables and contract assets arisingfrom contracts with customers 20.6	19.2

The Group has policies to manage its overall exposure to credit risk as set out in Note G2(e).

In assessing lifetime expected credit losses (ECL) as at 30 June 2021, the Group has considered the risk arising from the economic impacts of COVID-19. The Group has assessed ECLs by segmenting the portfolio of trade receivables and contract assets by customer (i.e. Government and Private) as well as by geography to better assess inherent credit risk. The Group defines counterparties as ‘Government’ if the contract is with a National, Federal, State or Local Government body, or an agency or entity that is owned, controlled or guaranteed by such bodies. Any counterparties other than those defined as ‘Government’ are classified as ‘Private’ and include Blue-Chip listed companies, PPPs, large multinational companies, network infrastructure companies, as well as other private sector businesses.

The credit risk associated with Government balances is considered to be negligible (FY20: negligible) due to the high creditworthiness of the counterparties. No Government balances are currently in default.

For ‘Private’ balances, the Group has recorded specific impairment losses for counterparties that are currently in default.

The ECLs have decreased from $12.3 million at 30 June 2020 to $7.4 million at 30 June 2021 reflecting a lower credit risk in the current portfolio of trade receivables and contract assets, determined in reference to past default experience.

Credit losses on ‘Private’ counterparty balances have historically averaged less than 1%. The allowance for credit losses, excluding specific provisions, is 0.6% (2020: 1.1%) of the trade receivables and contract assets.

Notes to the consolidated financial statements – continued

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84 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

C2. Trade receivables and contract assets – continued

Remaining performance obligations

As of 30 June 2021, the aggregate amount of the transaction price allocated to the remaining performance obligations is $13,572.6 million (2020: $13,466.1 million). The Group will recognise this revenue when the performance obligations are satisfied. Approximately ~44% of remaining performance obligations are expected to occur within the next five years; with the remaining ~56% related to long-term service/maintenance contracts ranging up to 41 years.

The remaining performance obligations balances for both 30 June 2021 and 30 June 2020 presented above relate to the revenue expected to be recognised from ongoing construction type contracts with an expected duration of more than 12 months.

During the current financial year revenue of $3,368.4 million has been recognised in relation to performance obligations satisfied or partially satisfied in previous periods.

Recognition and measurement

Trade receivables

Trade receivables and other receivables are initially recognised at fair value and subsequently at amortised cost using the effective interest rate method, less an allowance for impairment.

Fair value

Due to the short-term nature of these financial rights, the carrying amounts of the trade receivables and contract assets are estimated to represent their fair values.

Impairment

The Group has applied the simplified approach to recognise lifetime expected credit losses for trade receivables, contract assets and finance lease receivables as permitted by AASB 9.

The Group considers the relevant credit risk associated with disaggregated portions of the financial assets and after considering specific provisions against counterparties and defaults, applies an expected credit loss (ECL) percentage derived from recorded historic credit losses associated with the specific population. The key disaggregation of the balances is between those that are backed by Government funding and those that are not, and between those that are current or are overdue less than 90 days or become more than 90 days overdue. The Group exercises considerable judgement about how economic factors affect this ECL of each of the disaggregated balances independently, and applies a premium as deemed appropriate to adjust the historically determined default rates to present the total expected credit losses on the current balances.

This impairment model applies to financial assets measured at amortised cost or FVOCI (except for investments in equity instruments).

Contract assets

Contract assets primarily relate to the Group’s rights to consideration for work performed but not billed at the reporting date. The contract assets are transferred to trade receivables when the rights have become unconditional. This usually occurs when the Group issues an invoice in accordance with contractual terms to the customer.

Payments from customers are received based on a billing schedule/milestone basis, as established in our contracts.

Costs to obtain or fulfil contracts

Costs incremental to obtaining a contract and that are expected to be recovered or are explicitly chargeable to the customer regardless of whether the contract is obtained are capitalised.

Key estimate and judgement: Credit risk

Credit risk represents the risk that a counterparty will fail to perform an obligation causing a financial loss to the Group. The Group minimises credit risk by undertaking transactions with a large number of customers in various industries and geographical areas. A credit risk management policy is in place and exposure to credit risk is monitored on an ongoing basis.

The Group uses historical information as a basis for the estimation of expected credit losses and then adjusts its assessment of credit risk based on current macro/micro economic conditions; however, judgement is applied in doing this assessment.

Financial assets and liabilities

AASB 9 Financial Instruments (AASB 9) contains a classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics.

AASB 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 85
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C3. Inventories

	2021	2020
	$’m	$’m
Current
Raw materials	74.4	134.6
Work in progress	4.3	1.3
Finished goods	54.4	57.7
Components and spareparts	121.1	140.4
Total inventories	254.2	334.0

Recognition and measurement

Inventories are valued at the lower of cost and net realisable value. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

C4. Trade payables and contract liabilities

		2021	2020
	Note	$’m	$’m
Trade payables		670.5	697.7
Contract liabilities		444.3	497.7
Accruals		1,091.5	1,034.4
Shareholder class action payable	B3	–	34.0
Dividends payable	E8	–	83.3
Otherpayables		190.9	179.1
Total tradepayables and contract liabilities		2,397.2	2,526.2
Included in the financial statements as:
Current		2,363.0	2,497.4
Non-current		34.2	28.8

Recognition and measurement

Trade payables, accruals and other payables

Trade payables, accruals and other payables are recognised when the Group becomes obliged to make future payments resulting from the purchase of goods and services.

Contract liabilities

Contract liabilities primarily relate to the Group’s obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. Contract liabilities are recognised as revenue when work is performed under the contract.

If the net amount of the Group’s rights to consideration for work performed after deduction of progress payments received is negative, the difference is recognised as a liability and included as part of contract liabilities.

Of the Contract liabilities balance of $497.7 million at 30 June 2020, substantially all has been recognised in the current year.

Fair value

Due to the short-term nature of these financial obligations, their carrying amounts are estimated to represent their fair values.

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86 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

C5. Property, plant and equipment

C5. Property, plant and equipment
			Plant,
			equipment
			and	Equipment
		Freehold	leasehold	under	Laundries
2021		land and	improve-	finance	rental
$’m	Note	buildings	ments	lease	stock	Total
Balance as at 1 July 2020		123.1	1,187.9	–	39.2	1,350.2
Additions		0.7	281.4	–	27.6	309.7
Disposals at net book value		(1.8)	(59.6)	–	–	(61.4)
Disposal of businesses	F5	(52.2)	(247.7)	–	(40.9)	(340.8)
Depreciation expense		(2.6)	(196.2)	–	(25.8)	(224.6)
Impairment charge(i)	B3	–	(20.2)	–	–	(20.2)
Transferred to disposal group assets held for sale	F6	–	(9.4)	–	–	(9.4)
Reclassification at net book value(ii)		–	(8.2)	–	–	(8.2)
Net foreign currency exchange diferences
at net book value		(0.1)	(0.4)	–	(0.1)	(0.6)
Net book value as at 30 June 2021		67.1	927.6	–	–	994.7
Cost		96.5	2,005.4	–	–	2,101.9
Accumulated depreciation and impairment		(29.4)	(1,077.8)	–	–	(1,107.2)
2020
Balance as at 30 June 2019		124.0	1,196.2	9.0	44.1	1,373.3
Openingbalance adjustment on application of AASB	16	–	–	(9.0)	–	(9.0)
Balance as at 1 July 2019		124.0	1,196.2	–	44.1	1,364.3
Additions		4.0	248.7	–	33.5	286.2
Disposals at net book value		(0.2)	(19.1)	–	–	(19.3)
Depreciation expense		(4.4)	(225.6)	–	(35.0)	(265.0)
Impairment charge(iii)		–	(6.8)	–	(3.3)	(10.1)
Net foreign currency exchange diferences
at net book value		(0.3)	(5.5)	–	(0.1)	(5.9)
Net book value as at 30 June 2020		123.1	1,187.9	–	39.2	1,350.2
Cost		155.1	2,748.7	–	139.0	3,042.8
Accumulated depreciation and impairment		(32.0)	(1,560.8)	–	(99.8)	(1,692.6)

(i) Impairment relates to the divestment of Open Cut Mining West (refer to Note F5).

(ii) Reclassifications of software from Capital work in progress to Intangible assets.

(iii) Impairment relates to leasehold improvement assets as a result of the portfolio restructure.

Recognition and measurement

The value of property, plant and equipment is measured as the cost of the asset less accumulated depreciation and impairment.

The expected useful life and depreciation methods used are listed below:

Item	Useful life	Depreciation method
Freehold land	n/a	No depreciation
Buildings	20 to 50 years	Straight-line
Leasehold improvements	Life of lease	Straight-line
Plant and equipment – mining, power and gas	Working hours	Based on hours of use
Plant and equipment – other	3 to 25 years	Straight-line
Laundries rental stock	18 months to 5years	Straight-line

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 87
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C5. Property, plant and equipment – continued

Recognition and measurement – continued

Key estimate and judgement: Useful lives and residual values

The estimation of the useful lives and residual values of assets has been based on historical experience as well as manufacturers’ warranties (for plant and equipment), lease terms (for leasehold improvements) and turnover policies. In addition, the condition of the assets is assessed at least annually and considered against the remaining useful life. Adjustments to useful lives and residual values are made when considered necessary.

C6. Right-of-use assets

The Group leases many assets including property, motor vehicles and plant and equipment. Information about leased assets for which the Group is a lessee is presented below:

2021	Leasehold	Motor	Plant and
$’m	Property	Vehicles	Equipment	Total
Balance as at 1 July 2020	340.9	109.1	142.6	592.6
Additions	35.3	53.2	77.3	165.8
Remeasure	(1.4)	25.7	12.8	37.1
Depreciation expense	(61.1)	(61.4)	(58.1)	(180.6)
Transferred to disposal group assets held for sale	(0.2)	(1.1)	(0.9)	(2.2)
Disposal of businesses	(25.8)	(2.5)	(26.9)	(55.2)
Disposals at net book value	(5.4)	(2.6)	(2.1)	(10.1)
Net foreign currencyexchange diferences at net book value	(0.7)	(0.1)	(0.1)	(0.9)
Net book value as at 30 June 2021	281.6	120.3	144.6	546.5
Cost	401.6	226.7	224.0	852.3
Accumulated depreciation and impairment	(120.0)	(106.4)	(79.4)	(305.8)
2020
Balance recognised on adoption of AASB 16	385.5	101.7	83.4	570.6
Additions	57.5	56.4	86.1	200.0
Remeasure	(24.1)	9.2	10.1	(4.8)
Depreciation expense	(60.8)	(56.0)	(35.0)	(151.8)
Impairment charge(i)	(13.0)	–	–	(13.0)
Disposals at net book value	(1.5)	(0.9)	(1.2)	(3.6)
Net foreign currencyexchange diferences at net book value	(2.7)	(1.3)	(0.8)	(4.8)
Net book value as at 30 June 2020	340.9	109.1	142.6	592.6
Cost	413.9	164.8	176.8	755.5
Accumulated depreciation and impairment	(73.0)	(55.7)	(34.2)	(162.9)

(i) Impairment recognised as a result of the impact that the portfolio restructure had on property footprint across the businesses (refer to Note B3).

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88 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

C6. Right-of-use assets – continued

Recognition and measurement

Right-of-use assets

The right-of-use assets are initially measured at cost, which comprises:

• The amount of the initial measurement of the lease liability

• Any lease payments made at or before the commencement date, less any lease incentives and any initial direct costs incurred by the lessee

• An estimate of the costs to dismantle and remove the underlying asset or to restore the underlying asset.

Subsequently the right-of-use asset is measured at cost less any accumulated depreciation and impairment losses and adjusted for certain remeasurements of the lease liability.

The right-of-use asset is depreciated over the shorter period of the lease term and the economic useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the costs of the right-of-use asset reflect that the Group will exercise a purchase option, the asset will be depreciated from the commencement date to the end of the useful life of the underlying asset. The depreciation starts at the commencement date of the lease.

Key estimate and judgement: Useful lives/lease term and recoverable value

The estimation of the useful lives has been based on the assets’ lease terms. There are a number of judgements made in determining the lease terms as noted in the Key estimates and judgements section of Note E3.

The expected useful life of the asset includes a judgement as to whether available extension changes will be exercised. Changes to this assessment are reflected as a remeasurement, with a corresponding adjustment for the liability.

In assessing whether a right-of-use asset is impaired, judgement is required to determine the recoverable value of the asset. For corporate right-of-use assets, impairment is assessed against the recoverable amount of cash generating units to which they are allocated.

Where the initially anticipated lease term is subsequently reassessed, any changes are reflected in a remeasurement of the lease liability and a corresponding adjustment to the asset.

If the recoverable amount of a right-of-use asset is less than its carrying value, an impairment charge is recognised in the profit or loss, and the carrying value of asset written-down to its recoverable amount. Should the recoverable amount increase in future periods the carrying value may be adjusted to the lower of the recoverable value or the amortised cost of the asset had it not been impaired.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 89
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C7. Intangible assets

C7. Intangible assets
		Customer
		contracts			Software
		and	Brand	Intellectual	and system
2021		relation-	names on	property on	develop-
$’m	Goodwill	ships	acquisition	acquisition	ment	Total
Restated balance as at 1 July 2020	2,281.3	280.6	67.0	1.8	229.3	2,860.0
Additions	–	–	–	–	28.4	28.4
Amortisation expense	–	(62.0)	(4.0)	(0.2)	(23.0)	(89.2)
Disposal of businesses	–	(15.4)	–	–	(8.2)	(23.6)
Transferred to disposal group assets
held for sale	–	–	–	–	(0.5)	(0.5)
Reclassification at net book value(i)	–	–	–	–	8.2	8.2
Net foreign currency exchange diferences
at net book value	(0.5)	–	–	–	0.1	(0.4)
Net book value as at 30 June 2021	2,280.8	203.2	63.0	1.6	234.3	2,782.9
Cost	2,598.2	471.2	79.0	2.4	436.6	3,587.4
Accumulated amortisation and impairment	(317.4)	(268.0)	(16.0)	(0.8)	(202.3)	(804.5)
2020
Carrying amount as at 1 July 2019	2,454.5	345.0	71.3	2.0	257.9	3,130.7
Opening balance adjustment on application
of IFRS Interpretation Committee decision(ii)	–	–	–	–	(36.1)	(36.1)
Adjusted carrying amount as at 1 July 2019	2,454.5	345.0	71.3	2.0	221.8	3,094.6
Additions	–	2.7	–	–	61.4	64.1
Disposals at net book value	–	–	–	–	(0.2)	(0.2)
Business acquisition adjustments	(5.5)	–	–	–	–	(5.5)
Amortisation expense	–	(67.1)	(4.0)	(0.2)	(29.2)	(100.5)
Impairment charge(iii)	(165.0)	–	–	–	(23.9)	(188.9)
Net foreign currency exchange diferences
at net book value	(2.7)	–	(0.3)	–	(0.6)	(3.6)
Net book value as at 30 June 2020	2,281.3	280.6	67.0	1.8	229.3	2,860.0
Cost	2,598.7	494.7	79.1	2.4	441.9	3,616.8
Accumulated amortisation and impairment	(317.4)	(214.1)	(12.1)	(0.6)	(212.6)	(756.8)

(i) Reclassifications of software from Capital work in progress to Intangible assets.

(ii) Restated to reflect the Group’s change in accounting policy for costs related to configuration and customisation of Software-as-a-Service (SaaS) arrangements.

(iii) $165.0 million impairment as a result of assessment of the carrying value of the Spotless group of CGUs. $23.9 million impairment of capitalised Information Systems (including applications and IT infrastructure) in CGUs that are being wound down as part of the portfolio restructure (refer to Note B3).

Notes to the consolidated financial statements – continued

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90 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

C7. Intangible assets – continued

Software-as-a-Service (SaaS) arrangements

During the year, the Group revised its accounting policy in relation to configuration and customisation costs incurred in implementing SaaS arrangements in response to the IFRIC agenda decision clarifying its interpretation of how current accounting standards apply to these types of arrangements.

The Group’s accounting policy has historically been to capitalise costs related to the configuration and customisation of SaaS arrangements as intangible assets in the Statement of Financial Position. Following the adoption of the above IFRIC agenda decision, current SaaS arrangements were identified and assessed to determine if the Group has control of the software. For those arrangements where control does not exist, the Group derecognised the intangible previously capitalised.

The adoption of the above agenda decisions has resulted in recognition of costs to configure SaaS arrangements as an expense of $14.0 million ($9.9 million post-tax) in the Consolidated Statement of Profit or Loss and Other Comprehensive Income in the current year and $25.5 million (post-tax) as an opening balance adjustment to prior year.

The impact of this change has flowed through to the closing balances for the year ended 30 June 2020. The Consolidated Statement of Profit or Loss and Other Comprehensive Income comparatives for FY20 are unchanged, as the net impact of an increase in expenses and a reduction on amortisation was not assessed to be material.

The following table presents the impact of the 1 July 2019 restatement on the comparative information presented in the prior year Annual Report:

Consolidated Statement of Financial Position		As
Balances as at 30 June 2020:		previously		As
$’m	Note	reported	Adjustment	restated
Intangible assets		2,896.1	(36.1)	2,860.0
Deferred tax asset	B5(b)	141.5	10.6	152.1
Other net assets/(liabilities)		(417.1)	–	(417.1)
Net assets		2,620.5	(25.5)	2,595.0
Retained earnings		94.3	(25.5)	68.8
Other equitybalances		2,526.2	–	2,526.2
Total equity		2,620.5	(25.5)	2,595.0
Consolidated Statement of Cash Flows		As
For the year ended 30 June 2020:		previously		As
$’m		reported	Adjustment	restated
Payments to suppliers and employees		(13,518.3)	(20.2)	(13,538.5)
Net cashgenerated by operating activities		178.8	(20.2)	158.6
Payments for intangible assets		(61.7)	20.2	(41.5)
Net cash used in investing activities		(397.9)	20.2	(377.7)

Recognition and measurement

Goodwill

Goodwill acquired in a business combination is measured at cost and subsequently measured at cost less any impairment losses. The cost represents the excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent liabilities acquired.

Brand names on acquisition

Brand names acquired as part of a business combination are recognised separately from goodwill and are carried at fair value at date of acquisition less accumulated amortisation and any accumulated impairment losses.

Intellectual property on acquisition

Customer contracts and relationships on acquisition

Customer contracts and relationships acquired as part of a business combination are recognised separately from goodwill and are carried at fair value at date of acquisition less accumulated amortisation and any accumulated impairment losses.

Intellectual property acquired as part of a business combination is recognised separately from goodwill and is carried at fair value at date of acquisition less accumulated amortisation and any accumulated impairment losses.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 91
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C7. Intangible assets – continued

Intellectual property, software and system development

Intangible assets acquired by the Group, including intellectual property (purchased patents and trademarks) and software are initially recognised at cost, and subsequently measured at cost less accumulated amortisation and any impairment losses. Internally developed systems are capitalised once the project is assessed to be feasible. The costs capitalised include consulting and direct labour costs. Costs incurred in determining project feasibility are expensed as incurred.

Software-as-a-Service (SaaS) arrangements

SaaS arrangements are service contracts providing the Group with the right to access the cloud provider’s application software over the contract period. As such the Group does not receive a software intangible asset at the contract commencement date.

For SaaS arrangements, the Group assesses if the contract will provide a resource that it can ‘control’ to determine whether an intangible asset is present. If the Group cannot determine control of the software, the arrangement is deemed a service contract and any implementation costs including costs to configure or customise the cloud provider’s application software are recognised as operating expenses when incurred.

Amortisation

Intangible assets with finite useful lives are amortised on a straight-line basis over their useful lives. The estimated useful lives are generally:

Item	Useful Life
Software and system development	5 to 15years
Brand names	20years
Intellectualpropertyacquired	15 to 20years
Customer contracts and relationships	1 to 20years
Other intangible assets	20years

The estimated useful life and amortisation method are reviewed at the end of each annual reporting period.

Impairment of assets

Goodwill and intangible assets that have an indefinite useful life are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired.

Other assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets (cash-generating units or CGUs). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date.

Allocation of goodwill to cash-generating units

Goodwill has been allocated for impairment testing purposes to CGUs or groups of CGUs (‘CGUs’) that are significant individually or in aggregate, taking into consideration the nature of service, resource allocation, how operations are monitored and where independent cash flows are identifiable.

Consistent with prior year, eight independent CGUs have been identified across the Group against which goodwill has been allocated and for which impairment testing has been undertaken.

The goodwill allocation to each CGU is presented below:

	Carrying value of consolidated goodwill
	2021 $’m 2020 $’m
Transport Australia Utilities Australia Rail Defence Downer NZ Services Building Projects NZ Spotless EC&M Australia	275.1 275.1 335.0 335.0 55.3 55.3 53.7 53.7 69.0 69.3 62.0 62.2 1,276.3 1,276.3 154.4 154.4
	2,280.8 2,281.3

Notes to the consolidated financial statements – continued

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92 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

C7. Intangible assets – continued

Key estimates and judgements:

SaaS arrangements

Where the SaaS arrangement supplier provides both configuration and customisation services, judgement has been applied to determine whether each of these services are distinct from the underlying use of the SaaS application software. Distinct configuration and customisation costs are expensed as incurred as the software is configured or customised (i.e. upfront).

Non-distinct configuration and customisation costs are expensed over the SaaS contract term. Non-distinct customisation activities significantly enhance or modify a SaaS cloud-based application. Judgement has been applied in determining whether the degree of customisation and modification of the SaaS cloud-based application is significant.

In implementing SaaS arrangements, the Group has developed software code that either enhances, modifies or creates additional capability to the existing owned software. This software is used to connect with the SaaS arrangement cloud-based application.

Judgement has been applied in determining whether the changes to the owned software meets the definition of and recognition criteria for an intangible asset in accordance with AASB 138 Intangible Assets .

Impairment of assets

Determination of potential impairment requires an estimation of the recoverable amount of the CGUs to which the goodwill and intangible assets with indefinite useful lives are allocated. Key assumptions requiring judgement include projected cash flows, discount rates, budgeted EBIT growth rate and long-term growth rate.

Estimation of useful life

The estimation of the economic useful lives of software is initially determined based on historical experience. The useful lives of intangible assets recognised on business combinations is independently determined based on detailed reviews of similar assets and underlying factors. These useful lives are regularly reassessed for indicators of any change to the initial assessments. If the economic useful lives are determined to have changed, the amortisation of the assets is adjusted to reflect the new expected useful life, impacting the future amortisation recognised.

Recoverable amount testing

The recoverable amount of the identified CGUs has been assessed using the higher of “value in use” (VIU) and “fair value less cost of disposal” (FVLCD).

The carrying value of the CGUs has been determined using methodologies consistent with the prior period.

Value in use calculation

Transport Australia, Utilities Australia, EC&M Australia, Rail, Defence, Building Projects NZ and NZ Services CGUs have been assessed using a VIU model.

In assessing VIU, the estimated future cash flows are discounted to their present value using a discount rate that uses current market assessments of the time value of money and the risks specific to the CGU.

The Group determines the recoverable amount, using threeyear cash flow projections based on the FY22 budget and the business plans for the years ending 30 June 2023 and 2024 (as approved by the Board). For FY25 onwards, the Group assumes a long-term growth rate of 2.25% to reflect the organic growth expectations of the industry.

Cash flow projections are determined utilising the budgeted Earnings Before Interest and Tax (EBIT) less tax, capital maintenance spending and working capital changes, adjusted to exclude any uncommitted restructuring costs and future benefits to provide a ‘free cash flow’ estimate. This calculated ‘free cash flow’ is then discounted to its present value using a post-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

Fair value less cost of disposal calculation

The carrying value of the Spotless CGUs has been assessed using a FVLCD model.

In FY21 Downer reached an agreement with shareholders to acquire the remaining 12.2% minority interest in Spotless. Following the acquisition on 7 October 2020, the Group has delivered on its FY21 synergy targets with further synergies anticipated to be realised in FY22.

The use of the FVLCD method for impairment testing is considered more appropriate as a market participant would take advantage of the ongoing synergy benefits available.

In determining FVLCD for the Spotless CGU, a discounted cash flow model was used. Similarly to the other CGUs, a three-year cash flow projection, based on the EBIT as per the FY22 budget and the business plan for FY23 and FY24, was utilised. For FY25 onwards, the Group assumes a long-term growth rate of 2.25% to allow for organic growth on the existing asset base.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 93
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C7. Intangible assets – continued

Recoverable amount testing – continued

Adjustments are made to these projections to include assumptions that a market participant would make, such as cash flows relating to restructuring and integration, following Downer obtaining 100% control of Spotless.

These calculations, classified as Level 3 on the fair value hierarchy, are compared to valuation multiples, or other fair value indicators where available, to ensure reasonableness.

Results of impairment testing

No impairment has been identified for any of the CGUs.

For all CGUs, sensitivities were made around WACC, growth rate and cash flows assumptions. No reasonably possible change in key assumptions would give rise to an impairment of any of the CGUs.

Recoverable amount testing – Key assumptions

The table below summarises the key assumptions utilised in the VIU and FVLCD calculations.

	2021 2020
	Budgeted EBIT (i) Long-term growth rate Discount rate (post-tax) Budgeted EBIT (ii) Long-term growth rate Discount rate (post-tax)
Transport Australia Utilities Australia Rail Defence Downer NZ Services Building Projects NZ Spotless EC&M Australia	3.7% 2.25% 8.5% 4.7% 2.25% 9.0% 7.1% 2.25% 8.3% (2.6)% 2.25% 8.2% 5.7% 2.25% 8.7% 0.3% 2.25% 9.1% 13.8% 2.25% 9.4% 16.8% 2.25% 10.3% 3.0% 2.25% 8.6% 3.9% 2.25% 8.3% 1.4% 2.25% 9.7% (2.0)% 2.25% 9.5% 6.8% 2.25% 8.1% 1.8% 2.25% 8.3% 8.6% 2.25% 9.0% 1.8% 2.25% 9.7%

(i) Budgeted EBIT for 2021 is expressed as the compound annual growth rates (CAGR) from FY21 actual to terminal year forecast based on the CGU’s business plan. (ii) Budgeted EBIT for 2020 is expressed as the compound annual growth rates (CAGR) from FY19 actual to terminal year forecast based on the CGU’s business plan. An FY19 actual to terminal year CAGR has been disclosed to normalise for the impacts of COVID-19 in FY20.

For all CGUs the FY22 budget and the business plan for FY23 and FY24 have included consideration of the impact of climate risk. The impact of climate risk is not a key assumption in the ‘value in use’ or ‘fair value less cost of disposal’ calculations.

(i) Projected cash flows – including budgeted EBIT and the impact of COVID-19

COVID-19 Impact on projected cash flows

Budgeted EBIT has been based on past experience and the Group’s assessment of economic and regulatory factors affecting the industry within which the Downer businesses operate. The ongoing COVID-19 pandemic has impacted the Group’s business lines to varying degrees, with impacts including forced lockdown, event cancellations, travel restrictions, supply chain restrictions and general productivity constraints.

Downer continues to be vigilant around the management of COVID-19 and maintaining the highest levels of controls in line with expert advice and Government guidance. Following a shock to GDP growth in 2020 driven by COVID-19 shutdowns and restrictions, the economy has rebounded sharply. In its latest Economic Outlook statement, the RBA estimates domestic GDP will grow 4.75% in 2021 and 3.5% in 2022.

Growth in activity is expected to be broad-based over this period, led by the household sector and, importantly for Downer, the public sector. Growth is then forecast to settle in a range of 2-3%.

Whilst the near-term future health consequences of COVID-19 remain uncertain, the experience to date of the impacts of COVID-19 on FY20 and FY21 financial performance has been taken into consideration in the preparation of the projected cash flows for the FY22 budget and the business plans for FY23 and FY24.

Generally speaking, the Transport Australia, Utilities Australia, Rail, Defence and Downer NZ Services CGUs have demonstrated ongoing resilience, mainly as their customer base includes Government Agencies or Government-owned corporations.

Through FY21 the EC&M Australia CGU was the most heavily impacted by COVID-19 due to customers deferring maintenance program spending and challenges in mobilising labour as a result of State border closures. Maintenance expenditure deferred from FY21 is anticipated to give rise to an improved performance in FY22.

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94 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

C7. Intangible assets – continued

Recoverable amount testing – Key assumptions – continued

Ongoing cash flow forecasts

The cash flow projections through to the terminal year are based on the Group’s past experience and assessment of economic and regulatory factors affecting the business in which the Downer businesses operate. The terminal year cash flow reflects a steady state performance. Specifically, for each CGU:

• Transport Australia is expected to benefit from an increase in activity in the transport sector due to higher user expectation and higher Government spend.

• Utilities Australia is expected to benefit from an increase in new work won and increased levels of activity in maintenance work contracts.

• Rail is expected to improve through new opportunities on rail fleet extensions and maintenance, increased work opportunities in Queensland and through committed operational synergies.

• The Defence business is expected to benefit from an increase in Government spending to deliver a number of key initiatives as well as from expanding its offering and services to current and new customers.

• Downer New Zealand Services is expected to benefit from increased investment in infrastructure, particularly in transport and utilities.

• Building Projects New Zealand is expected to benefit from Government-linked expenditure in the vertical build area.

• EC&M Australia’s revenue and EBIT growth assumptions have reflected an expected recovery on plant maintenance and shutdowns that were delayed due to COVID-19.

• The cash flows of the Spotless CGU have outperformed against expectations in the year, and with the exception of the impact of COVID-19 on the Hospitality business, have demonstrated operational resilience. During the year Spotless has disposed of its Laundries business (refer to Note F5), resulting in a reduction in ongoing capital investment required to deliver forecast cash flows.

(ii) Long-term growth rates

The long-term annual growth rates, applicable for the periods after which detailed forecasts have been prepared, are based on the long-term expected GDP rates for the country of operation, adjusted as necessary to reflect industry-specific considerations.

jurisdiction’s tax rate. This method is used to approximate the requirement of the accounting standards to apply a pre-tax discount rate to pre-tax cash flows.

(iv) Budgeted capital expenditure

The expected cash flows for capital expenditure are based on past experience and the amounts included in the terminal year calculation are for maintenance capital used for existing plant and replacement of plant as it is retired from service. The resulting expenditure has been compared against the annual depreciation charge to ensure that it is reasonable.

(v) Budgeted working capital

Working capital has been maintained at a level required to support the business activities of each CGU, taking into account changes in the business cycle. It has been assumed to be in line with historic trends given the level of operating activity.

C8. Lease receivables

		2021	2020
		$’m	$’m
	Less than one year	0.1	20.6
	Between one and five years	–	50.9
	Greater than fiveyears	–	–
	Future minimum lease receivables	0.1	71.5
	Less: unearned finance income	–	(4.7)
	Present value of minimum lease
	receivables	0.1	66.8
	Included in the financial statements as: Current	0.1	18.5
	Non-current	–	48.3

The Group’s lease receivables materially related to mining businesses that have been divested in the year. Refer to Note F5.

There were no guaranteed residual values of assets leased under finance leases at reporting date (2020: nil). However some of the leased assets serve as a guarantee against these receivables.

Recognition and measurement

(iii) Discount rates

Post-tax discount rates of between 8.1% and 9.7% reflect the Group’s estimate of the time value of money and risks associated with each CGU.

In determining the appropriate discount rate for each CGU, consideration has been given to the estimated weighted average cost of capital (WACC) for the Group adjusted for country and business risks specific to that CGU. The post-tax discount rate is applied to post-tax cash flows that include an allowance for tax based on the respective

Some of the Group’s mining services contracts include arrangements whereby the customer will retain ownership of the assets at the end of the contract. The asset component of those contracts is recognised as lease receivables.

A lease arrangement transfers substantially all the risks and rewards of ownership of the asset to the lessee. The Group’s net investment in the lease equals the net present value of the future minimum lease payments. Finance lease income is recognised to reflect a constant periodic rate of return on the Group’s remaining net investment in respect of the lease.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 95
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C9. Other provisions

C9. Other provisions
	Decomm-	Warranties
	issioning	and	Onerous
2021	and	contract	contracts
$’m	restoration	claims	and other	Total
Balance at 1 July 2020	29.1	37.7	46.7	113.5
Additional provisions recognised	1.3	15.5	17.3	34.1
Unused provisions reversed	(1.3)	(1.8)	–	(3.1)
Utilisation of provisions	(4.0)	(25.1)	(28.6)	(57.7)
Disposal of businesses	–	–	(0.8)	(0.8)
Balance at 30 June 2021	25.1	26.3	34.6	86.0
Included in financial statements as:
Current	8.5	21.6	34.3	64.4
Non-current	16.6	4.7	0.3	21.6

Recognition and measurement

Provisions

Provisions are recognised when:

• The Group has a present obligation as a result of a past event

• It is probable that resources will be expended to settle the obligation

• The amount of the provision can be measured reliably.

(i) Decommissioning and restoration

Provisions for decommissioning and restoration are made for close-down, restoration and environmental rehabilitation costs, including the cost of dismantling and demolition of infrastructure, removal of residual materials and remediation of disturbed areas.

Future rectification costs are reviewed annually and any changes are reflected in the present value of the rectification provision at the end of the reporting period.

The provision is discounted using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

(ii) Warranties and contract claims

Provisions for warranties and contract claims are made for the estimated liability on all products still under warranty at balance sheet date and known claims arising under service and construction contracts.

(iii) Onerous contracts and other

Provisions primarily include amounts recognised in relation to onerous customer contracts and supply contracts.

The onerous contract provision is discounted using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

Key estimates and judgements: Provisions

(i) Decommissioning and restoration

Judgement is required in determining the expected expenditure required to settle rectification obligations at the reporting date, based on current legal requirements, technology and estimates of inflation.

(ii) Warranties and contract claims

The provision is estimated having regard to previous claims experience.

(iii) Onerous contracts and other

These provisions have been calculated based on management’s best estimate of discounted net cash outflows required to fulfil the contracts. The status of these contracts and the adequacy of provisions are assessed at each reporting date. Any change in the assessment of provisions impacts the results of the business.

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96 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

C10. Contingent liabilities

C10. Contingent liabilities
		2021	2020
Bonding	Note	$’m	$’m
The Group has bid bonds and performance bonds issued in respect of contract
performance in the normal course of business for controlled entities	E2	1,376.3	1,439.8

The Group is called upon to give guarantees and indemnities to counterparties, relating to the performance of contractual and financial obligations (including for controlled entities and related parties). Other than as noted above, these guarantees and indemnities are indeterminable in amount.

Other contingent liabilities

• (i) The Group is subject to design liability in relation to completed design and construction projects. The Directors are of the opinion that there is adequate insurance to cover this area and accordingly, no amounts are recognised in the financial statements.

• (ii) The Group is subject to product liability claims. Provision is made for the potential costs of carrying out rectification works based on known claims and previous claims history. However, as the ultimate outcome of these claims cannot be reliably determined at the date of this report, contingent liability may exist for any amounts that ultimately become payable in excess of current provisioning levels.

• (iii) Controlled entities have entered into various joint arrangements under which the controlled entity is jointly and severally liable for the obligations of the relevant joint arrangements.

• (iv) The Group carries the normal contractors’ and consultants’ liability in relation to services, supply and construction contracts (for example, liability relating to professional advice, design, completion, workmanship, and damage), as well as liability for personal injury/property damage during the course of a project. Potential liability may arise from claims, disputes and/or litigation/arbitration by or against Group companies and/or joint venture arrangements in which the Group has an interest. The Group is currently managing a number of claims, arbitration and litigation processes in relation to services, supply and construction contracts as well as in relation to personal injury and property damage claims arising from project delivery.

• (v) Downer New Zealand, an entity in the Group, has been named as co-defendants in a ‘leaky building’ claim. The leaky building claim where the Group entity is co-defendant relates to water damage arising from historical design and construction methodologies (and certification) for residential and other buildings in New Zealand during the early to mid 2000s. The Directors are of the opinion that disclosure of any further information relating to the leaky building claim would be prejudicial to the interests of the Group.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 97
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D

Employee benefits

This section provides a breakdown of the various programs Downer uses to reward and recognise employees and key executives, including Key Management Personnel (KMP). Downer believes that these programs reinforce the value of ownership and incentives and drive performance both individually and collectively to deliver better returns to shareholders.

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D1. Employee benefits D3. Key management personnel compensation
D2. Defined benefit plan D4. Employee discount share plan
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D1. Employee benefits

	2021	2020
	$’m	$’m
Employee benefits expense:
– Defined contribution plans costs	214.6	262.3
– Share-based employee benefits expense(i)	(0.4)	4.8
– Employee benefits	3,630.7	3,885.8
– Redundancy costs	12.9	57.4
– Defined benefitplan costs	1.7	7.0
Total	3,859.5	4,217.3
Employee benefits provision:
– Current	353.6	377.1
– Non-current(ii)	35.3	55.0
Total	388.9	432.1

(i) Share-based payments net benefit for the year includes the reversal for the 2018 Long Term Incentive Plan performance rights due to forfeiture.

(ii) Included in the non-current employee benefit provision is the net obligation of the defined benefit plan. Refer to Note D2.

Recognition and measurement

The employee benefits liability represents accrued wages and salaries, leave entitlements and other incentives recognised in respect of employees’ services up to the end of the reporting period. These liabilities are measured at the amounts expected to be paid when they are settled and include related on-costs, such as workers compensation insurance, superannuation and payroll tax.

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98 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

Key estimates and judgements:

Annual leave and long service leave

Long-term employee benefits are measured at the present value of estimated future payments for the services provided by employees up to the end of the reporting period. This calculation requires judgement in determining the following key assumptions:

• Future increase in wages and salary rates

• Future on-cost rates

• Expected settlement dates based on staff turnover history.

The liability is discounted using the Australian corporate bond rates which most closely match the terms to maturity of the entitlement. For New Zealand employees the liability is discounted using long-term government bond rates given there is no deep corporate bond market.

Interpretation of Enterprise Agreements (EAs) and Modern Awards

Management estimates any potential expenses in relation to payroll remediation matters.

Previously identified matters are in the process of final validation and quantification. In the case of redundancy costs arising from Ordinary and Customary Turnover of Labour rate (OCTL), the quantification and ultimate liability will also be subject to the outcome of any appeal.

The Group is committed to ensuring its people are paid in accordance with their legal entitlements and will keep the dedicated reviewing team in place until it is satisfied that the above matters have been addressed.

D2. Defined benefit plan

The Group participates in the EquipSuper Defined Benefit Scheme which provides participants (<100 employees) with a lump sum benefit on retirement, death, disablement or withdrawal. The scheme operates under the Superannuation Industry legislation, and is governed by The Scheme Trustees, in compliance with Australian Prudential Regulation Authority framework. The scheme is closed to new employees.

As at 30 June 2021, the fair value of plan assets (comprising Investment Funds) was $59.6 million. The plan obligation balance was $60.5 million. The net liability of $0.9 million is included in Employee provisions above (refer to Note D1). These balances were subject to an independent actuarial review as at 30 June 2021.

The main movements during the year were $1.7 million of services costs expensed to the profit or loss, $5.0 million of actuarial gains on the obligation, and the Group contributions of $1.3 million.

Key actuarial assumptions used in determining the values were a discount rate of 2.5% and an expected salary increase rate of 3.0%. Sensitivity analysis shows a 0.5 percentage point reduction in the discount rate would increase the obligation by 4.6% and 0.5 percentage point increase in the expected salary increase rate would increase the obligation by 4.4%.

Key estimate and judgement: Valuation of the defined benefit plan assets and obligations

There are a number of estimates and assumptions used in determining the defined benefit plan assets, obligations and expenses. These include salary increases, future earnings, and the returns on fund investments. Any difference in these assumptions or estimates will be recognised in other comprehensive income and not through the income statement. The net of the plan assets and obligations recognised in the statement of financial position will be affected by any movement in the returns on the investment or the rate of interest.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 99
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D3. Key management personnel compensation

D3. Key management personnel compensation
	2021	2020
	$	$
Short-term employee benefits	10,665,093	7,914,786
Post-employment benefits	225,533	244,055
Share-basedpayments(i)	(150,354)	1,878,243
Total	10,740,272	10,037,084

(i) Share-based payments net benefit for the year includes the reversal for the 2018 Long Term Incentive Plan performance rights due to forfeiture.

Recognition and measurement

Equity-settled transactions

Equity-settled share-based transactions are measured at fair value at the date of grant. The cost of these transactions is recognised in profit or loss and credited to equity over the vesting period. At each balance sheet date, the Group revises its estimates of the number of rights that are expected to vest for service and non-market performance conditions. The expense recognised each year takes into account the most recent estimate.

The fair value at grant date is independently determined using an option pricing model and takes into account any market related performance conditions. Non-market vesting conditions are not considered when determining value; however they are included in assumptions about the number of rights that are expected to vest.

Cash-settled transactions

The amount payable to employees in respect of cash-settled share-based payments is recognised as an expense, with a corresponding increase in liabilities, over the period during which the employees become unconditionally entitled to the payment. The liability is remeasured at each reporting date and at settlement date based on the fair value, with any changes in the liability being recognised in profit or loss.

D4. Employee discount share plan

No shares were issued under the Employee Discount Share Plan during the years ended 30 June 2021 and 30 June 2020.

Notes to the consolidated financial statements – continued

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100 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

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E

Capital structure and financing

This section provides information relating to the Group’s capital structure and its exposure to financial risks, how they affect the Group’s financial position and performance and how the risks are managed.

The capital structure of the Group consists of debt and equity. The Directors determine the appropriate capital structure of Downer, specifically how much is raised from shareholders (equity) and how much is borrowed from financial institutions (debt) in order to finance the current and future activities of the Group. The Directors review the Group’s capital structure and dividend policy regularly and do so in the context of the Group’s ability to continue as a going concern, to invest in opportunities that grow the business and enhance shareholder value.

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E1. Borrowings E5. Issued capital
E2. Financing facilities E6. Non-controlling interest (NCI)
E3. Lease liabilities E7. Reserves
E4. Commitments E8. Dividends
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E1. Borrowings

	2021	2020
	$’m	$’m
Current
Unsecured:
– Bank loans	50.0	5.4
– AUD medium term notes	250.0	–
– Deferred finance charges	(3.8)	(4.0)
Total current borrowings	296.2	1.4
Non-current
Unsecured:
– Bank loans	400.0	982.2
– USD private placement notes	133.0	145.7
– AUD private placement notes	30.0	30.0
– AUD medium term notes	510.7	762.8
– JPY medium term notes	120.4	135.3
– Deferred finance charges	(8.7)	(6.1)
Total non-current borrowings	1,185.4	2,049.9
Total borrowings	1,481.6	2,051.3
Fair value of total borrowings(i)	1,611.5	2,230.4

(i) Excludes lease liabilities.

Recognition and measurement

Borrowings

Borrowings are initially recognised at fair value, net of transaction costs. They are subsequently measured at amortised cost using the effective interest rate method.

Fair value

The cash flows under the Group’s debt instruments are discounted using current market base interest rates and adjusted for current market credit default swap spreads for companies with a BBB credit rating.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 101
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E2. Financing facilities

At reporting date, the Group had the following facilities that were unutilised:

	2021	2020
	$’m	$’m
Syndicated loan facilities	1,100.0	960.0
Bilateral loan facilities	327.0	310.0
Total unutilised loan facilities	1,427.0	1,270.0
Syndicated bank guarantee facilities	148.1	102.5
Bilateral bankguarantees and insurance bondingfacilities	484.9	492.5
Total unutilised bonding facilities	633.0	595.0

Summary of borrowing arrangements

The Group’s borrowing arrangements are as follows:

AUD private placement notes

AUD unsecured private placement notes are on issue for a total amount of $30.0 million with a maturity date of July 2025.

Bank loan facilities

Bilateral loan facilities:

The Group has a total of $477.0 million in bilateral loan facilities which are unsecured, committed facilities.

Syndicated loan facilities:

The Group has $1,400.0 million of syndicated bank loan facilities which are unsecured, committed facilities.

USD private placement notes

USD unsecured private placement notes are on issue for a total amount of US$100.0 million with a maturity date of July 2025. The USD denominated principal and interest amounts have been fully hedged against the Australian dollar through cross-currency interest rate swaps.

Medium Term Notes (MTNs)

The Group has the following unsecured MTNs on issue:

• $250.0 million maturing March 2022

• $500.0 million maturing April 2026

• JPY 10.0 billion maturing May 2033

• The carrying value of the AUD MTN maturing April 2026 includes a premium of $10.7 million over the face value owing to the differential between the coupon rate for that instrument and the prevailing market interest rate at the date of issue.

• The JPY denominated principal and interest amounts have been fully hedged against the Australian dollar through a cross-currency interest rate swap.

The above loan facilities and note issuances are supported by guarantees from certain Group subsidiaries.

The maturity profile of the Group’s borrowing arrangements by financial year is represented in the below table by facility limit:

	Bilateral	Syndicated	USD Private	AUD Private	Medium
Maturing in the period	Loan	Loan	Placement	Placement	Term
$’m	Facilities	Facilities	Notes	Notes	Notes Total
1 July 2021 to 30 June 2022	50.0	–	–	–	250.0 300.0
1 July 2022 to 30 June 2023	352.0	–	–	–	– 352.0
1 July 2023 to 30 June 2024	75.0	300.0	–	–	– 375.0
1 July 2024 to 30 June 2025	–	400.0	–	–	– 400.0
1 July 2025 to 30 June 2026	–	400.0	133.0	30.0	500.0 1,063.0
1 July 2026 to 30 June 2027	–	300.0	–	–	– 300.0
1 July2032 to 30 June 2033	–	–	–	–	120.4 120.4
Total	477.0	1,400.0	133.0	30.0	870.4 2,910.4

Notes to the consolidated financial statements – continued

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102 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

E2. Financing facilities – continued

Covenants on financing facilities

Downer Group’s financing facilities contain undertakings to comply with financial covenants and ensure that Group guarantors of these facilities collectively meet certain minimum threshold amounts of Group EBITA and Group Total Tangible Assets.

The main financial covenants which the Group is subject to are Net Worth, Interest Service Coverage and Leverage.

Financial covenants testing is undertaken monthly and reported at the Downer Board meetings. Reporting of financial covenants to financiers occurs semi-annually for the rolling 12-month periods to 30 June and 31 December. Downer Group was in compliance with all its financial covenants as at 30 June 2021.

Bank guarantees and insurance bonds

The Group has $2,009.3 million of bank guarantee and insurance bond facilities to support its contracting activities.

$1,126.5 million of these facilities are provided to the Group on a committed basis and $882.8 million on an uncommitted basis.

The Group’s facilities are provided by a number of banks and insurance companies on an unsecured and revolving basis. $1,376.3 million (refer to Note C10) of these facilities were utilised as at 30 June 2021 with $633.0 million unutilised. These facilities have varying maturity dates between financial years 2022, 2023 and 2024.

Refinancing requirements

The Group will negotiate with existing and, where required, with new financiers to extend the maturity date or refinance facilities maturing within the next 12 months. The Group’s financial metrics and credit rating as well as conditions in financial markets and other factors may influence the outcome of these negotiations. As at 30 June 2021, the Group has $300 million debt facilities maturing within the next 12 months, comprising a $250 million MTN that matures in March 2022 and a $50 million Term Loan facility that matures in June 2022. Whilst the means of refinancing has not yet been determined, the Group’s strong liquidity, investment grade credit rating and extensive bank relationships are expected to provide it with sufficient flexibility to either repay these maturities from existing undrawn committed debt facilities or refinance them with new facilities prior to maturity. Refer to Note G2(f) for liquidity risk management.

Credit ratings

The Group has an Investment Grade credit rating of BBB (Outlook Stable) from Fitch Ratings. Where the credit rating is lowered or placed on negative watch, customers and suppliers may be less willing to contract with the Group. Furthermore, banks and other lending institutions may demand more stringent terms (including increased pricing, reduced tenors and lower facility limits) on all financing facilities, to reflect the weaker credit risk profile.

The underlying risk being assumed by the relevant financier under all bank guarantees and insurance bonds is corporate credit risk rather than project specific risk.

The Group has flexibility in respect of certain committed facility amounts (shown as part of the unutilised bilateral loan facilities) which can, at the election of the Group, be utilised to provide additional bank guarantees capacity.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 103
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E3. Lease liabilities

E3. Lease liabilities
Contractual undiscounted	2021	2020
cash flows	$’m	$’m
Less than one year	176.1	193.1
One to five years	360.8	402.2
More than fiveyears	196.1	292.5
Total undiscounted lease
liabilities	733.0	887.8
Current	157.7	168.9
Non-current	505.1	594.3
Total lease liabilities	662.8	763.2

Lease liabilities

The lease liability is initially measured at the present value of future lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or if this rate cannot be readily determined the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

Lease payments included in the measurement of the lease liability comprise:

• Fixed payments (including in-substance fixed payments), less any lease incentives receivable

• Variable lease payments that depend on an index or a rate

• The exercise price of a purchase option if the lessee is reasonably certain to exercise that option

• The amount expected to be payable under a residual value guarantee

• Payments of penalties for termination of the lease, if the lease term reflects the lessee exercising an option to terminate the lease.

Variable lease payments not included in the initial measurement of the lease liability are recognised directly in profit or loss.

The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made.

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

• The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate

• The lease payments change due to changes in an index or rate or a change in the amount expected to be payable under a residual value guarantee

• A lease contract is modified, and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of the modification.

The expense charged to profit or loss for low value and shortterm leases (excluded from lease liabilities) is analysed as:

	2021	2020
	$’m	$’m
Lease expenses
Land and buildings	2.1	2.4
Plant and equipment	52.7	36.5
Total lease expenses	54.8	38.9

Key estimates and judgements: Lease liabilities

(i) Extension option

In determining the lease term, the Group considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. Extension options (or periods after termination options) are only included in the lease term if the lease is reasonably certain to be extended (or not terminated).

(ii) Incremental borrowing rate

In determining the present value of the future lease payments, the Group discounts the lease payments using an incremental borrowing rate (IBR). The IBR reflects the financing characteristics and duration of the underlying lease. Once a discount rate has been set for a leased asset (or portfolio of assets with similar characteristics), this rate will remain unchanged for the term of that lease. When a lease modification occurs, and it is not accounted for as a separate lease, a new IBR will be assigned to reflect the new characteristics of the lease.

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104 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

E4. Commitments

E4. Commitments
	2021	2020
	$’m	$’m
Capital expenditure commitments
Plant and equipment and other
Within one year	42.5	72.1
Between one and five years	16.7	15.5
Greater than fiveyears	0.7	0.4
Total	59.9	88.0
Catering rights
Catering rights relates to exclusive secured catering rights arrangements with customers.
Within one year	16.8	24.3
Between one and five years	7.0	35.2
Greater than fiveyears	2.5	3.7
Total	26.3	63.2

E5. Issued capital

E5. Issued capital
	Jun 2021 Jun 2020
	No. $’m No. $’m
Ordinary shares Unvested executive incentive shares DistributingSecurities (ROADS)	696,928,956 2,631.5 594,702,512 2,263.1 1,249,255 (7.5) 2,231,632 (12.0) 200,000,000 178.6 200,000,000 178.6
Total	2,802.6 2,429.7

(a) Fully paid ordinary share capital

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

	2021 2020
	m’s $’m m’s $’m
Fully paid ordinary share capital Balance at the beginning of the financial year Capital raising(i) Capital raising costs net of tax Groupon-market share buy-back	594.7 2,263.1 594.7 2,263.1 106.6 399.7 – – – (6.5) – – (4.4) (24.8) – –
Balance at the end of the financialyear	696.9 2,631.5 594.7 2,263.1
(b) Unvested executive incentive shares Balance at the beginning of the financial year Vested executive incentive share transactions(ii)	2.2 (12.0) 3.4 (16.6) (1.0) 4.5 (1.2) 4.6
Balance at the end of the financialyear	1.2 (7.5) 2.2 (12.0)

(i) On 30 July 2020, 88,585,611 shares were issued with net proceeds of $332.2 million, and on 20 August 2020 18,004,231 shares were issued with net proceeds of $67.5 million being received.

(ii) June 2021 figures relate to the 2017 LTI plan, second deferred component of the 2018 STI award and first deferred component of the 2019 STI award totalling 982,377 vested shares for a value of $4,488,658. June 2020 figures relate to the 2016 LTI plan, second deferred component of the 2017 STI award and first deferred component of the 2018 STI award totalling 1,153,814 vested shares for a value of $4,608,778.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 105
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E5. Issued capital – continued

(b) Unvested executive incentive shares – continued

Unvested executive incentive shares are stock market purchases and are held by the Executive Employee Share Plan Trust under the Long Term Incentive (LTI) plan. From the 2011 LTI plan onwards, no dividends will be distributed on shares held in trust during the performance measurement and service periods. Accumulated dividends will be paid out to executives after all vesting conditions have been met. Otherwise, excess net dividends are retained in the trust to be used by the Company to acquire additional shares on the market for employee equity plans.

(c) Redeemable Optionally Adjustable Distributing Securities (ROADS)

	2021 2020
	m’s $’m m’s $’m
Balance at the beginningand at the end of the financialyear	200.0 178.6 200.0 178.6

ROADS are perpetual, redeemable, exchangeable preference shares. In accordance with the terms of the ROADS preference shares, the dividend rate for the one year commencing 15 June 2021 is 4.42% per annum (2020: 4.32% per annum) which is equivalent to the one year swap rate on 15 June 2021 of 0.37% per annum plus the step-up margin of 4.05% per annum.

Share options and performance rights

During the financial year 1,420,213 performance rights (Jun 2020: nil) in relation to unissued shares were granted to senior executives of the Group under the LTI plan. Further details of the Key Management Personnel (KMP) LTI plan are contained in the Remuneration Report.

Recognition and measurement

Ordinary shares

Incremental costs directly attributed to the issue of ordinary shares are accounted for as a deduction from equity, net of any tax effects.

Executive incentive shares

When executive incentive shares subsequently vest to employees under the Downer employee share plans, the carrying value of the vested shares is transferred from the Employee benefits reserve.

E6. Non-controlling interest (NCI)

The following table summarises the NCI in relation to the Group’s subsidiaries:

	Jun 2021 Jun 2020
	Spotless $’m Other $’m Total $’m Spotless $’m Other $’m Total $’m
Current assets Non-current assets Current liabilities Non-current liabilities	– 17.3 17.3 563.9 18.4 582.3 – 1.4 1.4 2,407.3 0.3 2,407.6 – (1.4) (1.4) (738.3) (1.4) (739.7) – (0.1) (0.1) (1,087.4) (0.1) (1,087.5)
Net assets NCI percentage Net assets attributable to NCI	– 17.2 17.2 1,145.5 17.2 1,162.7 – 26.0% 26.0% 12.198% 26.0% – 4.5 4.5 139.7 4.5 144.2

Notes to the consolidated financial statements – continued

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106 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

E6. Non-controlling interest (NCI) – continued

On 7 October 2020, the Group completed the acquisition of the 12.198% of the Spotless shares that it did not already own. The table below summarises the accounting for the acquisition of the NCI.

	Note	$’m
Cash consideration paid		134.5
Fair value of Downer Contingent Share Options (DCSO) at issue date		16.7
Total consideration		151.2
Value of Spotless NCI at 30 June 2020		(139.7)
NCI share of Spotless results		(1.2)
NCI share of other reserves		(140.9) (0.3)
Value of NCI on acquisition		(141.2)
Net premium		(10.0)
Transaction Costs (net of tax)		(5.3)
Deferred Tax recognised on Spotlessjoiningthe Downer tax consolidatedgroup(i)		24.8
Amount recognised in Equityreserve	E7	9.5

(i) The acquisition of the remaining 12.198% shares in Spotless that Downer did not already own automatically resulted in Spotless joining the Downer tax consolidated group on 7 October 2020. As such, the tax bases of the assets of Spotless are required to be reset by applying the allocable cost amount (ACA) methodology prescribed under the income tax legislation. An ACA calculation has been undertaken resulting in a net increase of $24.8 million in deferred tax assets which has been recognised in equity at 30 June 2021.

The fair value of the DCSO issued as at the date the transaction completed was determined using an option pricing model. The key assumptions used in this assessment were a TERP adjusted share price of $4.30, option volatility of 40%, interest of 0.31% and dividend yield of 8.5%.

The premium payable (being the difference between the total carrying value of the NCI interest, and the fair value of the consideration paid or payable) was recognised within Equity.

The liability recognised in relation to the DCSO is a Level 2 financial instrument whose fair value is calculated based on an option pricing model, using inputs from observable data. It is recorded in the Statement of financial position as part of the current Other financial liabilities balance and is revalued at each reporting date, with any movement in the liability being recognised through ‘Other expenses from ordinary activities’ in the Consolidated Statement of Profit or Loss and Other Comprehensive Income.

	Note	$’m
DCSO Liability recognised at issue date		16.7
Charge to ‘Other expenses from ordinaryactivities’	B3	16.6
Liability at 30 June 2021		33.3

Key estimate and judgement: Allocable cost amount (ACA) calculation

As a consequence of acquiring the remaining 12.198% shares in Spotless that Downer did not already own, Spotless automatically joined the Downer tax consolidated group on 7 October 2020. As such, the tax bases of the assets of Spotless were reset applying the ACA methodology. An external valuation of the assets of Spotless at the joining date was undertaken for the purpose of performing the ACA calculation. Judgement is required to determine the market values of the relevant assets.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 107
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E7. Reserves

						Total
						attribut-
		Foreign			Fair	able
		currency			value	to the
		trans-	Employee		through	members
2021	Hedge	lation	benefits	Equity	OCI	of the
$’m	reserve	reserve	reserve	reserve	reserve	Parent
Balance at 1 July 2020 Foreign currency translation diference Actuarial movement on defined benefit plan obligations Income tax efect of actuarial movement on defined benefit plan obligations Change in fair value of cash flow hedges (net of tax)	(29.4) – – – 6.8	(30.6) 0.7 – – –	14.9 – 5.0 (1.5) –	– – – – –	(2.6) – – – –	(47.7) 0.7 5.0 (1.5) 6.8
Total comprehensive income for the year Vested executive incentive share transactions Share-based employee benefits expense Income tax relating to share-based transactions during the year Acquisition of Non-ControllingInterest (net of tax)	6.8 – – – (0.5)	0.7 – – – 0.2	3.5 (4.5) (0.4) 1.2 –	– – – – 9.5	– – – – –	11.0 (4.5) (0.4) 1.2 9.2
Balance at 30 June 2021	(23.1)	(29.7)	14.7	9.5	(2.6)	(31.2)
2020
Balance at 1 July 2019	(24.0)	(16.7)	15.8	–	(2.6)	(27.5)
Foreign currency translation diference	–	(13.9)	–	–	–	(13.9)
Change in fair value of cash flow hedges (net of tax)	(5.4)	–	–	–	–	(5.4)
Actuarial movement on defined benefit plan obligations	–	–	0.7	–	–	0.7
Income tax efect of actuarial movement on defined benefit plan
obligations	–	–	(0.2)	–	–	(0.2)
Total comprehensive income for the year	(5.4)	(13.9)	0.5	–	–	(18.8)
Vested executive incentive share transactions	–	–	(4.6)	–	–	(4.6)
Share-based employee benefits expense	–	–	4.8	–	–	4.8
Income tax relatingto share-based transactions duringtheyear	–	–	(1.6)	–	–	(1.6)
Balance at 30 June 2020	(29.4)	(30.6)	14.9	–	(2.6)	(47.7)

Hedge reserve

The hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments relating to future transactions.

Foreign currency translation reserve

The foreign currency translation reserve comprises foreign exchange differences arising from the translation of the financial statements of operations where their functional currency is different to the presentation currency of the Group.

Equity reserve

The Equity reserve accounts for the difference between the fair value of, and the amounts paid or received for, equity transactions with non-controlling interests.

Fair value through OCI reserve

The fair value through OCI reserve comprises the cumulative net change in the fair value of equity investments designated as FVOCI. Until the assets are derecognised or reclassified, this amount is reduced by the amount of loss allowance.

Employee benefit reserve

The employee benefit reserve is used to recognise the fair value of share-based payments issued to employees over the vesting period, and to recognise the value attributable to the share-based payments during the reporting period. This reserve also includes the actuarial gain/loss arisen on the defined benefit plan (refer to Note D2).

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108 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

E8. Dividends

(a) Ordinary shares

(a) Ordinary shares
	2021	2021	2020	2020
	Final	Interim	Final	Interim
Dividend per share (in Australian cents)	12.0	9.0	–	14.0
Franking percentage	0%	0%	–	0%
Cost (in $’m)	83.6	63.1	–	83.3
Dividend record date	26/8/21	25/2/21	–	26/2/20
Payment date	23/9/21	25/3/21	–	25/9/20

Recognition and measurement

A liability is recognised for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, before or at the end of the financial year but not distributed at balance sheet date.

Downer deferred the unfranked FY20 interim dividend which was originally due to be paid on 25 March 2020 which was disclosed as a dividend payable as at 30 June 2020 (refer to Note C4). The dividend was paid on 25 September 2020 and is disclosed in the cash flows for the year ended 30 June 2021.

The final 2021 dividend has not been declared at the reporting date and therefore is not reflected in the consolidated financial statements.

(b) Redeemable Optionally Adjustable Distributing Securities (ROADS)

2021	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Dividend per ROADS (in Australian cents)	0.72	0.73	0.71	0.72	2.88
New Zealand imputation credit percentage	100%	100%	100%	100%	100%
Cost (in A$’m)	1.4	1.5	1.5	1.4	5.8
Payment date	15/9/20	15/12/20	15/3/21	15/6/21
2020	Quarter 1	Quarter 2	Quarter 3	Quarter 4	Total
Dividend per ROADS (in Australian cents)	0.92	0.95	0.96	0.92	3.75
New Zealand imputation credit percentage	100%	100%	100%	100%	100%
Cost (in A$’m)	1.8	1.9	1.9	1.8	7.4
Payment date	16/9/19	16/12/19	16/3/20	15/6/20

(c) Franking credits

The franking account balance as at 30 June 2021 is nil (2020: nil).

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 109
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F

Group structure

This section explains significant aspects of Downer’s Group structure, including joint arrangements where the Group has interest in its controlled entities and how changes have affected the Group structure. It also provides information on business acquisitions and disposals made during the financial year as well as information relating to Downer’s related parties, the extent of related party transactions and the impact they had on the Group’s financial performance and position.

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F1. Joint arrangements and associate entities F4. Parent entity disclosures
F2. Controlled entities F5. Acquisition and disposals of businesses
F3. Related party information F6. Disposal group held for sale
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F1. Joint arrangements and associate entities

(a) Interest in joint ventures and associates

(a) Interest in joint ventures and associates
		2021	2020
	Note	$’m	$’m
Interest in joint ventures at the beginning of the financial year		32.1	31.5
Share of net profit		12.9	18.2
Share of distributions		(11.6)	(17.2)
Interest in joint venture divested		(9.3)	–
Foreign currencyexchange diferences		–	(0.4)
Interest injoint ventures at the end of the financialyear		24.1	32.1
Interest in associates at the beginning of the financial year		78.5	77.3
Share of net profit		9.3	1.2
Investment in associates		9.8	–
Additional associate interest acquired	F5	33.4	–
Interest in associates at the end of the financialyear		131.0	78.5
Total interest injoint ventures and associates		155.1	110.6

Notes to the consolidated financial statements – continued

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110 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

F1. Joint arrangements and associate entities – continued

(a) Interest in joint ventures and associates – continued

The Group has interests in the following joint ventures and associates which are equity accounted:

Name of arrangement Principal activity Country of operation	Ownership interest
	2021 % 2020 %
Joint ventures Allied Asphalt Limited Asphalt plant New Zealand Bitumen Importers Australia Joint Venture Construction of bitumen storage facility Australia Bitumen Importers Australia Pty Ltd Bitumen importer Australia Eden Park Catering Limited(i) Catering for functions at Eden Park New Zealand EDI Rail-Bombardier Transportation Pty Ltd Sale and maintenance of railway rollingstock Australia Emulco Limited Emulsion plant New Zealand Isaac Asphalt Limited Manufacture and supply of asphalt New Zealand Repurpose It Holdings Pty Ltd Waste recycling Australia RTL Mining and Earthworks Pty Ltd(i) Contract mining; civil works and plant hire Australia Waanyi Downer JV Pty Ltd Contract mining services Australia ZFS Functions (Pty) Ltd Catering for functions at Federation Square Australia Associates Keolis Downer Pty Ltd Operation and maintenance of Gold Coast light rail, Melbourne tram network, Adelaide metro and bus operation Australia HT HoldCo PtyLtd(ii) Laundries services Australia	50 50 50 50 50 50 – 50 50 50 50 50 50 50 45 50 – 44 50 50 50 50 49 49 30 –

(i) Downer’s interest in this joint venture was disposed of during the year ended 30 June 2021.

(ii) Joint venture was entered into during the year ended 30 June 2021, upon 70% sale of Laundries business.

There are no material commitments held by joint ventures or associates. All joint ventures and associates have a statutory reporting date of 30 June.

The Group’s share of aggregate financial information from joint ventures and associates is presented below.

The Group does not disclose the details of the individual joint ventures and associates on the basis these are individually immaterial.

The Group’s share of the carrying amounts:

	2021	2020
	$’m	$’m
Current assets	266.1	229.1
Non-current assets	228.2	149.0
Current liabilities	(165.8)	(144.7)
Non-current liabilities	(184.6)	(132.7)
Net assets	143.9	100.7
Goodwill	7.0	7.0
Adjustment to align accounting policies	4.2	2.9
Carrying amount	155.1	110.6
Profit for theyear	22.2	19.4
Total comprehensive income	22.2	19.4

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 111
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F1. Joint arrangements and associate entities – continued

Recognition and measurement

Equity accounting

(i) Investments in joint ventures

Investments in joint ventures are accounted for using the equity method of accounting.

(ii) Investments in associates

Investments in entities over which the Group has the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting. The investment in associates is carried at cost plus post-acquisition changes in the Group’s share of the associates’ net assets, less any impairment in value.

Proportionate consolidation

Joint operations

Joint operations give the Group the right to the underlying assets and obligations for liabilities and are accounted for by recognising the share of those assets and liabilities.

(b) Interests in joint operations

The Group has interests in the following joint operations which are proportionately consolidated:

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Ownership interest
Country of 2021 2020
Name of joint operation Principal activity operation % %
Ausenco Downer Joint Venture Enabling works for Carrapateena Project Australia 50 50
Bama Civil Pty Ltd and Downer EDI Works Civil Infrastructure design and/or Australia 50 50
Pty Ltd construction activities
China Hawkins Construction JV Building construction New Zealand 50 50
City Rail JV Enabling works for Auckland City Rail Link New Zealand 50 50
Concrete Pavement Recycling Pty Ltd [ (i)] Road maintenance Australia 49 49
Confluence Water JV Sydney Water services Australia 43 43
CPB Downer Joint Venture Parramatta Light Rail construction Australia 50 50
CRL Construction Joint Venture Construction of the City Rail Link Alliance New Zealand 30 30
Project
Dampier Highway Joint Venture Highway construction and design Australia 50 50
Downer-Carey Mining JV [ (ii)] Management of run of mine and ore Australia 46 46
rehandling services
Downer Electrical GHD JV [ (iii)] Traffic control infrastructure Australia 90 90
Downer FKG JV Major civil and roadworks Australia 50 50
Downer HEB Joint Venture Design and build of the New Zealand New Zealand 50 50
(Memorial Park Alliance) National War Memorial Park
Downer HEB Joint Venture Design and build of the Mt Messenger Project New Zealand 50 50
(Mt Messenger Project)
Downer MCD Wynyard Edge JV Design and build on Americas Cup Project New Zealand 50 50
(Americas Cup Project)
Downer Seymour Whyte JV Road construction Australia 50 50
Downer York Joint Venture Tramline extension Australia 50 50
Downtown Infrastructure Development Downtown infrastructure development New Zealand 33 33
Project JV program
Gumala Downer Joint Venture Contract mining services Australia 50 50
Hatch Downer JV Design and construction of Australia 50 50
solvent extraction plant
HCMT Supplier JV Rail build supplier Australia 50 50
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112 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

F1. Joint arrangements and associate entities – continued

F1. Joint arrangements and associate entities – continued
Name of joint operation Principal activity Country of operation	Ownership interest
	2021 % 2020 %
John Holland Pty Ltd and Downer Utilities Australia Pty Ltd Partnership Operation of water recycling plant at Mackay Australia	50 50
Macdow Downer Joint Venture (Connectus) Rail construction New Zealand	50 50
Macdow Downer Joint Venture (CSM2) Road construction New Zealand	50 50
Macdow Downer Joint Venture (Russley Road) Road construction New Zealand	50 50
NEWest Alliance Construction activities as part of Perth’s METRONET program Australia	50 50
North Canterbury Transport Infrastructure Economic Recovery Alliance ‘NCTIER’ JV Kaikoura earthquake works New Zealand	25 25
Safety Focused Performance JV Water and sewerage capital works Australia	45 45
Thiess VEC Joint Venture Highway construction Australia	50 50
Utilita Water JV Plant maintenance Australia	50 50
VEC Shaw Joint Venture Road construction Australia	50 50
Waanyi ReGen JV Rehab contract services Australia	50 50
WDJV Unit Trust Contract mining services Australia	50 50
Wiri Train Depot Joint Venture Construction of the Wiri train depot New Zealand	50 50

(i) Concrete Paving Recycling Pty Ltd changed its name to Concrete Pavement Recycling Pty Ltd during the financial year 30 June 2021.

(ii) Joint operation is currently undergoing liquidation/de-registration.

(iii) Contractual arrangement prevents control despite ownership of more than 50% of this joint operation.

F2. Controlled entities

The controlled entities of the Group listed below were wholly owned during the current and prior year, unless otherwise stated:

Australia

ACN 009 173 040 Pty Ltd[ (viii)] AGIS Group Pty Limited ASPIC Infrastructure Pty Ltd DMH Plant Services Pty Ltd DMH Maintenance and Technology Services Pty Ltd DM Road Services Pty Ltd DMH Electrical Services Pty Ltd Downer Australia Pty Ltd Downer EDI Associated Investments Pty Ltd Downer EDI Engineering Company Pty Limited Downer EDI Engineering CWH Pty Limited Downer EDI Engineering Electrical Pty Ltd Downer EDI Engineering Group Pty Limited Downer EDI Engineering Holdings Pty Ltd Downer EDI Engineering Power Pty Ltd Downer EDI Engineering Pty Limited Downer EDI Limited Tax Deferred Employee Share Plan Downer EDI Mining Pty Ltd Downer EDI Mining-Blasting Services Pty Ltd[ (v)] Downer EDI Mining-Minerals Exploration Pty Ltd Downer EDI Rail Pty Ltd Downer EDI Services Pty Ltd Downer EDI Works Pty Ltd Downer Energy Systems Pty Limited Downer Group Finance Pty Limited Downer Holdings Pty Limited

Downer Investments Holdings Pty Ltd Downer Mining Regional NSW Pty Ltd Downer PipeTech Pty Limited Downer PPP Investments Pty Ltd Downer Utilities Australia Pty Ltd Downer Utilities Holdings Australia Pty Ltd Downer Utilities New Zealand Pty Ltd Downer Utilities SDR Australia Pty Ltd[ (iv)] Downer Utilities SDR Pty Ltd Downer Victoria PPP Maintenance Pty Ltd EDI Rail PPP Maintenance Pty Ltd EDICO Pty Ltd Emoleum Partnership Emoleum Road Services Pty Ltd Emoleum Roads Group Pty Ltd Envista Pty Limited Evans Deakin Industries Pty Ltd LNK Group Pty Ltd Lowan (Management) Pty. Ltd. Maclab Services Pty Ltd Mineral Technologies Pty Ltd Mineral Technologies (Holdings) Pty Ltd New South Wales Spray Seal Pty Ltd Otraco International Pty Ltd Otracom Pty Ltd Primary Producers Improvers Pty Ltd.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 113
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F2. Controlled entities – continued

Australia – continued

Rail Services Victoria Pty Ltd REJV Services Pty Ltd[ (iv)] Roche Bros. Superannuation Pty. Ltd.[ (iv)] Roche Services Pty Ltd RPC Roads Pty Ltd RPQ Asphalt Pty. Ltd. RPQ Mackay Pty Ltd[ (ix)] RPQ North Coast Pty. Ltd. RPQ Pty Ltd RPQ Services Pty. Ltd. RPQ Spray Seal Pty. Ltd. Smarter Contracting Pty Ltd Snowden Holdings Pty Ltd[ (v)] Snowden Mining Industry Consultants Pty Ltd[ (v)] Snowden Technologies Pty Ltd[ (v)] Southern Asphalters Pty Ltd Trico Asphalt Pty. Ltd. VEC Civil Engineering Pty Ltd VEC Plant & Equipment Pty Ltd

Asia

Chang Chun Ao Hua Technical Consulting Co Ltd Downer EDI Engineering (S) Pte Ltd Downer EDI Engineering Holdings (Thailand) Limited Downer EDI Engineering Thailand Ltd Downer EDI Group Insurance Pte Ltd Downer EDI Rail (Hong Kong) Limited Downer EDI Works (Hong Kong) Limited Downer Pte Ltd Downer Singapore Pte Ltd MD Mineral Technologies Private Limited PT Duffill Watts Indonesia PT Otraco Indonesia

Americas

DBS Chile SpA[ (iii) (v)] Mineral Technologies Comercio de Equipamentos para Processamento de Minerais LTD Mineral Technologies, Inc. Otraco Brasil Gerenciamento de Pneus Ltda Otraco Chile SA

New Zealand and Pacific

AF Downer Memorial Scholarship Trust DGL Investments Limited Downer Construction (Fiji) Limited Downer Construction (New Zealand) Limited Downer EDI Engineering Power Limited Downer EDI Engineering PNG Limited Downer EDI Works Vanuatu Limited Downer New Zealand Limited Downer New Zealand Projects 1 Limited Downer New Zealand Projects 2 Limited Downer Utilities Alliance New Zealand Limited Downer Utilities New Zealand Limited Downer Utilities PNG Limited[ (iii)] Green Vision Recycling Limited Hawkins Limited[ (x)] Hawkins Project 1 Limited ITS Pipetech Pacific (Fiji) Pte Limited[ (xi)] Richter Drilling (PNG) Limited Techtel Training & Development Limited The Roading Company Limited Underground Locators Limited Waste Solutions Limited Works Finance (NZ) Limited

Africa

Downer EDI Mining – Ghana Limited Downer Mining South Africa Proprietary Limited MD Mineral Technologies SA (Pty) Ltd. MD Mining and Mineral Services (Pty) Ltd[ (i)] Otraco Botswana (Proprietary) Limited Otraco Southern Africa (Pty) Ltd[ (ii) ] Otraco Tyre Management Namibia (Proprietary) Limited Snowden Mining Industry Consultants (Proprietary) Limited[ (v)]

United Kingdom and Channel Islands

KHSA Limited Sillars (B. & C.E.) Limited Sillars (TMWD) Limited Sillars Holdings Limited Sillars Road Construction Limited Works Infrastructure (Holdings) Limited Works Infrastructure Limited

Spotless[ (vi)]

A E Smith & Son (NQ) Pty Ltd A E Smith & Son (SEQ) Pty Ltd A.E. Smith & Son Proprietary Limited AE Smith Building Technologies Pty Ltd A.E. Smith Service (SEQ) Pty Ltd A.E. Smith Service Holdings Pty Ltd A.E. Smith Service Pty Ltd Airparts Holdings Pty Ltd Airparts Fabrication Pty Ltd Airparts Fabrication Unit Trust Aladdin Group Services Pty Limited[ (vii)] Aladdins Holdings Pty. Limited[ (vii) ] Aladdin Laundry Pty Limited[ (vii)] Aladdin Linen Supply Pty Limited[ (vii)] Asset Services (Aust) Pty Ltd[ (vii)] Berkeley Challenge (Management) Pty Limited[ (vii)] Berkeley Challenge Pty Limited[ (vii)] Berkeley Railcar Services Pty Ltd[ (vii)] Berkeleys Franchise Services Pty Ltd[ (vii) ] Bonnyrigg Management Pty. Limited[ (vii)] Cleandomain Proprietary Limited[ (vii)] Cleanevent Australia Pty. Ltd.[ (vii)] Cleanevent Holdings Pty. Limited[ (vii)] Cleanevent International Pty. Limited[ (vii)] Cleanevent Middle East FZ LLC[ (iii)]

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114 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

F2. Controlled entities – continued

Spotless[ (vi)] – continued

Cleanevent Technology Pty Ltd[ (vii)] Emerald ESP Pty Ltd Ensign Services (Aust.) Pty. Ltd.[ (v) (vii)] Envar Installation Pty Ltd Envar Service Pty Ltd Envar Holdings Pty Ltd Envar Engineers and Contractors Pty Ltd Errolon Pty Ltd[ (vii)] Fieldforce Services Pty Ltd[ (vii)] Infrastructure Constructions Pty Ltd[ (vii)] International Linen Service Pty Ltd[ (vii)] Monteon Pty Ltd[ (vii)] National Community Enterprises[ (iii)] Nationwide Venue Management Pty Limited[ (vii)] NG-Serv Pty Ltd[ (vii)] Nuvogroup (Australia) Pty Ltd”[ (vii)] Pacific Industrial Services BidCo Pty Ltd[ (vii)] Pacific Industrial Services FinCo Pty Ltd[ (vii)] Riley Shelley Services Pty Limited[ (vii)] Skilltech Consulting Services Pty. Ltd.[ (vii)] Skilltech Metering Solutions Pty Ltd.[ (vii)] Sports Venue Services Pty Ltd[ (vii)] Spotless Defence Services Pty Ltd[ (vii)] Spotless Facility Services (NZ) Limited Spotless Facility Services Pty Ltd[ (vii)] Spotless Financing Pty Limited[ (vii)] Spotless Group Limited[ (vii)] Spotless Group Holdings Limited[ (vii)] Spotless Holdings (NZ) Limited Spotless Investment Holdings Pty Ltd[ (vii)] Spotless Management Services Pty Ltd[ (vii)] Spotless Property Cleaning Services Pty Ltd[ (vii)] Spotless Securities Plan Pty Ltd[ (vii)] Spotless Services Australia Limited[ (vii)] Spotless Services International Pty Ltd[ (vii)] Spotless Services Limited[ (vii)] Spotless Treasury Pty Limited[ (vii)] SSL Asset Services (Management) Pty Ltd[ (vii)] SSL Facilities Management Real Estate Services Pty Ltd[ (vii)] SSL Security Services Pty Ltd[ (vii) ] Taylors Laundries Limited[ (v)] Taylors Two Two Seven Pty Ltd[(vii)] Trenchless Group Pty Ltd[ (vii)] UAM Pty Ltd[ (vii)] Utility Services Group Holdings Pty Ltd[ (vii)] Utility Services Group Limited[ (vii)]

• (i) 70% ownership interest.

• (ii) 74% ownership interest.

• (iii) Entity is currently undergoing liquidation/dissolution.

• (iv) Entity de-registered during the financial year ended 30 June 2021.

• (v) Entity disposed during the financial year ended 30 June 2021.

• (vi) The ownership interest in Spotless is 100% as at 30 June 2021.

• (vii) These Spotless controlled entities all form part of the tax consolidated group of which Downer EDI Limited is the head entity. The acquisition of the remaining 12.198% shares in Spotless that Downer did not already own automatically resulted in Spotless joining the Downer tax consolidated group on 7 October 2020.

• (viii) QCC Resources Pty Ltd changed its name to ACN 009 173 040 Pty Ltd during the financial year ended 30 June 2021.

• (ix) Rock N Road Bitumen Pty Ltd changed its name to RPQ Mackay Pty Ltd during the financial year ended 30 June 2021.

• (x) Hawkins 2017 Limited changed its name to Hawkins Limited during the financial year ended 30 June 2021.

• (xi) ITS Pipetech Pacific (Fiji) Limited changed its name to ITS Pipetech Pacific (Fiji) Pte Limited during the financial year ended 30 June 2021.

F3. Related party information

(a) Transactions with controlled entities

Aggregate amounts receivable from and payable to controlled entities by the parent entity are included within total assets and liabilities balances as disclosed in Note F4.

Other transactions which occurred during the financial year between the parent entity and controlled entities, as well as between entities in the Group, were on normal arm’s length commercial terms.

(b) Equity interests in related parties

Equity interests in subsidiaries

Details of the percentage of ordinary shares held in controlled entities are disclosed in Note F2.

Equity interests in joint arrangements and associate entities

Details of interests in joint arrangements and associate entities are disclosed in Note F1. The business activities of a number of these entities are conducted under joint venture arrangements. Associated entities conduct business transactions with various controlled entities. Such transactions include purchases and sales, dividends and interest. All such transactions are conducted on the basis of normal arm’s length commercial terms.

(c) Controlling entity

The parent entity of the Group is Downer EDI Limited.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 115
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F4. Parent entity disclosures

F4. Parent entity disclosures
	Company
	2021 $’m 2020 $’m
(a) Financial Position Assets Current assets Non-current assets	19.8 46.5 2,883.8 2,343.9
Total assets	2,903.6 2,390.4
Liabilities Current liabilities Non-current liabilities	74.6 111.8 4.2 4.1
Total liabilities	78.8 115.9
Net assets	2,824.8 2,274.5
Equity Issued capital Retained earnings Reserves Employee benefits reserve	2,624.0 2,251.1 190.1 9.0 10.7 14.4
Total equity	2,824.8 2,274.5
(b) Financial performance Profit for theyear	244.2 53.2
Total comprehensive income	244.2 53.2

(c) Guarantees entered into by the parent entity in relation to debts of its subsidiaries

The parent entity has, in the normal course of business, entered into guarantees in relation to the debts of its subsidiaries during the financial year.

(d) Contingent liabilities of the parent entity

The parent entity has no contingent liabilities as at 30 June 2021 (2020: nil) other than those disclosed in Note C10 to the financial statements.

(e) Commitments for the acquisition of property, plant and equipment by the parent entity

The parent entity does not have any commitments for acquisition of property, plant and equipment as at 30 June 2021 (2020: nil).

Notes to the consolidated financial statements – continued

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116 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

F5. Acquisition and disposals of businesses

2021 acquisitions

There have been no acquisitions during the year ended 30 June 2021.

During the year, deferred consideration payments of $14.3 million were made (2020: $29.8 million) in relation to acquisitions completed in previous periods.

The purchase of the remaining Spotless shares not already owned does not represent an acquisition of a business as the Group already controlled this entity. Further information on that transaction is presented in Note E6 Non-controlling interest.

2021 disposals

As previously announced, Downer’s strategy is to focus on its core Urban Services businesses. Initiatives included to have 100% ownership of Spotless and exit non-core capital intensive Mining and Laundries businesses. During the financial year, the Group was able to complete the sale of a majority shareholding of the Laundries business as well as the disposal of certain businesses of the Mining segment, as described below.

On 1 February 2021, the sale of Open Cut Mining West was completed. Downer received an initial payment of $109.0 million, with an additional $66.0 million to be received in 12 equal monthly instalments of $5.5 million commencing in February 2021.

As at 30 June 2021, net proceeds of $133.5 million had been received with a $14.4 million pre-tax loss on disposal recognised.

Disposal of Underground

On 4 March 2021, Downer completed the transition of underground mining services at OZ Minerals’ Carrapateena mine to Byrnecut Australia. The transition included the transfer of equipment from Downer to Byrnecut for $56 million (representing book value). Net proceeds received (after transaction costs with the unwinding of working capital) amounted to $59.6 million with a net pre-tax loss on disposal of $4.8 million recognised.

Disposal of Snowden

During the year, Downer disposed of its Snowden Consulting business.

Disposal of Mining businesses

Disposal of Downer Blasting Services (DBS) business

On 18 November 2020, Downer entered into an agreement to sell its blasting services business (Downer Blasting Services or DBS) to Enaex S.A. (a subsidiary of Sigdo Koppers Group (Chile)) for gross proceeds of $62.0 million.

The transaction was completed on 1 March 2021 with net proceeds (after transaction costs) of $59.1 million and net gain on disposal of $6.5 million.

Disposal of Open Cut Mining West business

On 15 December 2020, Downer entered into an agreement to sell its Western Australian open cut mining business (Open Cut Mining West) to MACA Limited for gross proceeds of $175 million. The sale included the transfer of certain assets (including fleet and inventory) and liabilities; and the novation of the existing contracts to MACA. On classification as a disposal group held for sale, the Group recognised a $20.2 million impairment to adjust the carrying value of the assets to its expected recoverable value. Refer to Note B3.

The sale of Snowden Consulting was completed on 15 July 2020 to Datamine for a net consideration of $7.5 million with a net gain on disposal of $5.6 million recognised.

Disposal of RTL JV

On 28 August 2020, Mining disposed its 44% interest in RTL JV to Thiess for a total gross consideration of $18.9 million, representing a gain on disposal of $10.7 million. Refer to Note F1.

Divestment of 70% of the Laundries business

On 2 December 2020, Downer entered into an agreement to sell 70% of its Laundries business to an Australian private equity firm, Adamantem Capital (Adamantem) for $139.6 million (net of transaction costs). The sale was completed on 31 March 2021.

Upon completion of this transaction, Downer ceased to consolidate the Laundries business on 31 March 2021 and recognised its remaining interest in the Laundries business of 30% as an equity accounted investment. Refer to Note F1(a).

As at 30 June 2021, net proceeds of $136.2 million had been received with a $16.2 million pre-tax loss on disposal recognised.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 117
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F5. Acquisition and disposals of businesses – continued

The table below summarises the impact on divestment during the financial year:

			Mining
$’m	Note	Laundries	Divestments	Total
Proceeds on disposal (net of transaction costs)		139.6	260.6	400.2
Less cash disposed		(3.4)	(0.9)	(4.3)
Proceeds net of disposal costs		136.2	259.7	395.9
Deferred consideration		–	39.2	39.2
Additional associate interest acquired	F1	33.4	–	33.4
Totalproceeds on disposal		169.6	298.9	468.5
Cash		3.4	0.9	4.3
Trade receivables and contract assets		30.7	37.6	68.3
Inventory		3.7	74.4	78.1
Finance lease receivable		–	60.6	60.6
Other assets		1.4	0.5	1.9
Right-of-use assets	C6	26.1	29.1	55.2
Property, plant and equipment	C5	180.1	160.7	340.8
Intangible assets	C7	23.6	–	23.6
Deferred tax assets		19.7	5.1	24.8
Assets disposed		288.7	368.9	657.6
Trade payables and contract liabilities		11.3	16.1	27.4
Employee benefits provisions		13.9	16.4	30.3
Provisions	C9	–	0.8	0.8
Lease liabilities		59.7	29.5	89.2
Deferred tax liabilities		14.6	0.7	15.3
Liabilities disposed		99.5	63.5	163.0
Net assets disposed		189.2	305.4	494.6
FCTR held on businesses disposed		–	1.5	1.5
Loss on disposal before tax	B3	(16.2)	(7.1)	(23.3)

2020 acquisitions and disposals

There were no new acquisitions and disposals during the year.

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118 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

F5. Acquisition and disposals of businesses – continued

Measurement of fair values

The valuation techniques used for measuring the fair value of material assets acquired were as follows:

Asset/liability acquired	Valuation technique
Trade receivables and	Cost technique – considers the expected economic benefits receivable when due.
contract assets
Property, plant and	Market comparison technique and cost technique – the valuation model considers quoted market prices
equipment	for similar items when available and depreciated replacement cost when appropriate.
Intangible assets	Multi-period excess earnings method – considers the present value of net cash flows expected to be
	generated by the customer contracts and relationships, intellectual property and brand names, excluding
	any cash flows related to contributory assets. For the valuation of certain brand names, discounted cash
	flow under the relief from royaltyvaluation methodologyhas been utilised.
Trade payables and	Cost technique – considers the expected economic outflow of resources when due.
contract liabilities
Borrowings	Cost technique – considers the expected economic outflow of resources when due.
Provisions	Cost technique – considers theprobable economic outflow of resources when the obligation arises.

Goodwill from acquisitions

The goodwill resulting from the above acquisitions represents future market development, expected revenue growth opportunities, technical talent and expertise, and the benefits of expected synergies. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

Recognition and measurement

Business combinations

The Group accounts for business combinations using the acquisition method when control is transferred to the Group. The consideration transferred in the acquisition is measured at fair value. Acquisition-related costs are expensed as incurred in profit or loss.

(i) Acquisition achieved in stages

Where a business combination is achieved in stages, the Group’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i.e. the date when the Group attains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of or control of the acquiree obtained.

(ii) Contingent consideration

The subsequent accounting for changes in the fair value of contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified.

Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity.

Contingent consideration that is classified as an asset or liability is remeasured at subsequent reporting dates with the corresponding gain or loss being recognised in profit or loss.

(iii) Non-controlling interest

The Group can elect, on an acquisition by acquisition basis, to recognise non-controlling interests in an acquired entity either at fair value or at the non-controlling interest’s share of the acquired entity’s net identifiable assets/(liabilities).

Key estimate and judgement: Acquisition of businesses

Accounting for acquisition of businesses requires judgement and estimates in determining the fair value of acquired assets and liabilities. The relevant accounting standard allows the fair value of assets acquired to be refined in a window of a year after the acquisition date and judgement is required to ensure that the adjustments made reflect new information obtained about facts and circumstances that existed as of the acquisition date. The adjustments made to the fair value of assets are retrospective in nature and have an impact on goodwill recognised on acquisition.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 119
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F6. Disposal group held for sale

Continuing with the Group’s divestment of its portfolio of Mining businesses as part of Urban Services strategy, the Group has made further progress in the disposal of remaining Mining businesses as follows:

Disposal of Otraco business:

On 26 April 2021, an agreement was reached for the sale of Mining’s tyre management business (Otraco) to Bridgestone Corporation (Bridgestone). The estimated $79 million sale price represents enterprise value of Otraco. Completion of the Otraco transaction, which is subject to regulatory approvals and other customary conditions, is expected to occur in FY22.

$’m	Otraco
Property, plant and equipment	9.4
Right-of-use assets	2.2
Intangible assets	0.5
Trade receivables and contract assets	24.2
Inventory	1.8
Other assets	3.4
Assets held for sale	41.5
Trade payables and contract liabilities	5.9
Lease liabilities	2.4
Other liabilities	8.9
Liabilities held for sale	17.2

Recognition and measurement

Disposal groups are recognised when a sale is considered highly probable. The assets and liabilities of these disposal groups are disclosed separately on the basis that their value is expected to be realised through a sale event rather than continued use. Disposal group assets are presented at the lower of their carrying value or the value expected to be realised through the sale. Any impairment to the carrying value of the assets is recognised through the Consolidated Statement of Profit or Loss and Other Comprehensive Income.

Key estimate and judgement:

Disposal group held for sale

Non-current assets, or disposal groups comprising assets and liabilities, are classified as held-for-sale if it is highly probable that they will be recovered primarily through sale rather than through continuing use. To meet this, Downer must be committed to a plan to sell the asset; an active program to locate a buyer must be in place; the asset must be actively marketed for sale at a price at its fair value and the sale should be completed within one year.

Valuation of asset held for sale

An asset held for sale is measured at the lower of its carrying amount and fair value less costs to sell. This requires judgement and estimates in determining the fair value of disposed assets and liabilities. Fair value has been taken as the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date.

Notes to the consolidated financial statements – continued

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120 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

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G

Other

This section provides details on other required disclosures relating to the Group to comply with the accounting standards and other pronouncements including the Group’s capital and financial risk management disclosure. This disclosure provides information around the Group’s risk management policies and how Downer uses derivatives to hedge the underlying exposure to changes in interest rates and to foreign exchange rate fluctuations.

G1. New accounting standards

G2. Capital and financial risk management

G3. Other financial assets and liabilities

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G1. New accounting standards

(a) New and amended accounting standards and interpretations adopted by the Group

During the year, the Group has applied a number of new and revised accounting standards issued by the Australian Accounting Standards Board (AASB) that are mandatorily effective for an accounting period that begins on or after 1 July 2020, as follows:

• AASB 2018-6 Definition of Business (Amendments to AASB 3) .

• AASB 2018-7 Definition of Material (Amendments to AASB 101 and AASB 8) .

• AASB 2019-1 Amendments to Australian Accounting Standards – References to Conceptual Framework .

• AASB 2019-3 Interest Rate Benchmark Reform (Amendments to AASB 139, AASB 7 and AASB 9) .

• AASB 2019-5 Disclosure of the Effect of New IFRS Standards Not Yet issued in Australia (Amendments to AASB 1054) .

• AASB 2020-4 Amendments to Australian Accounting Standards – COVID-19 Related Rent Concessions .

• AASB 1059 Service Concession Arrangements: Grantors (effective to annual reporting periods beginning on or after 1 January 2020) .

• IFRIC agenda decisions on Cloud Computing Arrangements Costs .

(b) New accounting standards and interpretations not yet adopted

The following standards, amendments to standards and interpretations are relevant to current operations. They are available for early adoption but have not been applied by the Group in this Financial Report.

• AASB 2020-1 and 2020-6 Classification of liabilities as current or non-current .

• AASB 2020-4 COVID-19 Related Rent Concessions Beyond 30 June 2021 (AASB 2020-4) .

• AASB 2020-3 Narrow scope improvements to AASB 116, AASB 137 and AASB 3. Annual improvements to AASB 16, AASB 1, AASB 9 and AASB 141 .

• AASB 2020-8 Amendments to Australian Accounting Standards – Interest Rate Benchmark Reform – Phase 2 .

• AASB 2021-2 Amendments to Australian Accounting Standards – Disclosure of Accounting Policies and Definition of Accounting Estimates .

• AASB 2021-3 Amendments to Australian Accounting Standards – COVID-19 Related Rent Concessions Beyond 30 June 2021 .

• AASB 2021-5 Amendments to Australian Accounting Standards – Deferred Tax related to Assets and Liabilities arising from a Single Transaction .

• AASB 17 Insurance Contracts (effective to annual reporting periods beginning on or after 1 January 2023) .

Management continues to assess the impact of AASB 17 Insurance Contracts on the Group, and has not yet quantified the effect of the new standard. With the exception of AASB 17 Insurance Contracts , these new or amended standards’ impacts are not expected to have a significant impact on the Group’s consolidated financial statements when they are adopted.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 121
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G2. Capital and financial risk management

(a) Capital risk management

The capital structure of the Group consists of debt and equity. The Group may vary its capital structure by adjusting the amount of dividends, returning capital to shareholders, issuing new shares or increasing or reducing debt.

The Group’s objectives when managing capital are to safeguard its ability to operate as a going concern so that it can meet all its financial obligations when they fall due, provide adequate returns to shareholders, maintain an appropriate capital structure to optimise its cost of capital and maintain an investment grade credit rating to ensure ongoing access to funding.

(b) Financial risk management objectives

The Group’s Treasury function manages the funding, liquidity and financial risks of the Group. These risks include foreign exchange, interest rate, commodity and financial counterparty credit risk.

The Group enters into a variety of derivative financial instruments to manage its exposures including:

• (i) Forward foreign exchange contracts to hedge the exchange rate risk arising from cross-border trade flows, foreign income and debt service obligations

• (ii) Cross-currency interest rate swaps to manage the interest rate and currency risk associated with foreign currency denominated borrowings

The Group does not enter into or trade derivative financial instruments for speculative purposes.

Financial assets and liabilities are offset and the net amount reported in the Consolidated Statement of Financial Position, when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. No material amounts with a right to offset were identified in the Consolidated Statement of Financial Position.

(c) Foreign currency risk management

The Group undertakes certain transactions denominated in foreign currencies. As a result, exposures to exchange rate fluctuations arise. Exchange rate exposures are managed within approved policy parameters, utilising forward foreign exchange contracts and cross-currency swaps.

The carrying amounts of the Group’s unhedged foreign currency denominated financial assets and financial liabilities at the reporting date are as follows:

	Financial assets (i) Financial liabilities (i)
	2021 $’m 2020 $’m 2021 $’m 2020 $’m
US dollar (USD)	2.3 2.7 – 1.2

• (iii) Interest rate swaps to manage interest rate risk

• (iv) Commodity forward contracts to manage commodity price movements in contracts.

• (i) The above table shows foreign currency financial assets and liabilities in Australian dollar equivalent.

Foreign currency forward contracts

The following table summarises, by currency pairs, the Australian dollar value (unless otherwise stated) of forward exchange contracts outstanding as at the reporting date:

Outstanding contracts	Weighted average exchange rate Foreign currency Contract value Fair value
	2021 2020 2021 FC’m 2020 FC’m 2021 $’m 2020 $’m 2021 $’m 2020 $’m
Buy USD / Sell AUD Less than 3 months 3 to 6 months Later than 6 months	0.7728 0.6552 5.1 52.3 6.7 79.9 0.2 (3.7) 0.7729 0.6670 12.1 29.2 15.7 43.9 0.4 (1.3) 0.7593 0.6403 2.8 10.5 3.7 16.4 – (1.1)
	20.0 92.0 26.1 140.2 0.6 (6.1)
Sell USD / Buy AUD Less than 3 months 3 to 6 months Later than 6 months	0.7755 0.6949 5.8 33.9 7.4 48.8 (0.2) (0.5) 0.7625 0.6846 6.9 34.1 9.1 50.0 (0.1) 0.3 0.7777 0.6814 29.9 4.8 38.5 7.0 (1.3) –
	42.6 72.8 55.0 105.8 (1.6) (0.2)
Buy EUR / Sell AUD Less than 3 months 3 to 6 months Later than 6 months	0.6356 0.5960 4.1 3.7 6.4 6.2 – (0.1) 0.6127 0.6060 1.6 7.1 2.7 11.6 (0.1) – 0.6208 0.5902 2.1 5.2 3.4 8.8 – (0.2)
	7.8 16.0 12.5 26.6 (0.1) (0.3)

Notes to the consolidated financial statements – continued

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122 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

G2. Capital and financial risk management – continued

(c) Foreign currency risk management Outstanding contracts	– continued Weighted average exchange rate Foreign currency Contract value Fair value
	2021 2020 2021 FC’m 2020 FC’m 2021 $’m 2020 $’m 2021 $’m 2020 $’m
Sell EUR / Buy AUD Less than 3 months 3 to 6 months Later than 6 months	0.6409 0.5987 1.6 0.2 2.5 0.4 – – 0.6364 0.5973 0.1 0.6 0.2 1.1 – – 0.6156 0.6081 0.1 1.6 0.2 2.6 – –
	1.8 2.4 2.9 4.1 – –
Buy JPY / Sell AUD Less than 3 months 3 to 6 months Later than 6 months	78.50 73.46 138.5 770.8 1.8 10.5 (0.1) – 77.44 73.75 80.5 46.9 1.0 0.6 (0.1) – 84.02 68.92 463.0 64.5 5.5 0.9 0.1 (0.1)
	682.0 882.2 8.3 12.0 (0.1) (0.1)
Sell JPY / Buy AUD Less than 3 months 3 to 6 months Later than 6 months	78.27 70.96 116.7 31.9 1.5 0.4 0.1 – 83.01 – 12.8 – 0.2 – – – 83.79 73.32 301.2 98.8 3.6 1.3 – –
	430.7 130.7 5.3 1.7 0.1 –
Buy NZD / Sell AUD Less than 3 months	1.0767 1.0659 190.0 112.0 176.5 105.1 0.4 (0.4)
Sell NZD / Buy AUD Less than 3 months	1.0746 – 10.0 – 9.3 – – –
Buy GBP / Sell AUD Less than 3 months 3 to 6 months Later than 6 months	0.5625 0.4812 1.9 0.2 3.4 0.4 0.1 (0.1) – 0.5367 – 0.5 – 0.9 – – 0.5653 0.5511 1.5 0.4 2.7 0.7 0.1 –
	3.4 1.1 6.1 2.0 0.2 (0.1)
Buy CAD / Sell AUD Less than 3 months 3 to 6 months Later than 6 months	0.9387 – 0.2 – 0.2 – – – 0.9379 – 0.1 – 0.1 – – – 0.9383 0.9182 0.6 3.7 0.7 4.0 – (0.1)
	0.9 3.7 1.0 4.0 – (0.1)
Sell CAD / Buy AUD Less than 3 months 3 to 6 months Later than 6 months	0.9581 0.9052 0.2 5.1 0.2 5.7 – 0.2 0.9685 0.9093 0.4 5.1 0.4 5.6 – 0.2 0.9572 – 1.9 – 1.9 – (0.1) –
	2.5 10.2 2.5 11.3 (0.1) 0.4
Buy USD / Sell NZD Less than 3 months 3 to 6 months	0.7134 – 0.8 – 1.1 – – – 0.7132 – 0.1 – 0.1 – – –
	0.9 – 1.2 – – –
BUY ZAR / Sell AUD Less than 3 months	– 11.83 – 24.3 – 2.1 – –
Total	(0.6) (6.9)

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 123
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G2. Capital and financial risk management – continued

(c) Foreign currency risk management – continued

Cross-currency interest rate swaps

Under cross-currency interest rate swaps, the Group is committed to exchange certain foreign currency loan principal and interest amounts at agreed future dates at fixed foreign exchange and interest rates. Such contracts enable the Group to eliminate the risk of adverse movements in foreign exchange and interest rates related to foreign currency denominated borrowings.

The following table details the Australian dollar equivalent of cross-currency interest rate swaps outstanding as at the reporting date:

The following table details	the Australian dollar equivalent of cross-currency interest rate swaps outstanding as at the reporting date:
Outstanding contracts	Weighted average AUD equivalent interest rate (including credit margin) Weighted average exchange rate Contract value Fair value
	2021 % 2020 % 2021 2020 2021 $’m 2020 $’m 2021 $’m 2020 $’m
Buy USD / Sell AUD 1 to 5 years 5years or more	5.9 – 0.7739 – 129.2 – (2.1) – – 5.9 – 0.7739 – 129.2 – 13.2
	129.2 129.2 (2.1) 13.2
Buy JPY / Sell AUD 5years or more	5.2 5.2 83.12 83.12 120.3 120.3 (20.7) (12.4)

The above cross-currency interest rate swaps are designated as effective cash flow hedges.

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124 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

G2. Capital and financial risk management – continued

(c) Foreign currency risk management – continued

Foreign currency sensitivity analysis

The Group is mainly exposed to the movement in United States dollar (USD), New Zealand dollar (NZD), Euro (EUR), Japanese Yen (JPY), Great British Pound (GBP) and Canadian dollar (CAD).

The following table details the Group’s sensitivity to movements in the Australian dollar against relevant foreign currencies. The percentages disclosed below represent the Group’s assessment of the possible changes in spot foreign exchange rates (i.e. forward exchange points and discount factors have been kept constant). The sensitivity analysis includes only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a given percentage change in foreign exchange rates.

A positive number indicates a before-tax increase in profit and equity and a negative number indicates a before-tax decrease in profit and equity.

	Profit/(loss) (i) Equity (ii)
	2021 $’m 2020 $’m 2021 $’m 2020 $’m
USD impact - 15% rate change + 15% rate change NZD impact - 15% rate change + 15% rate change EUR impact - 15% rate change + 15% rate change GBP impact - 15% rate change + 15% rate change JPY impact - 15% rate change + 15% rate change CAD impact - 15% rate change + 15% rate change	0.4 0.3 (4.7) 6.0 (0.3) (0.2) 3.5 (4.5) – – 19.7 18.5 – – (14.6) (13.7) – – 1.7 4.4 – – (1.3) (3.3) – – 1.1 – – – (0.8) – – – 0.5 1.9 – – (0.4) (1.4) – – (0.3) (1.2) – – 0.2 0.9

(i) This is mainly as a result of the changes in the value of unhedged foreign currency denominated financial asset and liabilities.

(ii) This is as a result of the changes in the value of forward foreign exchange contracts designated as cash flow hedges.

(d) Interest rate risk management

The Group is exposed to interest rate risk as entities borrow funds at floating interest rates. Management of this risk is governed by a Board approved Treasury Policy and is managed by maintaining an appropriate mix between fixed and floating rate borrowings and hedging is undertaken through cross-currency interest rate swaps and interest rate swap contracts and the issue of long-term fixed rate debt securities.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 125
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G2. Capital and financial risk management – continued

(d) Interest rate risk management – continued

The Group’s exposure to interest rates on financial assets and financial liabilities is detailed in the table below:

	Weighted average AUD equivalent interest rate (including credit margin) Liability/(asset)
	2021 % 2020 % 2021 $’m 2020 $’m
Floating interest rates – cash flow exposure Bank loans Cash and cash equivalents	1.2 1.3 45.0 333.7 0.3 0.8 (811.4) (588.5)
Total cash flow exposure	(766.4) (254.8)
Fixed interest rates – fair value exposure Bank loans(i) USD private placement notes(i) AUD private placement notes Medium term notes(i)	3.0 2.6 407.7 662.3 5.9 5.9 135.2 132.5 5.8 5.8 30.0 30.0 3.9 3.9 901.8 910.4
Total fair value exposure	1,474.7 1,735.2

(i) The values of the interest rate and cross-currency swaps have been included in the debt amounts.

All interest rates in the above table reflect rates in the currency of the relevant loan other than USD private placement notes and JPY medium term notes, where the AUD rates under the relevant cross-currency swaps are used.

The table above relates to amounts that are drawn. The Group has a number of undrawn facilities, which if utilised would be on a floating rate basis.

The Group uses cross-currency interest rate swaps and interest rate swap contracts to manage interest rate exposures. Under these contracts, the Group commits to exchange the difference between fixed and floating rate interest amounts calculated on notional principal amounts. The fair values of interest rate swaps are based on market values of equivalent instruments at the reporting date.

The following table details the interest rate swap contracts and related notional principal amounts as at the reporting date:

Outstanding floating to fixed swap contracts	Weighted average interest rate Notional principal amount Fair value
	2021 % 2020 % 2021 $’m 2020 $’m 2021 $’m 2020 $’m
AUD interest rate swaps Less than 1 year 1 to 2 years 2 to 3years	1.2 1.2 270.0 150.0 (1.0) (0.2) 1.3 1.2 135.0 270.0 (1.7) (3.7) – 1.3 – 135.0 – (2.9)
	405.0 555.0 (2.7) (6.8)
NZD interest rate swaps 1 to 2years	– 1.5 – 100.0 – (1.7)

Interest rate sensitivity analysis

The sensitivity analysis has been determined based on the exposure to interest rates at the reporting date and assuming that the rate change occurs at the beginning of the financial year and is then held constant throughout the reporting period.

Notes to the consolidated financial statements – continued

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126 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

G2. Capital and financial risk management – continued

(d) Interest rate risk management – continued

Interest rate sensitivity analysis – continued

Sensitivities have been based on a movement in interest rates of 100 basis points across the yield curve of the relevant currencies. The selected basis point increase or decrease represents the Group’s assessment of the possible change in interest rates on variable rate instruments, cross-currency interest rate swaps and interest rate swaps. An increase in interest rates of 100 basis points on the unhedged position (mostly cash and cash equivalents) will generate a profit of $7.7 million (2020: $2.5 million profit) to the profit or loss; a similar decrease in interest rates will generate a loss of $7.7 million (2020: $2.5 million loss) to the profit or loss.

For hedged positions designated as cash flow hedges, an increase and decrease in interest rates of 100 basis points will generate an increase and decrease in equity of $2.0 million (2020: $6.9 million) and $3.5 million (2020: $6.6 million) respectively.

(e) Credit risk management

Credit risk refers to the risk that a financial counterparty will default on its contractual obligations in respect of a financial instrument, resulting in a potential loss to the Group.

Trade receivables and contract assets arise from a large number of customers, spread across diverse industries and geographical areas. A credit evaluation is performed at the onset of material contracts to assess the financial condition of the counterparty and a credit evaluation is maintained over the life of the contract to take account of any changes in the risk profile of the counterparty. Where possible, a bank guarantee or performance bond, or parent guarantee from a creditworthy counterparty, is sought to secure a counterparty’s contractual payment obligations. Refer to Note C2 for details on credit risk arising from trade receivables and contract assets.

Financial counterparty credit limits and the related credit acceptability of financial counterparties are set by a Board approved Treasury Policy that is subject to annual review to ensure it remains relevant to the external environment and reflects the Group’s risk appetite at all times. The Treasury Policy sets clear parameters for determining acceptable financial counterparties and limits the exposure the Group may have at any one time to any individual financial counterparties to mitigate financial loss due to a default by a counterparty. No material exposure is considered to exist by virtue of the non-performance of any financial counterparty.

Credit risk on derivative financial instruments and cash balances held with financial counterparties is managed by Group Treasury with transactions only made with approved counterparties that have a minimum investment grade rating from Standard & Poor’s of A- (or equivalent from Moody’s or Fitch rating agencies). In limited circumstances, surplus cash may be held in foreign jurisdictions with financial counterparties that do not meet the minimum rating threshold where there is no other alternative.

The carrying amount of financial assets recorded in the financial statements, net of any allowances for losses, represents the Group’s maximum exposure to credit risk.

(f) Liquidity risk management

Liquidity risk is the risk that the Group is unable to meet its financial obligations as and when they fall due. The Group’s liquidity risk is managed under a Board approved Treasury Policy that sets clear parameters governing the Group’s continued access to liquidity.

The Group manages liquidity risk by ensuring a minimum level of liquidity is available to meet the Group’s financial obligations in the form of available liquid cash balances and access to committed undrawn debt facilities and other forms of capital, monitoring forecast and actual cash flows and matching the maturity profile of financial assets and liabilities.

The Group seeks to mitigate its exposure to liquidity risk by ensuring that debt facilities are provided by strong investment grade rated financial counterparties and by the early refinancing of debt facilities to ensure continued access to capital over the medium term.

During the year, the Group raised $399.7 million from the issue of new shares in order to rebalance the Group’s gearing and overall liquidity positions, and in anticipation of the payments for the purchase of the Spotless shares it did not already own. In December 2020, the Group established a new $1,400.0 million syndicated sustainability linked loan facility. This new facility replaces the Spotless $888.7 million and Downer $400 million syndicated bank loan facilities as the Group’s primary source of financing. The new facility is split into various tranches maturing in financial years 2024, 2025, 2026 and 2027. In addition, $145 million of Spotless bilateral bank loan facilities were refinanced at the Downer level.

A buy-back of Downer’s shares was announced to the market on 27 April 2021 and the buy-back commenced on 8 June 2021. As of 30 June 2021, a total of 4,363,398 shares were purchased for total consideration of $24.8 million, funded by the Group’s cash reserves.

As at 30 June 2021, the Group has $300 million of debt facilities maturing within the next 12 months, comprising a $250 million MTN that matures in March 2022 and a $50 million Term Loan facility that matures in June 2022. Whilst the means of refinancing has not yet been determined, the Group’s strong liquidity, investment grade credit rating and extensive bank relationships are expected to provide it with sufficient flexibility to either repay these maturities from existing undrawn committed debt facilities or refinance them with new facilities prior to maturity. The maturity profile and quantum of the Group’s debt facilities will continue to be monitored and refinanced in advance subject to credit market conditions and the support of its financial counterparties. Included in Note E2 is a summary of committed undrawn bank loan facilities.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 127
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G2. Capital and financial risk management – continued

(f) Liquidity risk management – continued

Liquidity risk tables

The following tables detail the contractual maturity of the Group’s financial liabilities. The tables are based on the undiscounted cash flows of financial liabilities and include both interest and principal cash flows.

						More
2021	Less than	1 to 2	2 to 3	3 to 4	4 to 5	than 5
$’m	1 year	years	years	years	years	years
Trade payables	670.5	–	–	–	–	–
Lease liabilities	176.1	132.8	101.6	75.2	51.2	196.1
Bank loans(i)	51.8	100.0	–	–	–	300.0
USD notes	6.1	6.1	6.1	6.1	136.1	–
AUD notes	1.7	1.7	1.7	1.7	30.9	–
Medium term notes	281.1	19.8	19.8	19.8	519.8	129.7
Total borrowings including interest	340.7	127.6	27.6	27.6	686.8	429.7
Cross-currency interest rate swaps	6.5	6.4	6.4	6.5	1.8	34.3
Interest rate swaps	3.1	0.3	–	–	–	–
Foreign currencyforward contracts	0.7	0.1	–	–	–	–
Total derivative instruments (ii)	10.3	6.8	6.4	6.5	1.8	34.3
Total	1,197.6	267.2	135.6	109.3	739.8	660.1
						More
2020	Less than	1 to 2	2 to 3	3 to 4	4 to 5	than 5
$’m	1 year	years	years	years	years	years
Trade payables	697.7	–	–	–	–	–
Dividend payable	83.3	–	–	–	–	–
Shareholder class action payable	34.0	–	–	–	–	–
Lease liabilities	193.1	139.9	105.8	86.4	70.1	292.5
Bank loans	10.9	153.1	532.3	300.0	–	–
USD notes	6.7	6.7	6.7	6.7	6.7	149.1
AUD notes	1.7	1.7	1.7	1.7	1.7	30.9
Medium term notes	31.3	281.3	20.0	20.0	20.0	665.8
Total borrowings including interest	50.6	442.8	560.7	328.4	28.4	845.8
Cross-currency interest rate swaps	5.7	5.7	5.7	5.7	5.7	6.9
Interest rate swaps	5.8	3.7	0.3	–	–	–
Foreign currencyforward contracts	7.1	–	–	–	–	–
Total derivative instruments (ii)	18.6	9.4	6.0	5.7	5.7	6.9
Total	1,077.3	592.1	672.5	420.5	104.2	1,145.2

(i) $450m of the bank loan liabilities relate to loan principal obligations with the balance relating to interest obligations for the current quarterly or monthly drawn profile. Interest obligations beyond the respective loan rollover dates are set by reference to the quarterly or monthly floating interest rate at the time of the respective loan rollover. As these rates have not yet been quantified, the interest obligations for these liabilities beyond the current rollover period have not been disclosed .

(ii) Includes assets and liabilities.

Notes to the consolidated financial statements – continued

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128 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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for the year ended 30 June 2021

G2. Capital and financial risk management – continued

Recognition and measurement

Derivative financial instruments

Derivative financial instruments are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re-measured to their fair value at each reporting date. Any gains or losses arising from changes in fair value of derivatives, except those that qualify as effective hedges, are immediately recognised in profit or loss.

Fair value hedges

Fair value hedges are used to hedge the exposure to changes in the fair value of a recognised asset, liability or firm commitment. For fair value hedges, changes in the fair value of the derivative, together with any changes in the fair value of the hedged asset or liability that is attributable to the hedged risk, are immediately recorded in profit or loss. Hedge accounting is discontinued when the hedge instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting.

Hedge accounting

AASB 9 aligns the accounting for hedging instruments closely with the Group’s risk management objectives and strategy and applies a more qualitative and forward-looking approach to assessing hedge effectiveness. The Group has elected to adopt the general hedge accounting model in AASB 9. AASB 9 includes requirements on rebalancing hedge relationships and prohibiting voluntary discontinuation of hedge accounting.

Cash flow hedges

Cash flow hedges are used to hedge risks associated with contracted and highly probable forecast transactions. For cash flow hedges, the effective portion of changes in the fair value of the derivative is deferred in equity and the gain or loss relating to the ineffective portion is recognised immediately in profit or loss.

Amounts deferred in equity are transferred to profit or loss in the same period the hedged item is recognised in profit or loss. When the forecast transaction that is hedged results in the recognition of a non-financial asset or liability, the gains and losses previously deferred in equity are transferred to form part of the initial measurement of the cost of the non-financial asset or liability.

If the forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in profit or loss. If the hedge instrument expires or is sold, terminated, exercised, or no longer qualifies for hedge accounting, any gain or loss deferred in equity remains in equity until the forecast transaction occurs.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Annual Report 2021 129
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G3. Other financial assets and liabilities

G3. Other financial assets and liabilities
2021 $’m	Financial assets Financial liabilities
	Current Non-current Current Non-current
At amortised cost: Other financial assets Advances to/from joint ventures and associates Deferred consideration
	18.8 5.7 – –
	3.2 – 3.6 –
	39.2 – 0.1 0.2
	61.2 5.7 3.7 0.2
At fair value: Level 2 Foreign currency forward contracts – Cash flow hedge Commodity forward contract – Cash flow hedge Cross-currency and interest rate swaps – Cash flow hedge Downer Contingent Share Options (DCSO) financial instrument
	1.5 0.1 2.0 0.2
	– – 2.4 –
	– – 7.6 17.9
	– – 33.3 –
	1.5 0.1 45.3 18.1
Level 3 Unquoted equityinvestments – Fair value through OCI
	– 2.0 – –
	– 2.0 – –
Total	62.7 7.8 49.0 18.3
2020 $’m	Financial assets Financial liabilities
	Current Non-current Current Non-current
At amortised cost: Other financial assets Advances to/from joint ventures and associates Deferred consideration	19.0 5.7 – – 4.5 – 15.6 – – – 14.4 0.2
	23.5 5.7 30.0 0.2
At fair value: Level 2 Foreign currency forward contracts – Cash flow hedge Commodity forward contracts – Fair value through profit or loss Cross-currencyand interest rate swaps – Cash flow hedge	1.7 – 8.6 – 1.0 – – – – 13.7 7.2 14.2
	2.7 13.7 15.8 14.2
Level 3 Unquoted equityinvestments – Fair value through OCI	– 2.0 – –
	– 2.0 – –
Total	26.2 21.4 45.8 14.4

Reconciliation of Level 3 fair value measurements of financial assets

The fair value of Level 3 investments remained unchanged from prior year (2020: no change).

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130 Downer EDI Limited NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Notes to the consolidated financial statements – continued

for the year ended 30 June 2021

G3. Other financial assets and liabilities – continued

Recognition and measurement

Fair value measurement

When a derivative is designated as the cash flow hedging instrument, the effective portion of changes in the fair value of the derivative is recognised in Other comprehensive income and accumulated in the hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss.

Valuation of financial instruments

For financial instruments measured and carried at fair value, the Group uses the following to categorise the methods used:

• Level 1: fair value is calculated using quoted prices in active markets for identical assets or liabilities

• Level 2: fair value is estimated using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices)

• Level 3: fair value is estimated using inputs for the asset or liability that are not based on observable market data.

During the year there were no transfers between Level 1, Level 2 and Level 3 fair value hierarchies.

The following table shows the valuation technique used in measuring Level 2 and 3 fair values, as well as significant unobservable inputs used:

Type	Valuation technique	Significant unobservable input
Cross-currency and	Calculated using the present value of the	Not applicable.
interest rate swaps	estimated future cash flows based on
	observableyield curves.
Foreign currency	Calculated using forward exchange rates	Not applicable.
forward contracts	prevailingat the balance sheet date.
Unquoted equity	Calculated based on the Group’s interest in the	Assumptions are made with regard to future
investments	net assets of the unquoted entities.	expected revenues and discount rates.
		Changing the inputs to the valuations to
		reasonably possible alternative assumptions
		would not significantly change the amounts
		recognised in profit or loss, total assets or total
		liabilities, or total equity.

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DIRECTORS’ RD E PORTCLARATION Annual Report 2021 131
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Directors’ Declaration

for the year ended 30 June 2021

In the opinion of the Directors of Downer EDI Limited:

• (a) The financial statements and notes set out on pages 61 to 130 are in accordance with the Australian Corporations Act 2001 (Cth), including:

• (i) Complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and

• (ii) The financial statements and notes thereto give a true and fair view of the financial position and performance of the Company and the consolidated entity;

• (b) There are reasonable grounds to believe that Downer EDI Limited will be able to pay its debts as and when they become due and payable;

• (c) The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 (Cth); and

• (d) The attached financial statements are in compliance with International Financial Reporting Standards, as noted in Note A to the financial statements.

Signed in accordance with a resolution of the Directors made pursuant to Section 295(5) of the Corporations Act 2001 (Cth).

On behalf of the Directors

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R M Harding Chairman

Sydney, 12 August 2021

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132 Downer EDI Limited SUSTAINABILITY PERFORMANCE SUMMARY
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Sustainability Performance Summary

for the year ended 30 June 2021

Downer’s sustainability approach

At Downer, sustainability means sustainable and profitable growth, providing value to customers, delivering services in a safe and environmentally responsible manner, helping people to be better and advancing the communities in which it operates. Downer recognises that sustainability is vital for securing long-term environmental, economic and social viability and understands its role in contributing to a sustainable future for communities to prosper.

Downer’s sustainability strategy is integrated into its business strategy which is shaped by its four Pillars: Safety; Delivery; Relationships and Thought Leadership. Downer’s commitment to sustainability is outlined on the Downer website and within the Sustainability Report located at www.downergroup.com/sustainability .

Downer operates in sectors that are closely connected to the investment that is being driven by population growth and urbanisation. These sectors include roads, rail, light rail, other public transport, power, gas, water, telecommunications, health, education, defence and other government sectors.

These sectors are served by Downer’s Urban Services businesses – Transport, Utilities, and Facilities and Asset Services. These businesses have demonstrated strength and resilience, hold market leading positions and attractive medium-term and long-term growth opportunities. They have a high proportion of government and government-related contracts and a capital light, services-based business model generating lower risk, and more predictable revenues and cash flows. Downer’s Urban Services strategy delivers many environmental and social benefits including a move to lower capital intensive and lower carbon activities which supports Downer’s decarbonisation pathway.

Downer is proud of the role it plays in creating more sustainable cities and improving the quality of life in Australia and New Zealand. Downer is also heavily involved in providing services for social infrastructure such as schools, universities, hospitals, public housing and other areas of government such as defence.

Customers trust Downer to deliver these services, which will have a direct impact on their customers every day.

With services impacting millions of lives every day, the sustainability of Downer’s operations is paramount – for its people, its partners, its shareholders, its customers and their customers. Downer delivers these services while managing the impacts of its activities on the environment and communities in which it operates, and working collaboratively with its supply chain. Downer understands that its ability to do this is fundamental to the Company’s long-term success.

Downer’s ESG reporting approach

Downer prepares its Sustainability Report with reference to the Global Reporting Initiative’s (GRI) Standards to provide investors with comparable information relating to environmental, social and governance (ESG) performance. Specifically, Downer’s approach takes into consideration the GRI’s principles for informing report content: materiality, completeness, and sustainability context and stakeholder inclusiveness. A key focus is to demonstrate how Downer delivers sustainable returns while managing risk and being responsible in how it operates.

Downer seeks to identify the issues that have the greatest potential to impact its future success and returns to shareholders. This year Downer revisited its materiality assessment in line with the GRI Standards via a rigorous independent lead process to formally engage internal and external stakeholders to understand what they believe are the material sustainability issues for Downer and inform the identification of its material issues by economic, social, environmental and governance categories.

The materiality assessment provided key sustainability insights for Downer’s strategy and frames the content for this year’s Sustainability Report. The results were positive with strong alignment between internal and external stakeholder views.

The material issues ranked in order of importance for Downer and its stakeholders are:

1. Health, safety and wellbeing

2. Governance and ethics

3. Economic performance

4. Customer relationships

5. Contractor management

6. Climate change

7. Cybersecurity

8. Business resilience

9. Employee development and engagement

10. Diversity and inclusion

11. Community engagement, impact and development

12. Human rights (including modern slavery)

13. Supply chain management

Further information including the Materiality process undertaken is available on Downer’s website and within the 2021 Sustainability Report located at www.downergroup.com/sustainability .

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SUSTAINABILITY PERFORMANCE SUMMARY Annual Report 2021 133
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Governance and risk management

The Downer Board, through its oversight functions, has verified that Downer appropriately considers ESG risks including those related to climate change. In fulfilling this function, the Downer Board also receives oversight from Downer’s Zero Harm Board Committee Audit and Risk Committee, Tender Risk Evaluation Committee and Disclosure Committee. ESG related risks and opportunities are incorporated into Downer’s broader corporate strategy, planning and risk management.

Downer’s Board recognises that an integrated approach to managing ESG risks and opportunities is essential. This has been reflected in the strengthening of Downer’s governance structure and increased focus in both Board and executive forums throughout the 2021 financial year. Managing the business to be sustainable over the long term has always been front of mind for Downer’s Board. In March, Downer reaffirmed this commitment by appointing a new role of Group Head of Sustainability.

ESG risks and opportunities are governed as part of Downer’s Group Risk and Opportunity Management Framework and Project Risk Management Framework. Downer identifies, manages and discloses material climate-related risks as part of Downer’s standard business practices, and, in accordance with the Group and Divisional strategies, which apply to everyone at Downer.

Downer’s Zero Harm Management System Framework sets the Company’s Zero Harm and sustainability governance requirements. Downer achieved centralised third-party accreditation to the International Standards ISO 45001 (Safety), ISO 9001 (Quality) and ISO 14001 (Environment). This gives Downer a single system of work for safety, quality and environment, and a framework to develop, implement and monitor The Downer Standard.

The Board’s Zero Harm Committee oversees the strategy and monitors the development and implementation of Downer’s Zero Harm management systems, improvement and performance reporting systems, and monitors Downer’s Zero Harm performance. Effective monitoring occurs through extensive internal and third-party audit programs, with oversight by both the Board Zero Harm and Board Audit and Risk Committees. Other aspects of Downer’s approach to sustainability are overseen by the Group Diversity Committee and other relevant corporate governance forums.

The method for measuring the Company’s performance is clearly set out in its governance framework. Short-term remuneration incentives are offered to senior managers in relation to the Company’s performance against Zero Harm and Sustainability targets. These targets include the management of Downer’s Safety performance (LTIFR and TRIFR) Zero Harm critical risks, developing improvement plans aligned to material Sustainable Development Goals and focusing on decarbonisation (greenhouse gas (GHG) emissions reductions) in order to achieve Downer’s science-based target net zero by 2050.

Downer’s Zero Harm performance during 2021 is summarised below. More comprehensive information is provided in Downer’s 2021 Sustainability Report which will be available on the Downer website www.downergroup.com/sustainability .

Health and safety

Downer’s business is founded on a deeply held value of Zero Harm. Health and safety is Downer’s highest priority, its top material issue and the first of its strategic pillars. Zero Harm is embedded in Downer’s culture and is fundamental to future success. Downer’s managers, supervisors and employees bring this core principle to fruition and actively live it every day, vigilantly protecting the health and safety of themselves and others in and around its workplaces.

Downer’s approach to health and safety is built on leading, innovating, managing risk, rethinking processes, applying lessons learnt, and adopting and adapting practices that aim to achieve zero work-related injuries. Downer’s integrated lifecycle approach is a market differentiator, and enables its people to work safely in industry sectors that may be inherently hazardous. In everything it does, the health and safety of its people and communities that it works within is always its top priority.

Downer’s commitment is enhanced by strong leadership from senior leaders within the business, who actively engage, enable and empower its people to work safely, and maintain safe working environments for themselves and the community. Downer has a mature safety culture; it is proud of its people’s support and commitment to its Zero Harm principles and practices.

Strategic initiatives as identified for FY21 have been progressed and have continued to strive for a more aligned and consistent approach across the Group. Downer’s strategic program for health and safety has focused on:

• Optimising the Critical Risk program to eliminate all preventable significant harm and establish Downer as a leader in critical risk management

• Finalising the harmonisation of best practice and management system integration, as well as the integration of our Critical Risk Optimisation and Centre of Excellence programs into its management system

• Enriching the quality of data and utilising emerging technologies in strategy and planning activities. This includes the continued focus on the deployment of mobile technology and digital forms via mobile applications

• Progressing outcomes of our Communities of Practice program

• Business resilience, including mental health. The goal is to proactively respond to emerging strategic Zero Harm issues that impact the sectors it operates in and reinforce the positioning of Downer as a thought leader. To further demonstrate its commitment to mental health Downer joined Beyond Blue as a Major Partner and linked uptake and maintenance of its Mental Health First Aid training program to its Sustainability Linked Loan (SLL) facility.

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134 Downer EDI Limited SUSTAINABILITY PERFORMANCE SUMMARY
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Sustainability Performance Summary – continued

for the year ended 30 June 2021

During FY21 Downer received two Penalty Infringement Notices for safety-related breaches. One was for A$3,000 for disruption of power to a residence in Queensland, and the other was for A$27,000 relating to the 2019 fatality at the Otraco depot in Calama, Chile, which was reported in Downer’s FY20 Sustainability Report.

In FY21, WorkSafe NZ filed charges against Downer and its joint venture partner in relation to the fatality of a cyclist (non-employee) in October 2020. At the time of writing this report, proceedings had been adjourned to enable consideration of an Enforceable Undertaking.

Full details of these matters are described in Downer’s 2021 Sustainability Report which will be available on the Downer website www.downergroup.com/sustainability .

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LTIFR TRIFR
2.00 5.00
1.80 4.50
1.60 4.00
1.40 3.50
1.20 3.00
1.00 2.50
0.99
0.80 0.87 2.00
0.78
0.60 0.66 0.67 1.50
0.55 0.57
0.40 1.00
0.20 0.50
0 0
2015 2016 2017 2018 2019 2020 2021
Lost Time Injuries per 1,000,000 hours
Total Recordable Injuries per 1,000,000 hours
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• 1 Safety data for 2021 includes Hawkins and Spotless. Safety data for 2015 to 2020 excludes Hawkins and Spotless.

Environmental Sustainability

Downer’s environmental sustainability performance is measured against the key areas of risk management, compliance, minimising environmental impact and maximising resource efficiency opportunities in its own and its customers’ businesses. Downer’s key focus areas during the year were:

• Continuing to focus on the resilience and assurance of environmental risk controls

• Taking a whole-of-life approach when considering initiatives and specifying materials

• Incorporating sustainability rating tools and initiatives into major projects

• Improving environmental workforce capability

• Engaging with customers regarding Downer’s environmental capability

• Protecting high value biodiversity located on sites Downer owns, occupies or operates

• Preparing the business as markets transition to a low carbon economy.

Downer achieved its Group-wide target of zero Level 5[ 1] or Level 6[ 2] environmental incidents. There were no significant environmental incidents[ 3] (≥ Level 4) during financial year 2021.

In FY21, Downer incurred one penalty infringement notice for environmental breaches which was an improvement on Downer’s performance over the past five years.

Downer was found guilty of two charges, fined NZ$15,000 (A$13,921), and contributed NZ$7,000 (A$6,497) towards marketing Hawkes Bay Regional Council’s burning rules in relation to burning of waste containing prohibited items within the Hawkes Bay Regional Council in New Zealand.

The Enforceable Undertaking under negotiation with the NSW EPA which was disclosed in FY20 relating to the Downer Seymour White Joint Venture stormwater discharges near Nowra in New South Wales was formalised in FY21. In addition to the Enforceable Undertaking, Downer paid the NSW EPA $9,500 for associated investigation and legal costs.

Full details of these matters are described in Downer’s 2021 Sustainability Report which will be available on the Downer website www.downergroup.com/sustainability .

Noteworthy achievements for FY21 include:

• Divestment of capital and carbon intensive Laundries and Mining businesses. Upon completing the sale of the remaining Mining services business and exiting the Mining sector, Downer’s operational emissions will reduce by 35% or 206,000 tonnes of carbon dioxide equivalent

• Successfully completed the refinancing of the Group’s debt platform with a new $1.4 billion SLL facility

• Achieved FY21 SLL Targets for KPI1 – GHG emission intensity reduction, KPI3 – Indigenous and cultural awareness training and KPI4 – Mental Health First Aid training

• S&P Global ranked Downer in the top 650 of 7,000 companies globally and listed Downer in their Sustainability Yearbook 2021 because its sustainability performance is within the top 15% for its industry sector. Downer was also awarded Industry Mover status, for the company with the strongest year-on-year score improvement in its industry

• Achieved third-party certification to the International Standards, and ISO 14001 (Environment), ISO 9001 (Quality), and ISO 45001 (Safety). This gives a single system of work for safety, environment and quality.

• 1 A Level 5 environmental incident is defined as any incident that causes significant impact or serious harm on the environment, where material harm has occurred and if costs in aggregate exceed $50,000.

• 2 A Level 6 environmental incident is defined as an incident that results in catastrophic widespread impact on the environment, resulting in irreversible damage.

• 3 A significant environmental incident or significant environmental spill (≥ Level 4) is any environmental incident or spill where there is significant impact on or material harm to the environment; or a notifiable incident where there is a spill that results in significant impact or material harm; or there is long-term community irritation leading to disruptive actions and requiring continual management attention.

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SUSTAINABILITY PERFORMANCE SUMMARY Annual Report 2021 135
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Climate change and TCFD Update

Downer is committed to reducing its direct emissions profile and is well positioned to contribute to Australia and New Zealand’s energy transition that is essential for the broader economy to decarbonise.

The Taskforce on Climate-related Financial Disclosures (TCFD) scenario analysis tested the resilience of Downer’s strategy in relation to plausible climate futures that considered possible physical, socioeconomic and political changes. In each scenario Downer’s strategy was found to be resilient and well positioned. It affirmed that Downer was well placed to provide products and services to its customers that will contribute to a low carbon future. It highlighted there are considerable opportunities for Downer which outweigh identified risks. These will assist in lower cost capital and increased margins.

Downer’s Urban Services strategy delivers many environmental and social benefits including a move to lower capital intensive and lower carbon activities, which supports Downer’s Climate Change Resilience and decarbonisation pathway.

Downer set an ambitious science-based target (aligned to a 1.5°C pathway) and committed to the decarbonisation of its absolute Scope 1 and 2 GHG emissions by 45-50% by 2035 from a FY18 base year and being Net Zero by 2050. In FY21, Downer became a signatory to the Science-Based Target Initiative (SBTi) in line with the 1.5ºC business ambition pathway. In addition, Downer linked its Science-Based GHG emissions reductions targets with financial incentives as part of the SLL facility.

In FY22 and beyond Downer will:

• Revisit the TCFD risks and opportunities, in line with its Urban Services Strategy;

• Undertake climate related financial impact assessment of:

• Downer’s fleet, (light and heavy)

• Fixed assets, e.g. asphalt plants

• Physical climate impacts

• Develop a framework to integrate into Downer’s capital allocation decision making process to consider carbon implications of investment over the short and longer terms.

Downer will track its progress towards its emissions reduction target and review its emission reduction approach in line with the Intergovernmental Panel on Climate Change (IPCC) updated scientific reports, whilst considering other developments in low-emissions technology, to ensure a practical and affordable transition towards this commitment.

Downer recognises the uncertainties, challenges and opportunities that climate change presents and despite the recent impacts of COVID-19, Downer remains committed to partnering with its customers and supply chain to achieve its long-term GHG emission reduction target.

Refer to Downer’s Sustainability Report located at www.downergroup.com/sustainability for further disclosures on Downer’s response to climate change and how it has specifically addressed the TCFD recommendations.

Downer has expanded its commitment to decarbonisation to incorporate Scope 3 emissions, as Downer recognises that it has a key role to play in minimising emissions that occur throughout its value chain. As such Downer has signed up to the Carbon Disclosure Project (CDP) supply chain program.

Downer is focused on initiatives to ensure it meets its SBT commitment. Downer has a clear pathway to Net Zero by 2050 which aligns to its Urban Services Strategy. The six key focus areas include:

• Divesting from high capital, carbon intense industries to lower carbon activities (2020>)

• Continue to focus on energy efficiency and GHG emission reductions (2010>)

• Decarbonise our fixed assets with new technology and fuel switching (2025>)

• Decarbonise Downer’s fleet through electric vehicles (EVs) and alternate fuel vehicles (2025>)

• Increase uptake of renewables both on and off-grid (2010>)

• Reduce Scope 3 emissions i.e. low carbon materials e.g. asphalt and work with suppliers to lower their emissions (2018>).

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136 Downer EDI Limited CORPORATE GOVERNANCE
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Corporate Governance

for the year ended 30 June 2021

Overview

Downer’s corporate governance framework provides the platform from which:

• The Board is accountable to shareholders for the operations, performance and growth of the Company

• Downer management is accountable to the Board

• The risks to Downer’s business are identified and managed

• Downer effectively communicates with its shareholders and the investment community.

Downer continues to enhance its policies and processes to promote leading corporate governance practices.

The Board endorses the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (ASX Principles).

Principle 1: Lay solid foundations for management and oversight

The Downer Board Charter sets out the functions and responsibilities of the Board and is available on the Downer website at www.downergroup.com .

The Board Charter states that the role of the Board is to provide strategic guidance and to effectively oversee management of the Company. Among other things, the Board is responsible for:

• Overseeing the Company, including its control and accountability systems

• Appointing and removing the Group CEO and senior executives

• Monitoring performance of the Group CEO and senior executives

• Reviewing, ratifying and monitoring systems of risk management and internal control, codes of conduct and legal compliance.

Before appointing a Director or senior executive, the Board undertakes appropriate checks.

The Board provides shareholders with all material information which is relevant to the decision to elect or re-elect a Director.

Directors receive formal letters of engagement setting out the key terms, conditions and expectations of their engagement.

The Board Charter also describes the functions delegated to management, led by the Group CEO.

The primary goal set for management by the Board is to focus on enhancing shareholder value, which includes responsibility for Downer’s economic, environmental and social performance.

The Group CEO is responsible for the day-to-day management of Downer and his authority is delegated and authorised by the Board.

Downer has written employment agreements with each of its senior executives and the performance of those senior executives is regularly reviewed against appropriate measures, including performance targets linked to the business plan and overall corporate objectives. In 2021, Downer’s senior executives participated in periodic performance evaluations where they received feedback on progress against these targets.

The Company Secretary is responsible for supporting the effectiveness of the Board and is directly accountable to the Board, through the Chairman, on all matters to do with the proper functioning of the Board.

Details of Downer’s Directors and the Executive Leadership Team are available on the Downer website at www.downergroup.com .

Diversity at Downer

Downer is committed to ensuring that it has a diverse and inclusive workforce, which fulfils the expectations of its employees, customers and shareholders while building a sustainable future for its business. This is formalised through the Downer Diversity and Inclusion (D&I) Policy which outlines the Company’s commitment to developing a diverse and inclusive workforce.

In 2016, Downer launched a revised Diversity Framework. The purpose of this framework is to support the D&I Policy and implementation of Divisional D&I strategies.

The Diversity and Inclusion Policy is available on the Downer website at www.downergroup.com .

ASX diversity recommendations – diversity statement

This diversity statement outlines Downer’s performance throughout 2021 with respect to its broader diversity program, but with a particular focus on gender, and specifically includes:

• Details of Downer’s key gender representation metrics

• An overview of the gender diversity initiatives undertaken by Downer throughout 2021

• An outline of Downer’s measurable gender diversity objectives for 2021.

Gender representation metrics

As at 30 June 2021, Downer’s female gender representation metrics were as follows:

• Board 33%

• – Senior Executive[ 1] 25% – Management[ 2] 17% – Workforce 34%

1 For present purposes, ‘Senior Executive’ refers to CEO, KMP and Other Executives/General Managers as defined in the Workplace Gender Equality Agency Reference guide to the workplace profile and reporting questionnaire (WGEA Reference Guide).

2 For present purposes, ‘Management’ refers to CEO, KMP, Other Executives/General Managers, Senior Managers and Other Managers as defined in the WGEA Reference Guide.

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CORPORATE GOVERNANCE Annual Report 2021 137
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Looking back: 2021 measurable objectives

Focus Area	Objective	Targets	Outcome	Outcome
Flexibility,	To continue	Report quarterly	Achieved:
Diversity and	developing Downer’s	to the Executive	–	Governance structure embedded through the establishment of the
Inclusion	commitment to	Committee on		Group Diversity Steering Committee and Line of Business Steering
	representing the	progress towards		Committees and Tactical Plans. Progress reporting occurs quarterly
	businesses and	targets and		to the Executive Committee.
	communities in which we serve through a focus on D&I.	objectives.	–	COVID-19 necessitated increased use of flexible working arrangements across the business.
			–	Strategic partnerships with Aboriginal employment and ex-Defence
				human resource organisations enabled ongoing attraction of
				diverse, disadvantaged and/or minority groups.
			–	Established a strategic supplier relationship with social enterprise
				Social Traders to participate in contracted works.
			Progressing:
			–	Launch of the ‘Own Diferent’ Campaign across the business to
				celebrate our commitment to Inclusion.
			–	Referral programs such as refer a female friend and refer an
				Indigenous friend continued duringFY21.
Gender	To improve	40% women in the	Achieved:
Diversity	opportunities for	workforce by 2023.	–	Development and launch of leadership opportunities and
	women to reach their	25% women in		networking programs in Australia and New Zealand.
	potential through an inclusive work environment while positioning Downer Group as a preferred employer for women	management positions by 2023. 25% women in executive positions by 2023.	Progressing: – Focus on extending female talent in Management and Subject Matter Expert positions. – Working with Registered Training Organisations and employment organisations to support women into trades-based employment
	in our industry.	30% women		in skilled trades that are male-dominated with a view to a formal
		on the Board.		partnership and pilot.
			–	An unconscious bias learning module will form part of a Podcast
				series in FY22.
Cultural	To build on Downer	3% Aboriginal and	Achieved:
Diversity	Group’s commitment	Torres Strait Islander	–	Progress on Downer Group’s Reconciliation Action Plan (RAP)
	to closing the	employees.		‘Innovate’, endorsed by Reconciliation Australia, which outlines our
	gap by increasing			reconciliation vision, strategy and targeted initiatives, continues.
	Indigenous workforce participation and developing strategic partnerships		–	Downer has exceeded RAP commitments by establishing relationships with labour hire companies, employment agencies and other Indigenous Organisations.
	with Indigenous		–	Downer continues to work with Indigenous Organisations to further
	organisations and			develop opportunities for Aboriginal and Torres Strait Islander
	community groups.			employees, apprentices, and trainees.
			Progressing:
			–	Downer continues to review, consult and enhance its Aboriginal and
				Torres Strait Islander Employment and Retention Strategy through
				engaging employment organisations and community to identify
				barriers and implement recommendations for improvement.
Generational	To establish Downer	Maintain or increase	Progressing:
Diversity	Group as a sought-	the number of	–	Downer continues to build its pipeline of talent by investing in entry
	after employer for	graduate employees		level programs that align to our generational diversity focus and
	all age groups and	year-on-year.		priority areas, including:
	as an organisation that builds a			– The Downer Graduate Development Program
	talent pipeline of			– Cadets and further Undergraduate programs
	thought leaders and			– Implementation of The Downer Standard for Apprentices
	continues to value			and Trainees that supports strategic attraction, selection,
	experience.			development, management and retention.

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138 Downer EDI Limited CORPORATE GOVERNANCE
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Corporate Governance – continued

for the year ended 30 June 2021

Looking ahead: 2022 measurable objectives

Focus Area	Objective	Targets	Initiatives	Initiatives
Flexibility,	To continue	Report quarterly	–	Embed talent management and succession planning framework
Diversity and	developing Downer’s	to the Executive		cohort to CEO-3 for females
Inclusion	commitment to	Committee on	–	Establish a Group Level Community of Practice that provides
	representing the	progress towards		strategic advice and governance for the Line of Business D&I
	businesses and	targets and objectives.		Steering Committees. This will include a strategic focus on flexible
	communities in which			work arrangements
	we serve through a focus on D&I.		–	Embed and leverage the Diversity and Inclusion Steering Committees within each Line of Business to focus on programs and
				initiatives that will support the achievement of targets
			–	Continue to review and modify Downer’s Mandatory Induction
				program to ensure our commitment to a diverse and
				inclusive workforce and working environment is embedded
				in Downer’s culture
			–	Deliver a series of D&I ‘Lunch ’n’ Learn’ sessions for all employees
				across the Group, covering a range of topics including Indigenous,
				gender, disability, orientation and generational diversity
			–	Launch a Workplace Giving Program
			–	Continue to leverage our relationships that manage the transition of
				ex-Defence personnel into employment
			–	Engage with not-for-profit and community organisations to provide
				pathways and opportunities for culturally and linguistically diverse
				groups andpeople.
Gender	To improve	40% women in the	–	Analyse the WGEA reporting data and use the learnings as key
Diversity	opportunities for	workforce by 2023.		inputs to develop ongoing strategy, programs and initiatives
	women to reach their	25% women in	–	Deliver Downer’s THRIVE women’s personal and professional
	potential through	management		growth program
	an inclusive work environment while positioning Downer Group as a preferred employer for women	positions by 2023. 25% women in executive positions by 2023.	– –	Develop and release an unconscious bias capability program to support an inclusive workplace Realign our leadership programs to include further D&I content and learning.
	in our industry.	30% women on
		the Board.
Cultural	To build on Downer’s	3% Aboriginal and	–	Work with Reconciliation Australia to develop and launch a Downer
Diversity	commitment to	Torres Strait Islander		Group Innovate RAP
	Aboriginal and	employees.	–	Create an Indigenous Champions network
	Torres Strait Islander peoples and the Māori people, through		–	Embed best practice cultural heritage monitoring within large-scale on-country project deliveries
	the development of		–	Continue to deliver Downer’s Māori Leadership Development
	strategic partnerships			program, Te Ara Whanake
	with Indigenous		–	Continue to deliver the Te Ara Whanake program to Non-Māori
	organisations and			leaders which gives them a deeper understanding of Māori history,
	community and			culture and Tikanga.
	increased workforce
	participation.
Generational	To establish Downer	Maintain or increase	–	Continue to build a talent pipeline by investing in entry level
Diversity	Group as a sought-	the number of		programs that align to our generational diversity focus and priority
	after employer for all	graduate employees		areas, including:
	age groups and as	year-on-year.		– The Downer Graduate Development Program
	an organisation that builds a talent pipeline			– Cadets and further Undergraduate programs
	of thought leaders			– Apprentices and Trainees.
	and continues to
	value experience.

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CORPORATE GOVERNANCE Annual Report 2021 139
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Principle 2: Structure the Board to be effective and add value

Throughout the 2021 financial year, the Board was comprised of a majority of independent Directors.

The Board is currently comprised of the Chairman (Mike Harding, an independent, Non-executive Director), four other independent, Non-executive Directors and an Executive Director (the Group CEO, Grant Fenn). Details of the members of the Board, including their skills, experience, status and their term of office are set out in the Directors’ Report on pages 4 to 51 and are also available on the Downer website at www.downergroup.com .

The composition of the Board is reviewed and assessed by the Nominations and Corporate Governance Committee to ensure the Board is of a composition, size and commitment to effectively discharge its responsibilities and duties.

Directors are required to bring their independent judgement to bear on all Board decisions. To facilitate this, it is Downer’s policy to provide Directors with access to independent professional advice at the Company’s expense in appropriate circumstances.

Downer’s Non-executive Directors recognise the benefit of conferring regularly without management present, and they do so at various times throughout the year.

The Board considers that an independent Director is a Non-executive Director who is not a member of management and who is free of any business or other relationship that could (or could reasonably be perceived to) materially interfere with the independent exercise of their judgement.

The Board regularly assesses the independence of each Director to ensure that each Director has the capacity to bring independent judgement to bear on issues before the Board and to act in the best interests of Downer as a whole.

Downer’s governance framework requires each Director to promptly disclose actual and possible conflicts of interest, any interests in contracts, other directorships or offices held, related party transactions and any dealing in the Company’s securities.

At least one Director must retire from office at each Annual General Meeting (AGM). No Non-executive Director can serve more than three years without offering themselves for re-election.

The Chairman of the Board is an independent, Non-executive Director. He is responsible for the leadership of the Board and for the efficient organisation and functioning of the Board. The Chairman is appointed by the Board to ensure that a high standard of values, governance and constructive interaction is maintained.

The Chairman facilitates the effective contribution of all Directors and promotes constructive and respectful relations between Directors and the Board and management. He also represents the views of the Board to Downer’s shareholders and conducts the AGM.

The roles of Chairman and Group CEO are not exercised by the same person and the division of responsibilities between the Chairman and the Group CEO have been agreed by the Board and are set out in the Board Charter and Downer’s Delegations Policy.

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140 Downer EDI Limited CORPORATE GOVERNANCE
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Corporate Governance – continued

for the year ended 30 June 2021

The Board has established a number of committees to assist the Board to effectively and efficiently execute its responsibilities. A list of the main Board Committees and their current membership is set out in the table below.

Board Committee	Chairman	Members
Audit and Risk	N M Hollows	T G Handicott
		P L Watson
Zero Harm	P L Watson	G A Fenn
		P S Garling
Nominations and Corporate Governance	R M Harding	T G Handicott
		N M Hollows
Remuneration	T G Handicott	P S Garling
		R M Harding
		N M Hollows
Disclosure	T G Handicott	G A Fenn
		R M Harding
Rail Projects	P S Garling	G A Fenn
		T G Handicott
		R M Harding
Tender Risk Evaluation	P L Watson	G A Fenn
		R M Harding
		N M Hollows

The names of members of each committee, the number of meetings and the attendances by each of the members of the various committees to which they are appointed are set out in the Directors’ Report on page 19.

The Tender Risk Evaluation Committee’s primary purpose is to oversee tenders and contracts that exceed the delegation of the Group CEO. The Tender Risk Evaluation Committee is chaired by an independent Director and comprises four members, including the Group CEO. Meetings of the Tender Risk Evaluation Committee are convened as required to review tender opportunities.

The Rail Projects Committee was formed to provide oversight of the major rollingstock delivery programs, being Sydney Growth Trains for the Sydney metropolitan network and High Capacity Metropolitan Trains in Melbourne. With the projects reaching an advanced stage, the Committee ceased in April 2021 and regular periodic reports are being made directly to the Board.

The Board has established the Nominations and Corporate Governance Committee to oversee the practices for selection and appointment of Directors of the Company.

The Nominations and Corporate Governance Committee’s primary purpose is to support and advise the Board on fulfilling its responsibilities to shareholders by ensuring that the Board is comprised of individuals who are best able to discharge the responsibilities of Directors having regard to the law and leading governance practice.

The Nominations and Corporate Governance Committee has a charter which sets out its roles and responsibilities, composition, structure, membership requirements and the procedures for inviting non-committee members to attend meetings. The Nominations and Corporate Governance Committee Charter gives the Nominations and Corporate Governance Committee access to internal and external resources, including advice from external consultants and specialists. The Nominations and Corporate Governance Committee Charter is available on the Downer website at www.downergroup.com .

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CORPORATE GOVERNANCE Annual Report 2021 141
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The Nominations and Corporate Governance Committee, all members of which are independent Directors, is chaired by an independent Director and has a minimum of three members.

The Committee’s responsibilities include:

• Assessing the skills and competencies required on the Board

• Assessing the extent to which the required skills are represented on the Board

• Establishing processes for the review of the performance of individual Directors, Board Committees and the Board as a whole

• Establishing processes for identifying suitable candidates for appointment to the Board (including undertaking a formal due diligence screening process)

• Recommending the engagement of nominated persons as Directors.

When appointing Directors, the Nominations and Corporate Governance Committee aims to ensure that an appropriate balance of skills, experience, expertise and diversity is represented on the Board. This may result in a Non-executive Director with a longer tenure remaining in office to bring that experience and depth of understanding to matters brought before the Board.

Given the breadth of Downer’s service offerings across a range of markets, the Board seeks to ensure that it maintains an appropriate range of technical skills and executive experience across engineering, construction and scientific disciplines as well as services activities and professional services when considering the appointment of a new Director.

In June 2021, Downer announced that its Chairman, Mr R M Harding, would retire on 30 September 2021 and that Mr M P Chellew had been appointed as a Non-executive Director effective 1 September 2021 and would become Chairman on 30 September 2021. In appointing Mr Chellew, the Downer Board identified the need to ensure ongoing engineering expertise and his extensive experience as a Chief Executive Officer, Non-executive Director and Non-executive Chairman of large publicly listed organisations.

The chart illustrates the balance achieved with the current Board composition. The Company recognises the value of diversity which has been a component of the appointment process over the past few years.

Professional qualifications

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Business, finance and economics
Technical
Humanities
Legal
0.0 1.0 2.0 3.0 4.0 5.0
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• Comprises construction, engineering, metallurgy and science.

Industry experience

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Professional services
Resources
Transport and infrastructure
0.0 1.0 2.0 3.0 4.0 5.0
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• Includes banking, finance and legal.

Tenure (years)

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9+
6–9
3–6
0–3
0.0 1.0 2.0 3.0 4.0
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Gender diversity

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2
4
Male Female
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142 Downer EDI Limited CORPORATE GOVERNANCE
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Corporate Governance – continued

for the year ended 30 June 2021

From time to time, Downer engages external specialists to assist with the selection process as necessary, and the Chairman, Board and Group CEO meet with candidates as part of the appointment process.

Nominations for re-election of Directors are reviewed by the Nominations and Corporate Governance Committee and Directors are re-elected in accordance with the Downer Constitution and the ASX Listing Rules.

As part of its commitment to leading corporate governance practice, the Board undertakes improvement programs, including externally facilitated periodic reviews of its performance and that of its Committees and Directors. The last review was completed during FY21 and included consideration of the skills and knowledge of Directors.

The Company has formal induction procedures for both Directors and senior executives. These induction procedures have been developed to enable new Directors and senior executives to gain an understanding of:

• Downer’s financial position, strategies, operations and risk management policies

• The respective rights, duties and responsibilities and roles of the Board and senior executives

• Downer’s culture and values.

Directors are given an induction briefing by the Company Secretary and an induction pack containing information about Downer and its business, Board and Committee charters and Downer Group policies. New Directors also meet with key senior executives to gain an insight into the Company’s business operations and the Downer Group structure.

Directors are encouraged to continually build on their exposure to the Company’s business and a formal program of Director site visits has been in place since 2009. Directors are also encouraged to attend appropriate training and professional development courses to update and enhance their skills and knowledge and the Company Secretary regularly organises governance and other continuing education sessions for the Board.

The Board is provided with the information it needs to discharge its responsibilities effectively. The Directors also have access to the Company Secretary for all Board and governance-related issues and the appointment and removal of the Company Secretary is determined by the Board. The Company Secretary is accountable to the Board, through the Chair, on all governance matters.

Principle 3: Instil a culture of acting lawfully, ethically and responsibly

Downer’s Purpose is to create and sustain the modern environment by building trusted relationships with our customers. Its Promise is to work closely with our customers to help them succeed, using world-leading insights and solutions. Downer’s Purpose and Promise are founded on the Pillars of Zero Harm, Delivery, Relationships and Thought Leadership and define the way it manages its business and are the foundations that support Downer’s culture. An overview of the Purpose, Promise and Pillars can be found on the Downer website at www.downergroup.com .

Downer strives to attain the highest standards of behaviour and business ethics when engaging in corporate activity. The Downer Standards of Business Conduct sets the ethical tone and standards of the Company and deals with matters such as:

• Compliance with the letter and the spirit of the law

• Workplace behaviour

• Prohibition against bribery and corruption

• Protection of confidential information

• Engaging with stakeholders

• Workplace safety

• Diversity and inclusiveness

• Sustainability

• Conflicts of interest.

Downer has a formal whistleblower policy and procedures for reporting and investigating breaches of the Standards of Business Conduct. This includes the Our Voice service, an external and independent reporting service which enables employees to anonymously report potential breaches of the Standards of Business Conduct, including misconduct or other unethical behaviour. Reports received through Our Voice are investigated where appropriate, with the Company Secretary overseeing the completion of any remedial action. The Board is informed of material breaches of the Standards of Business Conduct through reporting of incidents reported under the whistleblower policy, investigations of allegations of fraud and breaches of Downer’s Zero Harm Cardinal Rules.

The Standards of Business Conduct applies to all officers and employees and is available on the Downer website at www.downergroup.com .

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CORPORATE GOVERNANCE Annual Report 2021 143
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Downer endorses leading governance practices and has in place policies setting out the Company’s approach to various matters, including:

• Securities trading (stipulating ‘closed periods’ for designated employees and a formal process which employees must adhere to when dealing in securities)

• The Company’s disclosure obligations (including continuous disclosure)

• Communicating with shareholders and the general investment community

The Audit and Risk Committee assists the Board to fulfil its responsibilities relating to:

• The quality and integrity of the accounting, auditing and reporting practices of the Company with a particular focus on the qualitative aspects of financial reporting to shareholders

• The Company’s risk profile and risk policies

• The effectiveness of the Company’s system of internal control and framework for risk management.

The Audit and Risk Committee is structured so that it:

• Privacy.

• Consists of only Non-executive Directors

Downer has an Anti-Bribery and Corruption Policy which expands upon the prohibition against bribery and corruption currently contained in the Standards of Business Conduct, and which addresses key issues such as working with government, political donations, human rights, conducting business internationally and gifts and benefits. The Board is informed of material breaches of the Anti-Bribery and Corruption Policy.

As Downer has operations in foreign jurisdictions, Downer employees are confronted by the challenges of doing business in environments where bribery and corruption are real risks. However, regardless of the country or culture within which its people work, Downer is committed to compliance with the law, as well as maintaining its reputation for ethical practice.

These policies are available on the Downer website at www.downergroup.com .

Principle 4: Safeguard the integrity of corporate reporting

The Company has in place a structure of review and authorisation which independently verifies and safeguards the integrity of its financial reporting.

An external limited assurance engagement is performed on selected sustainability information in Downer’s annual Sustainability Report. Downer also follows a comprehensive internal verification process to ensure the integrity of the Sustainability Report and other periodic corporate reports which are not audited or reviewed by the external auditor, including the Directors’ Report, Corporate Governance Statement, and Information for Investors. This process involves review of reporting by relevant subject matter experts across the organisation to ensure it is materially accurate, balanced and provides investors with appropriate information.

• Consists of a majority of independent Directors

• Is chaired by an independent Chairman (who is not the Chairman of the Board)

• Has at least three members.

The Audit and Risk Committee comprises only independent Directors, includes members who are financially literate and has at least one member who has relevant qualifications and experience.

The Audit and Risk Committee Charter sets out the Audit and Risk Committee’s role and responsibilities, composition, structure and membership requirements and the procedures for inviting non-committee members to attend meetings.

The Board receives assurances from the Group CEO and the Group CFO that the declarations provided to it in relation to the annual and half-year financial statements, in accordance with sections 295A and 303(4) of the Corporations Act 2001 (Cth) are founded on a sound system of risk management and internal control and that the system is operating effectively in all material respects in relation to financial reporting risks.

Downer’s external auditor attends the Company’s AGMs and is available to answer any questions which shareholders may have about the conduct of the external audit for the relevant financial year and the preparation and content of the Audit Report.

Information regarding the number of times the Audit and Risk Committee convened in FY21, together with the individual attendances of members at the meetings, is set out in the Directors’ Report on page 19.

The Audit and Risk Committee Charter is available on the Downer website at www.downergroup.com .

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144 Downer EDI Limited CORPORATE GOVERNANCE
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Corporate Governance – continued

for the year ended 30 June 2021

Principle 5: Make timely and balanced disclosure

The Company’s Disclosure Policy sets out processes which assist the Company to ensure that all investors have equal and timely access to material information about the Company and that Company announcements are factual and presented in a clear and balanced way. It includes that new and substantive investor or analyst presentations are released on the ASX Market Announcements Platform ahead of the presentation. A copy of the Disclosure Policy is available on the Downer website at www.downergroup.com .

The Disclosure Policy also sets out the procedures for identifying and disclosing material and market-sensitive information in accordance with the Corporations Act 2001 (Cth) and the ASX Listing Rules. The Board receives copies of all material market announcements promptly after they have been made.

Downer’s Disclosure Committee consists of two independent, Non-executive Directors (one of which is the Chairman of the Board) and the Group CEO. The Disclosure Committee oversees disclosure of information by the Company to the market and the general investment community.

Principle 6: Respect the rights of security holders

Downer empowers its shareholders by:

• Communicating effectively, openly and honestly with shareholders

• Giving shareholders ready access to balanced and understandable information about the Company and its governance

• Making it easy for shareholders to participate in general meetings

• Giving shareholders the option to receive communications from, and send communications to, the Company and its security registry electronically.

The Downer Communication Policy sets out the Company’s approach to communicating with shareholders and is available on the Downer website at www.downergroup.com .

The Company publishes corporate information on its website ( www.downergroup.com ), including Annual and Half Year Reports, ASX announcements, investor updates and media releases.

Downer encourages shareholder participation at members meetings through its use of electronic communication, including by making notices of meetings available on its website and audio casting of general meetings and significant Group presentations. All substantive resolutions at meetings of shareholders are conducted by poll.

Principle 7: Recognise and manage risk

To mitigate the risks that arise through its activities, Downer has various risk management policies and procedures in place that cover (among other matters) interest rate management, foreign exchange risk management, credit risk management, tendering and contracting risk and project management.

Downer has controls at the Board, executive and business unit levels that are designed to safeguard Downer’s interests and ensure the integrity of reporting (including accounting, financial reporting, environment and workplace health and safety policies and procedures). These controls are designed to ensure that Downer complies with legal and regulatory requirements, as well as community standards.

Downer has a Risk Management Framework in place to enable business risks to be identified, evaluated and managed. The Board ratifies Downer’s approach to managing risk and oversees Downer’s Risk Management Framework, including the Group risk profile and the effectiveness of the systems being implemented to manage risk. The last review of the Risk Management Framework was completed in 2021. The Board reviews the Group risk profile twice each year and considers other risk matters, such as business resilience, tender review processes, risk appetite, and specific risk areas, on a regular basis, as well as regular reports from senior management, the internal audit team, and the external auditor.

Downer’s annual Sustainability Report provides a detailed overview of Downer’s approach to managing its environmental and social risks. The Sustainability Report is available on the Downer website at www.downergroup.com/sustainability .

The Company’s internal audit function objectively evaluates and reports on the existence, design and operating effectiveness of internal controls. Downer’s internal audit team is independent of the external auditor and reports to the Audit and Risk Committee.

Downer’s Audit and Risk Committee assists the Board in its oversight of Downer’s risk profile and risk policies, the effectiveness of the systems of internal control and Risk Management Framework and Downer’s compliance with applicable legal and regulatory obligations. The Audit and Risk Committee Charter is available on the Downer website at www.downergroup.com .

Management reports regularly to the Audit and Risk Committee on the effectiveness of Downer’s management of its material business risks and on the progress of mitigation treatments.

The Directors and key members of management attend the Company’s AGMs and are available to answer questions.

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CORPORATE GOVERNANCE Annual Report 2021 145
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Principle 8: Remunerate fairly and responsibly

The Board has established a Remuneration Committee and has adopted the Remuneration Committee Charter which sets out its role and responsibilities, composition, structure and membership requirements and the procedures for inviting non-committee members to attend meetings.

The Remuneration Committee is responsible for reviewing and making recommendations to the Board about:

• Executive remuneration and incentive policies

• The remuneration, recruitment, retention, performance measurement and termination policies and procedures for all senior executives reporting directly to the Group CEO

Executive Directors and senior executives are prohibited from entering into transactions in associated products which limit the economic risk of participating in unvested entitlements under any of the Company’s equity-based remuneration schemes, as set out in the Securities Trading Policy. A copy of the Securities Trading Policy is available on the Downer website at www.downergroup.com .

Further details about the remuneration of Executive Directors and senior executives are set out in the Remuneration Report at page 23 and details of Downer shares beneficially owned by Directors are provided in the Directors’ Report at page 6.

• Executive and equity-based incentive plans

• Superannuation arrangements and retirement payments.

Remuneration of the Group CEO, Executive Directors and Non-executive Directors forms part of the responsibilities of the Nominations and Corporate Governance Committee.

Downer’s remuneration policy is designed to motivate senior executives to pursue the long-term growth and success of the Company and prescribes a relationship between the performance and remuneration of senior executives.

The Remuneration Committee is structured so that it:

• Consists of a majority of independent Directors

• Is chaired by an independent Director

• Has at least three members.

The Executive Director is not a member of the Remuneration Committee.

The maximum aggregate fee approved by shareholders that can be paid to Non-executive Directors is $2.0 million per annum. This cap was approved by shareholders on 30 October 2008. Further details about remuneration paid to Non-executive Directors are set out in the Remuneration Report at page 23.

Retirement benefits are not paid to Non-executive Directors.

Non-executive Directors do not participate in any equity incentive schemes.

The remuneration structure for Executive Directors and senior executives is designed to achieve a balance between fixed and variable remuneration taking into account the performance of the individual and the performance of the Company. Executive Directors receive payment of equity-based remuneration as short-term and long-term incentives.

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146 Downer EDI Limited INFORMATION FOR INVESTORS
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Information for Investors

for the year ended 30 June 2021

Downer shareholders

Downer had 28,171 ordinary shareholders as at 30 June 2021, of which 26,295 shareholders had a registered address in Australia.

The largest shareholder, HSBC Custody Nominees (Australia) Limited, held 33.53% of the 696,928,956 fully paid ordinary shares issued at that date.

Securities exchange listing

Downer is listed on the Australian Securities Exchange (ASX) under the ‘Downer EDI’ market call code 3965, with ASX code DOW, and is a foreign exempt issuer on the New Zealand Exchange with the ticker code DOW NZ.

Company information

The Company’s website www.downergroup.com offers comprehensive information about Downer and its services. The site also contains news releases and announcements to the ASX and NZX, financial presentations, Annual Reports, Half Year Reports and company newsletters. Downer printed communications for shareholders include the Annual Report which is available on request.

Dividends

Dividends are determined by the Board having regard to a range of circumstances within the business operations of Downer including operating profit and capital requirements. The level of franking on dividends is dependent on the level of taxes paid to the Australian Taxation Office by Downer and its incorporated joint ventures.

Share registry

Shareholders and investors seeking information about Downer shareholdings or dividends should contact the Company’s share registry, Computershare Investor Services Pty Ltd (Computershare):

Level 3 60 Carrington Street Sydney NSW 2000

GPO Box 2975 Melbourne VIC 3001

Tel: 1300 556 161 (within Australia) +61 3 9415 4000 (outside Australia)

Fax: 1300 534 987 (within Australia) +61 3 9473 2408 (outside Australia)

www.computershare.com

Shareholders must give their holder number (SRN/HIN) when making inquiries. This number is recorded on issuer sponsored and CHESS statements.

Updating your shareholder details

Shareholders can update their details (including bank accounts, DRP elections, tax file numbers and email addresses) online at www.computershare.com.au/easyupdate/dow .

Shareholders will require their holder number (SRN/HIN) and postcode to access this site.

Tax file number information

Dividends are paid in Australian dollars, other than for shareholders with a registered address in New Zealand, who receive dividends in New Zealand dollars unless an election is made to receive payment in Australian dollars by providing Australian bank account details.

International shareholders can use Computershare’s Global Payments System to receive dividend payments in the currency of their choice at a nominal cost to the shareholder.

Dividend reinvestment plan

Downer’s Dividend Reinvestment Plan (DRP) is a mechanism to allow shareholders to increase their shareholding in the Company without the usual costs associated with share acquisitions, such as brokerage. Details of the DRP are available from the Company’s website or the Easy Update website at www.computershare.com.au/easyupdate/dow .

Providing your tax file number to Downer is not compulsory. However, for shareholders who have not supplied their tax file number, Downer is required to deduct tax at the top marginal rate plus Medicare levy from unfranked dividends paid to investors residing in Australia. For more information please contact Computershare.

Lost issuer sponsored statement

You are advised to contact Computershare immediately, in writing, if your issuer sponsored statement has been lost or stolen.

Annual Report mailing list

Shareholders must elect to receive a Downer Annual Report by writing to Computershare Investor Services Pty Ltd at the address provided. Alternatively, shareholders may choose to receive this publication electronically.

Change of address

So that we can keep you informed, and protect your interests in Downer, it is important that you inform Computershare of any change of your registered address.

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INFORMATION FOR INVESTORS Annual Report 2021 147
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Registered office and principal administration office

Downer EDI Limited Level 2, Triniti III Triniti Business Campus 39 Delhi Road North Ryde NSW 2113

Auditor

KPMG International Towers Sydney 3 300 Barangaroo Avenue Sydney NSW 2000

Tel: +61 2 9468 9700 Fax: +61 2 9813 8915

Australian securities exchange information as at 30 June 2021

Number of holders of equity securities:

Ordinary share capital

696,928,956 fully paid listed ordinary shares were held by 28,171 shareholders. All issued ordinary shares carry one vote per share.

Substantial shareholders

The following shareholders have notified that they are substantial shareholders of Downer as at 30 June 2021.

	Ordinary	% of issued
Shareholders	shares held	shares
Yarra Management Nominees Pty Ltd	53,484,319	7.67
FIL Limited	51,772,061	7.43
The Vanguard Group	42,930,691	6.16
T Rowe Price Associates, Inc.	35,171,878	5.05
Pendal Group Limited	35,075,107	5.03
L1 Capital PtyLtd	34,994,479	5.02

Distribution of holders of quoted equity securities

Shareholder distribution of quoted equity securities as at 30 June 2021 is as follows.

	Number of	Shareholders	Ordinary	Shares
Range of holdings	shareholders	%	shares held	%
1 – 1,000	14,922	52.97	6,441,384	0.92
1,001 – 5,000	9,955	35.34	23,380,204	3.35
5,001 – 10,000	2,005	7.12	14,504,847	2.08
10,001 – 100,000	1,217	4.32	26,517,726	3.81
100,001 and over	72	0.26	626,084,795	89.84
Total	28,171		696,928,956	100.00
Holdingless than a marketableparcel of shares	1,026

148 Downer EDI Limited

INFORMATION FOR INVESTORS

Information for Investors – continued

for the year ended 30 June 2021

Twenty largest shareholders

Downer’s 20 largest shareholders of ordinary fully paid shares as at 30 June 2021 are as follows.

		% of issued
Shareholders	Shares held	shares
HSBC Custody Nominees (Australia) Limited	233,684,156	33.53
Chase Manhattan Nominees Limited	185,227,143	26.58
Citicorp Nominees Pty Limited	90,917,638	13.05
National Nominees Limited	39,060,370	5.60
BNP Paribas Noms Pty Ltd	19,105,044	2.74
Argo Investments Ltd	11,315,059	1.62
BNP Paribas Nominees Pty Ltd	8,587,021	1.23
HSBC Custody Nominees (Australia) Limited	6,261,227	0.90
Netwealth Investments Limited	3,175,085	0.46
Sandhurst Trustees Ltd	2,962,080	0.43
Citicorp Nominees Pty Limited	2,484,424	0.36
BNP Paribas Nominees Pty Ltd Six Sis Ltd	1,931,979	0.28
UBS Nominees Pty Ltd	1,720,677	0.25
CPU Share Plans Pty Ltd	1,595,624	0.23
CPU Share Plans Pty Limited	1,572,505	0.23
Hobson Wealth Custodians Ltd	1,168,073	0.17
BNP Paribus Noms (NZ) Ltd	1,038,338	0.15
Mr Barry Sydney Patterson + Mrs Glenice Margaret Patterson	891,642	0.13
Navigator Australia Ltd	873,846	0.13
Mr Grant Fenn	795,809	0.11
Total for top 20 shareholders	614,367,740	88.15

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Sovereign A2 Silk is proudly made FSC® certified by Hankuk paper which also carries the ISO 14001 EMS accreditation and it’s manufactured with elemental chlorine-free pulps.

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www.downergroup.com
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Downer EDI Limited ABN 97 003 872 848 Triniti Business Campus 39 Delhi Road North Ryde NSW 2113

1800 DOWNER www.downergroup.com

Media/ASX and NZX Release

12 August 2021

DOWNER REPORTS UNDERLYING NPATA OF $261.2 MILLION

Downer EDI Limited (Downer) today announced its financial results for the 12 months to 30 June 2021. The main features of the results are:

• Statutory EBIT (earnings before interest and tax) of $334.8 million and statutory NPAT (net profit after tax) of $183.7 million;

• Underlying EBITA (earnings before interest, tax and amortisation of acquired intangible assets) of $467.3 million, up 12.3% from the pcp; statutory EBITA of $401.0 million;

• Underlying NPATA (net profit after tax and before amortisation of acquired intangible assets) of $261.2 million, up 21.4% from the pcp; statutory NPATA of $230.0 million;

• Underlying cash conversion of 100.8%, statutory cash conversion of 92.0%;

• Gearing reduced to 19.0% (35.7% at 30 June 2020); and

• Final dividend of 12 cents per share (unfranked), total full year dividends of 21 cents per share (unfranked).

The Chief Executive Officer of Downer, Grant Fenn, said it was a solid performance in a year of COVID-19 disruption.

“Our focus on critical Urban Services has meant that demand has remained strong throughout the year, resulting in a very resilient performance,” Mr Fenn said. “I want to acknowledge the effort of our people as we have continued delivering for our customers.

“Underlying earnings were up 21.4% and our cash performance was excellent. If we adjust for cash outflows from individually significant items recognised as expenses last year, our cash conversion was 101%. Without that adjustment, it was 92%. Either way, it is a terrific result.”

Mr Fenn said Downer had delivered on the priorities identified at its half year results, including:

• a strong full year earnings and cash result;

• making good progress on the sale of non-core assets, with $628 million in proceeds so far;

• changing the corporate structure to improve market focus and reduce costs;

• implementing a range of capital management initiatives including recapitalising the business, resetting the target capital structure, commencing a $400 million on-market share buyback and lifting the dividend payout ratio to 60% for the second half of the year; and

• continuing to improve Sustainability performance and reporting.

Page 1 of 2

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Mr Fenn said Downer’s Urban Services strategy was leveraged to the long term macro-economic trends of expanding population, urbanisation and government outsourcing.

“Downer has $35.4 billion of work-in-hand and 90% of it comes from contracts with Governments in Australia and New Zealand, or Government-backed contracts, compared with 56% five years ago,” Mr Fenn said. “That is a huge change, and the Downer portfolio is now less cyclical, with significantly lower capital expenditure and strong cash conversion. Importantly, we have scale, diversity and financial strength.”

Dividend

The Downer Board declared a final dividend of 12 cents per share, unfranked, payable on 23 September 2021 to shareholders on the register at 26 August 2021. The unfranked dividend will be paid out of Conduit Foreign Income. The company’s Dividend Reinvestment Plan (DRP) remains suspended and will not operate for this dividend. Dividends for the full year totalled 21 cents per share.

Safety

Downer reported a Lost Time Injury Frequency Rate of 0.99 per million hours worked at 30 June 2021, in line with the prior corresponding period, and a Total Recordable Injury Frequency Rate of 2.60 per million hours, down from 3.10 per million hours worked.

Outlook

Downer expects its core Urban Services to continue to grow in FY22 both in revenue and earnings. Given the changing nature of the COVID pandemic and the ongoing restrictions Downer will not provide specific earnings guidance.

For further information please contact:

Michael Sharp, Group Head of Corporate Affairs and Investor Relations +61 439 470 145

About Downer

Downer is the leading provider of integrated services in Australia and New Zealand and customers are at the heart of everything it does. It exists to create and sustain the modern environment and its promise is to work closely with its customers to help them succeed, using world-leading insights and solutions to design, build and sustain assets, infrastructure and facilities. Downer employs approximately 44,000 people, primarily in Australia and New Zealand. For more information visit www.downergroup.com

Page 2 of 2

1

FY21 Highlights

• Underlying NPATA[1,2] of $261.2m, up 21.4% ($230.0m statutory)

• Underlying EBITA[1,2] of $467.3m, up 12.3% ($401.0m statutory)

• Statutory NPAT of $183.7m (statutory EBIT of $334.8m)

• Underlying EBITA Margin improvement of 0.7 percentage points

• Cash conversion of 100.8% (92.0% statutory)

• Net Debt to EBITDA[3] reduced to 1.5x (2.6x at June 2020)

• Gearing[3] reduced to 19.0% (35.7% at June 2020)

• Underlying EPSA[4] of 36.6cps, up 3.7% (25.4cps statutory Basic EPS)

• Final ordinary dividend 12 cents per share (Full year 21cps – unfranked)  Delivering on priorities

1 Downer calculates EBITA and NPATA by adjusting EBIT and NPAT to add back acquired intangible assets amortisation expense. Group FY21: $66.2m, $46.3m after-tax. (FY20: $71.3m, $49.9m after-tax)

2 The underlying result is a non-IFRS measure that is used by Management to assess the performance of the business. Non-IFRS measures have not been subject to audit or review.

3 Net debt to EBITDA ratio includes lease liabilities in Net Debt and is on a post-AASB 16 basis. Gearing ratio does not include lease liabilities in Net Debt and is on a pre-AASB16 basis.

• 4 EPSA is calculated based on underlying NPATA adjusted by contributions from minority interests and ROADs dividends paid; dividend by WANOS

2

Delivering on priorities

Deliver strong FY21 earnings and cash result

Capital Management

High underlying cash conversion of 101%

Increased dividend payout ratio to 57% (21cps full year)

Reset optimal capital structure at Net Debt / EBITDA of 2.0-2.5x (Gearing 19%)

$400m share buy-back commenced

Underlying EBITA margin improvement (+0.7bps)

Sustainability

Urban Services Portfolio

Total proceeds of sales to date of $628m[1] with $510m[2] received in FY21

Refinement of corporate structure and cost base

Progressing divestment of Open Cut East

Signatory to the SBTi, committed to Net Zero by 2050 in line with the 1.5[O] C business ambition pathway

S&P CSA Global ranked Downer in the top 15 per cent for our industry sector

Implementation of The Downer Standard

Quality systems and IP capture

Complete In progress

Common processes / single certification

1 Includes proceeds from Laundries and Mining Divestments (Downer Blasting Services, Open Cut West, RTL joint venture, Snowden, Underground, Otraco and various equipment sales).

2 Excludes $39m deferred payments in relation to Open Cut West as at 30 June 2021 and $79m from Otraco sale which is expected to complete before December 2021.

3

Urban Services transformation

• Leveraged to long-term trends of expanding population, urbanisation, increased government spending and government outsourcing

• High proportion of revenue related to Federal, State and Local Government services

• Market leader across Australia and NZ

• Scale, diversity and financial strength

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Transport
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Utilities
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FY21 EBITA contribution [2,3]
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FY16 EBITA contribution

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34% 31% 30%
56% WIH
19% 48%
government 38%
exposure [1]
26%
16% 19% 22%
18%
Transport Utilities Facilities EC&M Mining
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Facilities [3]
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90% WIH
government
exposure [1]
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1 WIH Government includes direct Government and Government-backed / regulated projects 2 Excludes non-core businesses

3 Asset Services will be included in the Facilities segment in FY22 (FY21: part of the EC&M segment)

4

Strength through market position and diversity

Transport 51% FY21 revenue1 Utilities 20% FY21 revenue1 Facilities2 29% FY21 revenue1  Largest non-government Road Services business in Australia and NZ Leader in product technology with new “state of the art” manufacturing and recycling plants Leading positions through each part of the value chain with strategic network of contracts and facilities  Australia’s leader in passenger rollingstock Unique capabilities delivering large new fleets / long term maintenance franchises  Australia’s largest private provider of multi-modal public transport  Balanced portfolio servicing Power & Gas, Water and Telecommunications customers across Australia and NZ  Market leader across all service lines  NBN construction revenue replaced with significant new contracts  “New Energy” opportunities assisting customers in their energy transition  Leader in water treatment technology  Long-standing customer relationships  Largest integrated facilities manager across Australia and New Zealand  Servicing 21 long term PPPs in Health, Education, Defence, Justice and other Social Infrastructure  Managing Government and Industry estates  Leading provider of specialist asset management services for Oil & Gas, Mining, Power Generation and other Industrial customers Turnaround and shutdown / Facilities Management / Maintenance  Technology partnership with Mitsubishi Power Systems providing technical edge	Transport 51% FY21 revenue1 Utilities 20% FY21 revenue1 Facilities2 29% FY21 revenue1  Largest non-government Road Services business in Australia and NZ Leader in product technology with new “state of the art” manufacturing and recycling plants Leading positions through each part of the value chain with strategic network of contracts and facilities  Australia’s leader in passenger rollingstock Unique capabilities delivering large new fleets / long term maintenance franchises  Australia’s largest private provider of multi-modal public transport  Balanced portfolio servicing Power & Gas, Water and Telecommunications customers across Australia and NZ  Market leader across all service lines  NBN construction revenue replaced with significant new contracts  “New Energy” opportunities assisting customers in their energy transition  Leader in water treatment technology  Long-standing customer relationships  Largest integrated facilities manager across Australia and New Zealand  Servicing 21 long term PPPs in Health, Education, Defence, Justice and other Social Infrastructure  Managing Government and Industry estates  Leading provider of specialist asset management services for Oil & Gas, Mining, Power Generation and other Industrial customers Turnaround and shutdown / Facilities Management / Maintenance  Technology partnership with Mitsubishi Power Systems providing technical edge	Transport 51% FY21 revenue1 Utilities 20% FY21 revenue1 Facilities2 29% FY21 revenue1  Largest non-government Road Services business in Australia and NZ Leader in product technology with new “state of the art” manufacturing and recycling plants Leading positions through each part of the value chain with strategic network of contracts and facilities  Australia’s leader in passenger rollingstock Unique capabilities delivering large new fleets / long term maintenance franchises  Australia’s largest private provider of multi-modal public transport  Balanced portfolio servicing Power & Gas, Water and Telecommunications customers across Australia and NZ  Market leader across all service lines  NBN construction revenue replaced with significant new contracts  “New Energy” opportunities assisting customers in their energy transition  Leader in water treatment technology  Long-standing customer relationships  Largest integrated facilities manager across Australia and New Zealand  Servicing 21 long term PPPs in Health, Education, Defence, Justice and other Social Infrastructure  Managing Government and Industry estates  Leading provider of specialist asset management services for Oil & Gas, Mining, Power Generation and other Industrial customers Turnaround and shutdown / Facilities Management / Maintenance  Technology partnership with Mitsubishi Power Systems providing technical edge	Transport 51% FY21 revenue1 Utilities 20% FY21 revenue1 Facilities2 29% FY21 revenue1  Largest non-government Road Services business in Australia and NZ Leader in product technology with new “state of the art” manufacturing and recycling plants Leading positions through each part of the value chain with strategic network of contracts and facilities  Australia’s leader in passenger rollingstock Unique capabilities delivering large new fleets / long term maintenance franchises  Australia’s largest private provider of multi-modal public transport  Balanced portfolio servicing Power & Gas, Water and Telecommunications customers across Australia and NZ  Market leader across all service lines  NBN construction revenue replaced with significant new contracts  “New Energy” opportunities assisting customers in their energy transition  Leader in water treatment technology  Long-standing customer relationships  Largest integrated facilities manager across Australia and New Zealand  Servicing 21 long term PPPs in Health, Education, Defence, Justice and other Social Infrastructure  Managing Government and Industry estates  Leading provider of specialist asset management services for Oil & Gas, Mining, Power Generation and other Industrial customers Turnaround and shutdown / Facilities Management / Maintenance  Technology partnership with Mitsubishi Power Systems providing technical edge	Transport 51% FY21 revenue1 Utilities 20% FY21 revenue1 Facilities2 29% FY21 revenue1  Largest non-government Road Services business in Australia and NZ Leader in product technology with new “state of the art” manufacturing and recycling plants Leading positions through each part of the value chain with strategic network of contracts and facilities  Australia’s leader in passenger rollingstock Unique capabilities delivering large new fleets / long term maintenance franchises  Australia’s largest private provider of multi-modal public transport  Balanced portfolio servicing Power & Gas, Water and Telecommunications customers across Australia and NZ  Market leader across all service lines  NBN construction revenue replaced with significant new contracts  “New Energy” opportunities assisting customers in their energy transition  Leader in water treatment technology  Long-standing customer relationships  Largest integrated facilities manager across Australia and New Zealand  Servicing 21 long term PPPs in Health, Education, Defence, Justice and other Social Infrastructure  Managing Government and Industry estates  Leading provider of specialist asset management services for Oil & Gas, Mining, Power Generation and other Industrial customers Turnaround and shutdown / Facilities Management / Maintenance  Technology partnership with Mitsubishi Power Systems providing technical edge	Transport 51% FY21 revenue1 Utilities 20% FY21 revenue1 Facilities2 29% FY21 revenue1  Largest non-government Road Services business in Australia and NZ Leader in product technology with new “state of the art” manufacturing and recycling plants Leading positions through each part of the value chain with strategic network of contracts and facilities  Australia’s leader in passenger rollingstock Unique capabilities delivering large new fleets / long term maintenance franchises  Australia’s largest private provider of multi-modal public transport  Balanced portfolio servicing Power & Gas, Water and Telecommunications customers across Australia and NZ  Market leader across all service lines  NBN construction revenue replaced with significant new contracts  “New Energy” opportunities assisting customers in their energy transition  Leader in water treatment technology  Long-standing customer relationships  Largest integrated facilities manager across Australia and New Zealand  Servicing 21 long term PPPs in Health, Education, Defence, Justice and other Social Infrastructure  Managing Government and Industry estates  Leading provider of specialist asset management services for Oil & Gas, Mining, Power Generation and other Industrial customers Turnaround and shutdown / Facilities Management / Maintenance  Technology partnership with Mitsubishi Power Systems providing technical edge	Transport 51% FY21 revenue1 Utilities 20% FY21 revenue1 Facilities2 29% FY21 revenue1  Largest non-government Road Services business in Australia and NZ Leader in product technology with new “state of the art” manufacturing and recycling plants Leading positions through each part of the value chain with strategic network of contracts and facilities  Australia’s leader in passenger rollingstock Unique capabilities delivering large new fleets / long term maintenance franchises  Australia’s largest private provider of multi-modal public transport  Balanced portfolio servicing Power & Gas, Water and Telecommunications customers across Australia and NZ  Market leader across all service lines  NBN construction revenue replaced with significant new contracts  “New Energy” opportunities assisting customers in their energy transition  Leader in water treatment technology  Long-standing customer relationships  Largest integrated facilities manager across Australia and New Zealand  Servicing 21 long term PPPs in Health, Education, Defence, Justice and other Social Infrastructure  Managing Government and Industry estates  Leading provider of specialist asset management services for Oil & Gas, Mining, Power Generation and other Industrial customers Turnaround and shutdown / Facilities Management / Maintenance  Technology partnership with Mitsubishi Power Systems providing technical edge	Transport 51% FY21 revenue1 Utilities 20% FY21 revenue1 Facilities2 29% FY21 revenue1  Largest non-government Road Services business in Australia and NZ Leader in product technology with new “state of the art” manufacturing and recycling plants Leading positions through each part of the value chain with strategic network of contracts and facilities  Australia’s leader in passenger rollingstock Unique capabilities delivering large new fleets / long term maintenance franchises  Australia’s largest private provider of multi-modal public transport  Balanced portfolio servicing Power & Gas, Water and Telecommunications customers across Australia and NZ  Market leader across all service lines  NBN construction revenue replaced with significant new contracts  “New Energy” opportunities assisting customers in their energy transition  Leader in water treatment technology  Long-standing customer relationships  Largest integrated facilities manager across Australia and New Zealand  Servicing 21 long term PPPs in Health, Education, Defence, Justice and other Social Infrastructure  Managing Government and Industry estates  Leading provider of specialist asset management services for Oil & Gas, Mining, Power Generation and other Industrial customers Turnaround and shutdown / Facilities Management / Maintenance  Technology partnership with Mitsubishi Power Systems providing technical edge	Transport 51% FY21 revenue1 Utilities 20% FY21 revenue1 Facilities2 29% FY21 revenue1  Largest non-government Road Services business in Australia and NZ Leader in product technology with new “state of the art” manufacturing and recycling plants Leading positions through each part of the value chain with strategic network of contracts and facilities  Australia’s leader in passenger rollingstock Unique capabilities delivering large new fleets / long term maintenance franchises  Australia’s largest private provider of multi-modal public transport  Balanced portfolio servicing Power & Gas, Water and Telecommunications customers across Australia and NZ  Market leader across all service lines  NBN construction revenue replaced with significant new contracts  “New Energy” opportunities assisting customers in their energy transition  Leader in water treatment technology  Long-standing customer relationships  Largest integrated facilities manager across Australia and New Zealand  Servicing 21 long term PPPs in Health, Education, Defence, Justice and other Social Infrastructure  Managing Government and Industry estates  Leading provider of specialist asset management services for Oil & Gas, Mining, Power Generation and other Industrial customers Turnaround and shutdown / Facilities Management / Maintenance  Technology partnership with Mitsubishi Power Systems providing technical edge	Transport 51% FY21 revenue1 Utilities 20% FY21 revenue1 Facilities2 29% FY21 revenue1  Largest non-government Road Services business in Australia and NZ Leader in product technology with new “state of the art” manufacturing and recycling plants Leading positions through each part of the value chain with strategic network of contracts and facilities  Australia’s leader in passenger rollingstock Unique capabilities delivering large new fleets / long term maintenance franchises  Australia’s largest private provider of multi-modal public transport  Balanced portfolio servicing Power & Gas, Water and Telecommunications customers across Australia and NZ  Market leader across all service lines  NBN construction revenue replaced with significant new contracts  “New Energy” opportunities assisting customers in their energy transition  Leader in water treatment technology  Long-standing customer relationships  Largest integrated facilities manager across Australia and New Zealand  Servicing 21 long term PPPs in Health, Education, Defence, Justice and other Social Infrastructure  Managing Government and Industry estates  Leading provider of specialist asset management services for Oil & Gas, Mining, Power Generation and other Industrial customers Turnaround and shutdown / Facilities Management / Maintenance  Technology partnership with Mitsubishi Power Systems providing technical edge	Transport 51% FY21 revenue1 Utilities 20% FY21 revenue1 Facilities2 29% FY21 revenue1  Largest non-government Road Services business in Australia and NZ Leader in product technology with new “state of the art” manufacturing and recycling plants Leading positions through each part of the value chain with strategic network of contracts and facilities  Australia’s leader in passenger rollingstock Unique capabilities delivering large new fleets / long term maintenance franchises  Australia’s largest private provider of multi-modal public transport  Balanced portfolio servicing Power & Gas, Water and Telecommunications customers across Australia and NZ  Market leader across all service lines  NBN construction revenue replaced with significant new contracts  “New Energy” opportunities assisting customers in their energy transition  Leader in water treatment technology  Long-standing customer relationships  Largest integrated facilities manager across Australia and New Zealand  Servicing 21 long term PPPs in Health, Education, Defence, Justice and other Social Infrastructure  Managing Government and Industry estates  Leading provider of specialist asset management services for Oil & Gas, Mining, Power Generation and other Industrial customers Turnaround and shutdown / Facilities Management / Maintenance  Technology partnership with Mitsubishi Power Systems providing technical edge	Transport 51% FY21 revenue1 Utilities 20% FY21 revenue1 Facilities2 29% FY21 revenue1  Largest non-government Road Services business in Australia and NZ Leader in product technology with new “state of the art” manufacturing and recycling plants Leading positions through each part of the value chain with strategic network of contracts and facilities  Australia’s leader in passenger rollingstock Unique capabilities delivering large new fleets / long term maintenance franchises  Australia’s largest private provider of multi-modal public transport  Balanced portfolio servicing Power & Gas, Water and Telecommunications customers across Australia and NZ  Market leader across all service lines  NBN construction revenue replaced with significant new contracts  “New Energy” opportunities assisting customers in their energy transition  Leader in water treatment technology  Long-standing customer relationships  Largest integrated facilities manager across Australia and New Zealand  Servicing 21 long term PPPs in Health, Education, Defence, Justice and other Social Infrastructure  Managing Government and Industry estates  Leading provider of specialist asset management services for Oil & Gas, Mining, Power Generation and other Industrial customers Turnaround and shutdown / Facilities Management / Maintenance  Technology partnership with Mitsubishi Power Systems providing technical edge	Transport 51% FY21 revenue1 Utilities 20% FY21 revenue1 Facilities2 29% FY21 revenue1  Largest non-government Road Services business in Australia and NZ Leader in product technology with new “state of the art” manufacturing and recycling plants Leading positions through each part of the value chain with strategic network of contracts and facilities  Australia’s leader in passenger rollingstock Unique capabilities delivering large new fleets / long term maintenance franchises  Australia’s largest private provider of multi-modal public transport  Balanced portfolio servicing Power & Gas, Water and Telecommunications customers across Australia and NZ  Market leader across all service lines  NBN construction revenue replaced with significant new contracts  “New Energy” opportunities assisting customers in their energy transition  Leader in water treatment technology  Long-standing customer relationships  Largest integrated facilities manager across Australia and New Zealand  Servicing 21 long term PPPs in Health, Education, Defence, Justice and other Social Infrastructure  Managing Government and Industry estates  Leading provider of specialist asset management services for Oil & Gas, Mining, Power Generation and other Industrial customers Turnaround and shutdown / Facilities Management / Maintenance  Technology partnership with Mitsubishi Power Systems providing technical edge
Road Services 24%	Rail & Transit Systems 12%	Projects 15%		Power & Gas 8%	Water 6%	Telco 6%		Health & Education 4%	Govt 9%	Defence 8%	Building 3%	AS2 5%

Road Services 24%	Rail & Transit Systems 12%	Projects 15%		Power & Gas 8%	Water 6%	Telco 6%		Health & Education 4%	Govt 9%	Defence 8%	Building 3%	AS2 5%

1 Core Revenue, excludes segments considered non-core.

2 Asset Services will be included in the Facilities segment in FY22 (FY21: part of the EC&M segment)

5

Strong macro outlook

• Urban Services markets of Transport, Utilities and Facilities look strong:

• Bigger Government at all levels spending more

• Commonwealth Government has committed $110bn in 10yr infrastructure spend

• State Governments have allocated $225bn in 4yr infrastructure spend

• NZ Government increasing infrastructure expenditure across water, health, education and transport

• Maintenance Services to grow at 4.7%pa. through to 2025

• Australian Defence spending increasing from $40bn to $70bn p.a. over next 10 years

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----- Start of picture text -----

Australia - Road, Rail and Power work done & forecast
(A$bn)
60
50
40
30
20
10
0
FY19 FY20 FY21 FY22 FY23 FY24 FY25
Roads Railway Power
Defence Building Maintenance NZ Maintenance Market
(Annual Spend - A$m) (Annual Spend - NZ$bn)
750 6
700 5
4
650
3
600
2
550
1
500 0
Defence Estates DHA Housing Transport Utilities Facilities
----- End of picture text -----

Source – ABS, New Zealand Department of Internal Affairs, BIS Oxford Economics, Infometrics, Waka Kotahi

6

Work-in-hand

Core WIH[1] by segment ($35.4bn)

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 Long-dated
Facilities  Diversified
$13.7bn (39%)
Transport
$16.3bn (46%)
 90% Government or
Government regulated
Utilities
$5.4bn (15%)  Australia 80% / NZ 20%
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Core WIH[1] profile

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----- Start of picture text -----

12
10
8
6
4
2
0
FY22 FY23 FY24 FY25 FY26 FY27+
Transport Utilities Facilities
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Core WIH[1] by contract type

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----- Start of picture text -----

1% Fixed Price / Lump Sum
3% Alliance / Target Cost
Services Construction [2]
91%
9% 2% Schedule of Rates /
Cost Plus
3% Early Contractor
Involvement
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• WIH predominantly made up of long-term contracts servicing critical infrastructure

• Risk controls across work type and contract model have significantly reduced construction risk

• 1 WIH excludes immaterial non-core segments. Facilities includes Asset Services.

• 2 Construction comprises of Projects businesses in Australia and New Zealand (Transport Segment) plus Building business in New Zealand (Facilities Segment)

7

Limited contractual exposure to cost escalation

Transport

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Utilities

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Facilities[1]

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• 

• Long term road maintenance contracts Telco construction cost risk largely Rise and fall mechanisms for costs borne by delivery partners (subcontractors) once contracted

• including bitumen and labour 

• Telco maintenance is typically schedule Rollingstock maintenance contracts of rates contracts, with specific labour

• Rise and fall mechanisms for costs and / or CPI escalation mechanisms

• including labour  Longer term gas and electricity

• Long term OEM contracts for critical maintenance contracts are based on component overhaul and schedule of rates with agreed annual replacement escalation

•  Public Transport Operations (5yrs) Water maintenance contracts are typically panel style, with rates

• Cost escalation priced

• reviewed annually Fixed price construction (0 – 24mths) Cost escalation priced Sub-contractor prices fixed

Case Study – Major Water JV Contract pricing (schedule of rates) is reviewed and adjusted annually, including labour rate increases. Cost increases or decreases between annual reviews are not adjusted

Case Study – Waratah TLS Contract pricing is escalated based on CPI (quarterly) and wage index (biannually)

• Substantial portfolio of long-term PPP contracts which include specific escalation provisions and / or price reset mechanisms throughout the contract life

• Other key non-PPP contracts with Government customers typically include specific labour and / or general CPI adjustment mechanisms (such as Defence Estate Management, NZ Public Housing and WA Housing)

• Shorter term contracts, for example in Asset Services and Building, are not materially exposed to escalation risk

• Minimal FIFO risk following exit of Mining

Case Study – Royal Adelaide Hospital PPP contract pricing is adjusted for CPI quarterly with a major pricing reset negotiated each 5 years

8

1 Asset Services will be included in the Facilities segment in FY22 (FY21: part of the EC&M segment)

Limited COVID-19 Impact

• Lack of mobility for skilled labour and management across National, State and LGA boundaries causing pockets of industry skill shortage and competition for experienced

• Group blue and white-collar employees

• Transport Utilities Facilities 

• Roads Services Limited impact   July/August quiet period for Road Limited impact Services Defence

• Some revenue impact from restrictions  Limited impact

• on work crews operating across State boundaries Asset Services

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Facilities[1] Facilities Management  Limited impact Defence  Limited impact Asset Services

 Impact on skilled labour getting to project sites in WA Hospitality  Revenue impact on major venues  Mitigating costs where possible

Projects

• Restrictions on four projects: Parramatta Light Rail / Rail Station Upgrades / Metro West Stations / Eyre Peninsula

• Contractual protections in place to extend completion dates and recover costs of delay

• Rail and Transit Systems  Limited impact

9

1 Asset Services will be included in the Facilities segment in FY22 (FY21: part of the EC&M segment)

Sustainability at Downer

At Downer Sustainability means

• Sustainable and profitable growth

• Providing value to our customers

• Delivering our services in a safe and environmentally responsible manner

• Helping our people to be better

• Advancing the communities in which we operate

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Downer contributes to the UN Sustainable Development Goals

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10

Sustainability Achievements

• S&P Global Sustainability Yearbook Member and Industry Mover in 2021

• Establishment of $1.4bn syndicated sustainability linked loan facility

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Environment

• Signatory to the Science Based Target Initiative (SBTi), committed to Net Zero by 2050 in line with the 1.5[O] C business ambition pathway.

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• Increased the percentage of recycled materials in Asphalt products

• Signed up to the CDP Supply Chain program

Social

• Above Industry Benchmarks for safety performance LTIFR[1] 0.99 & TRIFR[2] 2.60

• Increased number of Indigenous procurement supplier agreements

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• Increased Māori engagement through supplier and development programs such as Amotai and Māori Leadership programs (TeAra Whanake)

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• Maintained Gold Accreditation in Mental Health First Aid and Partnership with Beyond Blue

Governance

• Established The Downer Standard, achieved centralised third-party accreditation to the ISO 45001 (Safety), ISO 9001 (Quality) and ISO 14001 (Environment)

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• Downer published its inaugural Modern Slavery Statement.

1 Lost-time injury frequency rate 2 Total recordable injury frequency rate

11

Sustainability opportunities

Group

• Sustainability linked finance

• 

• Sustainability linked finance Support indigenous education and cultural awareness

•  Support Mental Health in Downer and the community Support diversity within Downer and the community

• Provide staff with opportunity for workplace giving

Transport

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Utilities

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Facilities[1]

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• Further investment in recovery and repurposing materials for road building and maintenance (Reconomy, Repurpose It, Reconophalt)

• New infrastructure to support alternate fuel vehicles (EV charging)

• Development of smart road and rail solutions

• Construction of more climate resilient infrastructure

• Lower emissions trains and locomotives, zero emissions buses, automated and digitised transport systems

• Energy reduction modifications on existing transport fleets

 Network upgrades to support higher renewable capacity (e.g. transmission lines, substations and associated connections)

• Design, construction and maintenance of renewable electricity generation (e.g. solar and wind farms)

• Microgrids and energy storage systems

• Energy efficient wastewater treatment facilities (e.g. biosolids gasification technology)

• Smart meter technology upgrades

• Asset Services

• End-to-end hydrogen associated infrastructure

• Maintenance, shutdowns upgrades of existing power generation assets Carbon capture and underground storage

• Facilities

Smart integrated building management systems (rooftop solar, sensor technology) Predictive maintenance solutions Energy efficiency solutions

12

1 Asset Services will be included in the Facilities segment in FY22 (FY21: part of the EC&M segment)

Group financials

13

Underlying financial performance

• Revenue decline of 8.8%, primarily due to declines in non-core revenue segments

• Group Underlying EBITA margin 3.8%, up 0.7pp

• Interest expense savings from reduction in debt and improved average cost of funds

• Underlying effective tax rate of 28.5%

• Final dividend of 12cps declared (total dividends for the year of 21cps)

• AASB16 reported consistently in both periods

	$m	FY203	FY213	Change (%)
	Total revenue1	13,417.9	12,234.2	(8.8)
	EBITDA Depreciation and amortisation	862.0 (446.0)	899.1 (431.8)	4.3 3.2
	EBITA2	416.0	467.3	12.3
	Amortisation of acquired intangibles EBIT	(71.3) 344.7	(66.2) 401.1	7.2 16.4
	Net interest expense	(112.0)	(100.6)	10.2
	Profit before tax	232.7	300.5	29.1
	Tax expense	(67.5)	(85.6)	(26.8)
	Net profit after tax	165.2	214.9	30.1
	NPATA2	215.1	261.2	21.4
	Underlying EBITAmargin	3.1%	3.8%	0.7pp
	Effective tax rate	29.0%	28.5%	0.5pp
	ROFE4	10.2%	12.1%	1.9pp
	Dividend declared (cps)	14.0	21.0	50.0

• 1 Total revenue is a non-statutory disclosure and includes revenue from joint ventures, other alliances and other income.

• 2 Downer calculates EBITA and NPATA by adjusting EBIT and NPAT to add back acquired intangible assets amortisation expense. Group FY21: $66.2m, $46.3m after-tax. (FY20: $71.3m, $49.9m after-tax)

• 3 The underlying result are non-IFRS measures that are used by Management to assess the performance of the business. Non-IFRS measures have not been subject to audit or review.

• 4 ROFE = 12 month rolling underlying EBITA divided by average funds employed (AFE); AFE = Average Opening and Closing Net Debt (excludes lease liability) + Equity.

14

Business unit performance overview

• Underlying EBITA of $467.3m, up 12.3% and Underlying EBITA margin up 0.7pp to 3.8%

• Diversity of Core Urban Services portfolio delivered growth

• Transport margin recovered in 2H to 5.3%

• Utilities EBITA growth and margin improvement of 1.2pp, despite revenue reduction from NBN roll-off

• Facilities improvement in earnings and margin reflects strong contract performance and benefits of rightsizing

• Asset Services declined due to project deferrals

• Corporate restructuring benefit offset by increased IT security and insurance costs, and resumption of STI

	$m	FY20	FY21	Change (%)
	Transport	235.6	250.2	6.2
	Utilities	114.6	115.1	0.4
	Facilities3 Asset Services(EC&M)	124.9 27.1	140.0 18.3	12.1 (32.5)
	Core Urban Services Businesses	502.2	523.6	4.3
	Engineering& Construction(EC&M) Businesses in wind down Mining Laundries (Facilities)	(69.2) (69.2) 79.0 9.1	(5.1) (5.1) 46.6 5.0	92.6 92.6 (41.0) (45.1)
	Hospitality (Facilities)	(19.7)	0.4	>100
	Businesses under review or to be sold	68.4	52.0	(24.0)
	Corporate	(85.4)	(103.2)	(20.8)
	Underlying EBITA1,2 Items outside of underlyingEBITA	416.0 (386.0)	467.3 (66.3)	12.3 82.8
	Statutory EBITA1	30.0	401.0	>100
	Underlying NPATA1,2 Statutory NPAT	215.1 (155.7)	261.2 183.7	21.4 >100

1 Downer calculates EBITA and NPATA by adjusting EBIT and NPAT to add back acquired intangible assets amortisation expense. Group FY21: $66.2m, $46.3m after-tax. (FY20: $71.3m, $49.9m after-tax)

2 The underlying result is a non-IFRS measure that is used by Management to assess the performance of the business. Non-IFRS measures have not been subject to audit or review.

3 Consistent with 1H21, Infrastructure & Construction, previously reported in ‘Businesses in wind down’ has been reallocated to Facilities (Core) following a refocus of the business unit towards maintenance contracts

15

Summary of significant items

$m	EBITA1	Net interest expense	Tax expense2	NPATA1	Deduct: Amortisation of acquired intangibles (post-tax)	NPAT
Underlying3 results	467.3	(100.6)	(105.5)	261.2	(46.3)	214.9
Non-cash fair value movement on the
Spotless minority acquisition Downer	(16.6)	-	-	(16.6)	-	(16.6)
Contingent Share Obligation liability4
Termination of Spotless financing arrangements	-	(4.3)	1.3	(3.0)	-	(3.0)
Mining divestments (net of transaction costs)5	(19.5)	-	17.5	(2.0)	-	(2.0)
Laundries divestment (net of transaction costs)	(16.2)	-	16.5	0.3	-	0.3
SaaS Arrangements6	(14.0)	-	4.1	(9.9)	-	(9.9)
Total items outside underlying result	(66.3)	(4.3)	39.4	(31.2)	-	(31.2)
Statutory result	401.0	(104.9)	(66.1)	230.0	(46.3)	183.7

1 Downer calculates EBITA by adjusting EBIT to add back acquired intangible assets amortisation expense. Group FY21: $66.2m, $46.3m after-tax. (FY20: $71.3m, $49.9m after-tax)

2 Tax of $105.5m is calculated by adjusting underlying tax of $85.6m with $19.9m tax on amortisation of acquired intangible assets.

3 The underlying result is a non-IFRS measure that is used by Management to assess the performance of the business. Non-IFRS measures have not been subject to audit or review.

• 4 The fair value of the Downer Contingent Share Option (DCSO) has increased primarily driven by the movement in Downer’s share price from $4.30 (grant date) to $5.59 at 30 June 2021 (+30%).

5 Net result including impairment of assets to the expected recoverable value, net result from the disposal of Open Cut Mining West, Downer Blasting Services, Underground, Snowden businesses and RTL JV, gain on plant and equipment disposed and transaction costs (Refer to Note B3 of the Financial Report).

6 Costs related to the configuration and customisation of SaaS arrangements as a result of the Group's change in accounting policy on application of IFRS Interpretation Committee decision (refer to Note B3 of the Financial Report).

16

Operating cash flow

• Core Urban Services business delivering strong cash flows across the portfolio

• Underlying EBITDA conversion of 100.8% (statutory 92.0%) after adjusting for items recognised in FY20 ($79.0m)

• Factoring at 30 June 2021 was $63.4m ($102.2m at 30 June 2020)

• 1 The underlying result is a non-IFRS measure that is used by Management to assess the performance of the business. Non-IFRS measures have not been subject to audit or review.

• 2 Includes $180.6m (FY20: $151.8m) depreciation of Right-of-use-assets (ROUA) following the adoption of AASB 16.

• 3 Interest, including AASB 16 finance leases of $27.7m (FY20: $26.4m) and other costs of finance paid less interest received.

• 4 FY20 balances have been restated to reflect the Group's change in accounting policy for costs related to configuration and customisation of SaaS arrangements. Refer to Note C7 of the Financial Report for more details

	$m Underlying1 EBIT	FY204 344.7	FY21 401.1	Change (%) 16.4
	Add: depreciation and amortisation2 Underlying1 EBITDA	517.3 862.0	498.0 899.1	(3.7) 4.3
	Operating cash flow Add: Net interest paid3	158.6 103.7	708.7 98.6	>100 (4.9)
	Add: Tax paid	57.9	19.9	(65.6)
	Adjusted operating cash flow	320.2	827.2	>100
	EBITDA conversion	37.1%	92.0%	54.9pp
	Adjust for items booked in FY20		FY21
	Portfolio restructure and exit costs		30.5
	Payroll remediation costs		15.7
	Spotless shareholder class action		32.8
	Underlying1 adjusted operating cash flow		906.2
	Underlying1 EBITDA conversion		100.8%

17

Cash flow

• Funds from operations of $251.1m

• Strong operating cash flow

• Reduction in capital expenditure driven by divestment of capitalintensive businesses

• Issuance of shares and divestments enabled reduction in borrowings of $540.7m

• Dividends funded through robust funds from operations

• Cash balance of $811.4m and total liquidity of $2,238.4m at year end

$m	FY201	FY21	Change (%)
Total operating cash flow	158.6	708.7	>100
Payment of principal lease liabilities (Core)	(126.8)	(148.7)	(17.3)
Payment of principal lease liabilities (Non-Core)	(26.1)	(45.8)	(75.5)
Net Capex (Core)	(113.5)	(154.0)	(35.7)
Net Capex (Non-Core and IT)	(230.8)	(102.7)	55.5
Advances to JVs and Other	(3.6)	(6.4)	(77.8)
Funds from operations	(342.2)	251.1	>100
Dividends paid	(90.7)	(153.6)	(69.3)
Divestments (Mining and Laundries)2	-	447.8	100
Acquisitions (Spotless and Other)	(29.8)	(148.8)	>(100)
Issue of shares, net of costs and share buyback	-	365.6	100
Net proceeds / (repayment) of borrowings	348.7	(540.7)	>(100)
Net (decrease) / increase in cash	(114.0)	221.4	>100
Cash at end of period	588.5	811.4	37.9
Total liquidity	1,858.5	2,238.4	20.4

1 FY20 balances have been restated to reflect the Group's change in accounting policy for costs related to configuration and customisation of SaaS arrangements. Refer to Note C7 of the Financial Report for more details.

• 2 Comprised of $311.6m net proceeds from the Mining divestment and $136.2m net proceeds from the Laundries divestment. $510m of sales proceeds disclosed on Slide 3 includes an additional $48m of working capital benefit and excludes transaction costs of $14m.

18

Capital expenditure

• Core capital expenditure of $154m, including growth capital projects such as: Investment in new Roads facilities and equipment

City Rail Link (CRL) JV share in NZ

• Ongoing IT capex to modernise group systems, enhance security and improve operating efficiencies

	$m	FY20	FY21	Change (%)
	Net Capital expenditure – core	113.5	154.0	35.7
	Net Capital expenditure – non-core	189.3	74.3	(60.8)
	IT Security and Upgrades1	41.5	28.4	(31.6)
	Capital expenditure / IT Transformation	344.3	256.7	(25.4)
	$m	FY20	FY21	Change (%)
	Depreciation of PP&E - core	105.5	106.8	1.2
	Depreciation of PP&E - non-core	159.5	117.8	(26.1)
	IT amortisation2	29.2	26.6	(8.9)
	Depreciation of RouA - core	131.7	144.2	9.5
	Depreciation of RouA - non-core	20.1	36.4	81.1
	Total depreciation & amortisation	446.0	431.8	(3.2)

1 FY20 balances have been restated to reflect the Group's change in accounting policy for costs related to configuration and customisation of SaaS arrangements. Refer to Note C7 of the Financial Report for more details 2 FY21 excludes $3.6m amortisation benefit in relation to the implementation of SaaS arrangements as described in Note B3 to the Financial Report

19

Balance sheet

• Significant improvement in gearing and Net debt / EBITDA due to completed capital raising, divestments and strong underlying cash performance

	$m	Jun-204	Jun-21
	Current assets Non-current assets	3,404.7 5,242.3	3,403.2 4,668.9
	- Goodwill	2,281.3	2,280.8
	- Acquired intangible assets	349.4	267.8
	- PP&E, Software and other	2,019.0	1,573.8
	- Right-of-use assets	592.6	546.5
	Total Liabilities	(6,052.0)	(5,114.7)
	- Lease liabilities	(763.2)	(662.8)
	- Other liabilities	(5,288.8)	(4,451.9)
	Net Assets	2,595.0	2,957.4
	Net Debt1	(1,480.5)	(708.2)
	Gearing: net debt / net debt plus equity2	35.7%	19.0%
	Net debt / EBITDA3	2.6	1.5

1 Adjusted for the marked-to-market derivatives and deferred finance charges and excludes the lease liabilities of $662.8m at 30 June 2021 ($763.2m at 30 June 2020)

• 2 Equity adjusted to exclude the impact on adoption of AASB 16 of $60.0m

• 3 On a post-AASB16 basis

4 FY20 balances have been restated to reflect the Group's change in accounting policy for costs related to configuration and customisation of SaaS arrangements. Refer to Note C7 of the Financial Report for more details

20

Group debt profile

• Weighted average debt duration of 3.8 years[1] (3.4 years at 30 June 20)

Weighted average debt duration of	3.8
years1 (3.4 years at 30 June 20)													Debt maturity						profile (A$m)
1H21 refinancing has extended debt				A$m
duration and achieved a more balanced debt				1200
maturity profile Current borrowings include $250m of Medium-Term Note maturing in March 2022,				800 1000
Downer has elected to repay from existing facilities following the successful				600
Sustainability Linked Loan refinanced in 2020				400
Debt facilities $m Jun-20 Dec-20 Total limit2 3,339.0 3,060.7 Drawn2 2,069.0 1,733.7 Available 1,270.0 1,327.0	Jun-21 2,946.6 1,519.6 1,427.0			0 200		Jun-22		Jun-23			Jun-24		Jun-25		Jun-26		Jun-27		Jun-28		Jun-29		Jun-30		Jun-31		Jun-32			Jun-33
Cash 588.5 550.4	811.4					Syndicated bank facilities								USPP			JPY MTN			A$ MTN			Bilateral bank facilities
Total liquidity 1,858.5 1,877.4	2,238.4
Net debt2 1,480.5 1,183.3	708.2

1 Based on the weighted average life of debt facilities (by A$m limit). 2 Excludes lease liabilities.

21

Pro-forma metrics and capital management

• Net debt / EBITDA of 1.5x at 30 June 2021

• Pro-forma Net debt / EBITDA of 1.6x[3] at completion of current divestments, comfortably ahead of target range of 2.0-2.5x

• On-market share buyback of up to 70.1m shares (~10% of outstanding share capital) commenced

• Targeting 60-70% dividend payout ratio of NPATA post-ROADs moving forward

• Growth capex and portfolio activities to be considered alongside target leverage range and dividend payout ratio

	$m	Jun-21
	Net debt	1,371.0
	EBITDA1	899.1
	Net Debt / EBITDA	1.52x
	EBITDA of divested businesses2	114.7
	Total pro-forma divestment proceeds2	117.5
	Pro-forma Net Debt / EBITDA	1.60x

Resumption of dividend payments

• Final unfranked dividend of 12cps declared (total 21cps in FY21)

Use of sale proceeds

• Prioritise maintenance of BBB investment grade rating

• Represents payout of 57% of underlying FY21 NPATA (excluding ROADS dividends)

• On-market share buyback for up to 70.1m of shares on issue

• Growth capital expenditure

1 EBITDA includes the adoption of AASB16 - Leases

2,3 Refer to Supplementary Information for further details

22

Key messages and Outlook

23

Key messages and outlook

• The Downer business has again proved its resilience – solid earnings, strong cash conversion and high levels of work-in-hand

• Our end markets are essential services in Transport, Utilities and Facilities. Our position in those markets and their diversity gives us strength and reliability

• Our brand and our relationships are strong

• We expect our core Urban Services to continue to grow in FY22 both in revenue and earnings but given the changing nature of the pandemic and the ongoing COVID19 restrictions we will not provide specific earnings guidance

• We will have more to say at our AGM in November with four months of operations under our belt

24

Supplementary information

25

==> picture [288 x 540] intentionally omitted <==

WIH	profile ($bn)
0.0 1.0 2.0 3.0 4.0 5.0
	FY22 FY23 FY24 FY25 FY26 FY27+
	Total WIH of $16.3bn
	98% government WIH1

Top 5 Contracts Remaining 1. Maintaining Waratah trains until 2044 2. Operating Yarra Trams until 2024 (Keolis Downer) 3. Maintaining HCMT until 2053 4. Maintaining Sydney Growth Trains until 2044 5. Operating Adelaide Passenger Rail Network until 2033 (Keolis Downer)

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----- Start of picture text -----

Revenue $m EBITA $m EBITA margin
2,833.1 200 7%
3,000
2,514.3 2,462.1 150.5 6% 5.2% 5.3%
2,500 2,178.0 150 123.1 5% 4.9%
112.5 4.0%
2,000 99.7 4%
100
1,500 3%
1,000 50 2%
500 1%
0 0%
0
1H20 2H20 1H21 2H21 1H20 2H20 1H21 2H21
1H20 2H20 1H21 2H21
+12.8% v FY20 +6.2% v FY20 (0.3)pp v FY20
----- End of picture text -----

26

1 WIH Government includes direct Government and Government-backed / regulated projects

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WIH profile ($bn)

==> picture [248 x 222] intentionally omitted <==

----- Start of picture text -----

2.0
1.5
1.0
0.5
0.0
FY22 FY23 FY24 FY25 FY26 FY27+

Total WIH of $5.4bn

82% government WIH [1]
----- End of picture text -----

Top 5 Contracts Remaining

1. Sydney Water until 2030 (Confluence Water JV) 2. AusNet (power) until 2024 (plus extensions for 6 years) 3. Logan City Council until 2025 (plus 2x2yrs extensions) 4. AusNet (gas) until 2026 5. Unified Field Operations (Network) contract with NBN

Revenue $m

EBITA $m

EBITA margin

==> picture [556 x 127] intentionally omitted <==

----- Start of picture text -----

1,500 1,416.1 1,271.9 7060 63.0 51.6 54.1 61.0 7%6% 5.3% 5.6%
1,019.7 [1,086.6] 50 5% 4.5% 4.1%
1,000 40 4%
30 3%
500 20 2%
10 1%
0 0%
0
1H20 2H20 1H21 2H21 1H20 2H20 1H21 2H21
1H20 2H20 1H21 2H21
(21.6)% v FY20 +0.4% v FY20 +1.2pp v FY20
----- End of picture text -----

27

1 WIH Government includes direct Government and Government-backed / regulated projects

==> picture [286 x 540] intentionally omitted <==

WIH profile ($bn)

==> picture [249 x 163] intentionally omitted <==

----- Start of picture text -----

6.0
5.0
4.0
3.0
2.0
1.0
0.0
FY22 FY23 FY24 FY25 FY26 FY27+
----- End of picture text -----

Top 5 Contracts Remaining

1. New Royal Adelaide Hospital PPP until 2046 (contract reset 30 June 2022)

2. Dept of Defence Estate Maintenance and Operations until August 2024

3. Sunshine Coast University Hospital PPP until 2042

4. Bendigo Hospital PPP until 2042

5. Total WIH of $12.3bn

6. 91% government WIH[1]

7. Orange Hospital PPP until 2036

==> picture [578 x 167] intentionally omitted <==

----- Start of picture text -----

Revenue [2] $m EBITA [2] $m EBITA [2] margin
1,500 1,424.1 100 7% 6.0%
1,177.1 1,202.5 [1,288.1] 80 68.7 77.5 6% 4.8% 4.8% 5.2%
62.5 5%
56.2
1,000 60 4%
40 3%
500 2%
20
1%
0 0%
0
1H20 2H20 1H21 2H21 1H20 2H20 1H21 2H21
1H20 2H20 1H21 2H21
(4.3)% v FY20 +12.1% v FY20 +0.8pp v FY20
----- End of picture text -----

28

1 WIH Government includes direct Government and Government-backed / regulated projects 2 Excludes Hospitality and Laundries

==> picture [288 x 540] intentionally omitted <==

==> picture [251 x 242] intentionally omitted <==

----- Start of picture text -----

WIH profile ($bn)
0.4
0.3
0.2
0.1
0.0
FY22 FY23 FY24 FY25 FY26 FY27+

Total WIH of $1.4bn

15% government WIH [1]
----- End of picture text -----

Top 5 Contracts Remaining

1. Chevron infrastructure maintenance until 2024 2. BHP Maintenance services in Port Hedland until 2023

2. CS Energy’s Callide Power Station until 2025 4. Santos Upstream Development Services until 2026 5. BHP Olympic Dam non-hot metal shutdown until 2021

==> picture [578 x 167] intentionally omitted <==

----- Start of picture text -----

Revenue $m EBITA $m EBITA margin
25 22.4 7%
500
411.0 6% 5.5%
20
400 5% 4.3%
15
300 261.0 267.5 230.5 11.6 4% 2.9%
200 10 6.7 3% 1.8%
4.7 2%
5
100 1%
0 0%
0
1H20 2H20 1H21 2H21 1H20 2H20 1H21 2H21
1H20 2H20 1H21 2H21
(25.9)% v FY20 (32.5)% v FY20 (0.3%) v FY20
----- End of picture text -----

29

1 WIH Government includes direct Government and Government-backed / regulated projects

Pro-forma metrics – estimated proceeds

Net debt / underlying EBITDA $m	Net Debt3	EBITDA	Net debt / EBITDA
30 June 2021 reported	1,371.0	899.1	1.52x
Otraco1	(79.0)	(13.0)	(0.07x)
Open Cut West2	(38.5)	(44.1)	0.03x
Blasting	-	(7.7)	0.01x
Underground – Carrapateena	-	(5.2)	0.01x
Laundries	-	(44.7)	0.09x
Proforma 30 June 2021	1,253.5	784.4	1.60x

• 1 Otraco transaction expected to complete by December 2021

• 2 Represents deferred proceeds under the sale contract payable in 12 equal monthly instalments to January 2022

• 3 Net debt for the purposes of calculating net debt to EBITDA ratio includes lease liabilities ($662.8m at 30 June 2021).

30

Reconciliation to segment financials

Underlying EBITA1,2 ($m)	FY20	FY21
Asset Services (EC&M)	27.1	18.3
Engineering& Construction(EC&M)	(69.2)	(5.1)
EC&M Segment EBITA	(42.1)	13.2
Facilities (core)	124.9	140.0
Laundries (Facilities)	9.1	5.0
Hospitality (Facilities)	(19.7)	0.4
Facilities Segment EBITA	114.3	145.4

1 Downer calculates EBITA by adjusting EBIT to add back acquired intangible assets amortisation expense.

31

2 The underlying result is a non-IFRS measure that is used by Management to assess the performance of the business. Non-IFRS measures have not been subject to audit or review.

Rules 4.7.3 and 4.10.3

Appendix 4G

Key to Disclosures Corporate Governance Council Principles and Recommendations

Name of entity

Downer EDI Limited

ABN/ARBN 97 003 872 848	Financial year ended:
97 003 872 848	30 June 2021

Our corporate governance statement[1] for the period above can be found at:[2]

These pages of our ☒ Pages 136 to 145 annual report: This URL on our ☐ website:

The Corporate Governance Statement is accurate and up to date as at 30 June 2021 and has been approved by the board.

The annexure includes a key to where our corporate governance disclosures can be located.[3]

Date: 12 August 2021 Name of authorised officer Robert John Regan authorising lodgement:

1 “Corporate governance statement” is defined in Listing Rule 19.12 to mean the statement referred to in Listing Rule 4.10.3 which discloses the extent to which an entity has followed the recommendations set by the ASX Corporate Governance Council during a particular reporting period.

Listing Rule 4.10.3 requires an entity that is included in the official list as an ASX Listing to include in its annual report either a corporate governance statement that meets the requirements of that rule or the URL of the page on its website where such a statement is located. The corporate governance statement must disclose the extent to which the entity has followed the recommendations set by the ASX Corporate Governance Council during the reporting period. If the entity has not followed a recommendation for any part of the reporting period, its corporate governance statement must separately identify that recommendation and the period during which it was not followed and state its reasons for not following the recommendation and what (if any) alternative governance practices it adopted in lieu of the recommendation during that period.

Under Listing Rule 4.7.4, if an entity chooses to include its corporate governance statement on its website rather than in its annual report, it must lodge a copy of the corporate governance statement with ASX at the same time as it lodges its annual report with ASX. The corporate governance statement must be current as at the effective date specified in that statement for the purposes of Listing Rule 4.10.3.

Under Listing Rule 4.7.3, an entity must also lodge with ASX a completed Appendix 4G at the same time as it lodges its annual report with ASX. The Appendix 4G serves a dual purpose. It acts as a key designed to assist readers to locate the governance disclosures made by a listed entity under Listing Rule 4.10.3 and under the ASX Corporate Governance Council’s recommendations. It also acts as a verification tool for listed entities to confirm that they have met the disclosure requirements of Listing Rule 4.10.3.

The Appendix 4G is not a substitute for, and is not to be confused with, the entity's corporate governance statement. They serve different purposes and an entity must produce each of them separately.

2 Tick whichever option is correct and then complete the page number(s) of the annual report, or the URL of the web page, where your corporate governance statement can be found. You can, if you wish, delete the option which is not applicable.

3 Throughout this form, where you are given two or more options to select, you can, if you wish, delete any option which is not applicable and just retain the option that is applicable. If you select an option that includes “OR” at the end of the selection and you delete the other options, you can also, if you wish, delete the “OR” at the end of the selection. See notes 4 and 5 below for further instructions on how to complete this form.

ASX Listing Rules Appendix 4G (current at 17/7/2020)

Page 1

Appendix 4G Key to Disclosures Corporate Governance Council Principles and Recommendations

ANNEXURE – KEY TO CORPORATE GOVERNANCE DISCLOSURES

Corporate Governance Council recommendation	Corporate Governance Council recommendation	Where a box below is ticked, 4we have followed the recommendation in full for the whole of the period above. We have disclosed this in our Corporate Governance Statement:	Where a box below is ticked, we have NOT followed the recommendation in full for the whole of the period above. Our reasons for not doing so are:5
PRINCIPLE 1 – LAY SOLID FOUNDATIONS FOR MANAGEMENT AND OVERSIGHT
1.1	A listed entity should have and disclose a board charter setting out: (a) the respective roles and responsibilities of its board and management; and (b) those matters expressly reserved to the board and those delegated to management.	☒and we have disclosed a copy of our board charter at: https://www.downergroup.com/Content/cms/Documents/Board- Charter.pdf	☐ set out in our Corporate Governance Statement OR ☐ we are an externally managed entity and this recommendation is therefore not applicable
1.2	A listed entity should: (a) undertake appropriate checks before appointing a director or senior executive or putting someone forward for election as a director; and (b) provide security holders with all material information in its possession relevant to a decision on whether or not to elect or re-elect a director.	☒	☐ set out in our Corporate Governance Statement OR ☐ we are an externally managed entity and this recommendation is therefore not applicable
1.3	A listed entity should have a written agreement with each director and senior executive setting out the terms of their appointment.	☒	☐ set out in our Corporate Governance Statement OR ☐ we are an externally managed entity and this recommendation is therefore not applicable
1.4	The company secretary of a listed entity should be accountable directly to the board, through the chair, on all matters to do with the proper functioning of the board.	☒	☐ set out in our Corporate Governance Statement OR ☐ we are an externally managed entity and this recommendation is therefore not applicable

4 Tick the box in this column only if you have followed the relevant recommendation in full for the whole of the period above. Where the recommendation has a disclosure obligation attached, you must insert the location where that disclosure has been made, where indicated by the line with “ insert location ” underneath. If the disclosure in question has been made in your corporate governance statement, you need only insert “our corporate governance statement”. If the disclosure has been made in your annual report, you should insert the page number(s) of your annual report (eg “pages 10-12 of our annual report”). If the disclosure has been made on your website, you should insert the URL of the web page where the disclosure has been made or can be accessed (eg “www.entityname.com.au/corporate governance/charters/”).

5 If you have followed all of the Council’s recommendations in full for the whole of the period above, you can, if you wish, delete this column from the form and re-format it.

Page 2

ASX Listing Rules Appendix 4G (current at 17/7/2020)

Appendix 4G Key to Disclosures Corporate Governance Council Principles and Recommendations

Corporate Governance Council recommendation	Corporate Governance Council recommendation	Where a box below is ticked, 4we have followed the recommendation in full for the whole of the period above. We have disclosed this in our Corporate Governance Statement:	Where a box below is ticked, we have NOT followed the recommendation in full for the whole of the period above. Our reasons for not doing so are:5
1.5	A listed entity should: (a) have and disclose a diversity policy; (b) through its board or a committee of the board set measurable objectives for achieving gender diversity in the composition of its board, senior executives and workforce generally; and (c) disclose in relation to each reporting period: (1) the measurable objectives set for that period to achieve gender diversity; (2) the entity’s progress towards achieving those objectives; and (3) either: (A) the respective proportions of men and women on the board, in senior executive positions and across the whole workforce (including how the entity has defined “senior executive” for these purposes); or (B) if the entity is a “relevant employer” under the Workplace Gender Equality Act, the entity’s most recent “Gender Equality Indicators”, as defined in and published under that Act. If the entity was in the S&P / ASX 300 Index at the commencement of the reporting period, the measurable objective for achieving gender diversity in the composition of its board should be to have not less than 30% of its directors of each gender within a specified period.	☒and we have disclosed a copy of our diversity policy at: https://www.downergroup.com/Content/cms/media/2019/Documents/ Policies/Diversity_and_Inclusion_Policy_and_Standard.pdf and we have disclosed the information referred to in paragraph (c) at: our Corporate Governance Statement and if we were included in the S&P / ASX 300 Index at the commencement of the reporting period our measurable objective for achieving gender diversity in the composition of its board of not less than 30% of its directors of each gender within a specified period.	☐ set out in our Corporate Governance Statement OR ☐ we are an externally managed entity and this recommendation is therefore not applicable
1.6	A listed entity should: (a) have and disclose a process for periodically evaluating the performance of the board, its committees and individual directors; and (b) disclose for each reporting period whether a performance evaluation has been undertaken in accordance with that process during or in respect of that period.	☒and we have disclosed the evaluation process referred to in paragraph (a) at: our Corporate Governance Statement and whether a performance evaluation was undertaken for the reporting period in accordance with that process at: our Corporate Governance Statement	☐ set out in our Corporate Governance Statement OR ☐ we are an externally managed entity and this recommendation is therefore not applicable

Page 3

ASX Listing Rules Appendix 4G (current at 17/7/2020)

Appendix 4G Key to Disclosures Corporate Governance Council Principles and Recommendations

Corporate Governance Council recommendation	Corporate Governance Council recommendation	Where a box below is ticked, 4we have followed the recommendation in full for the whole of the period above. We have disclosed this in our Corporate Governance Statement:	Where a box below is ticked, we have NOT followed the recommendation in full for the whole of the period above. Our reasons for not doing so are:5
1.7	A listed entity should: (a) have and disclose a process for evaluating the performance of its senior executives at least once every reporting period; and (b) disclose for each reporting period whether a performance evaluation has been undertaken in accordance with that process during or in respect of that period.	☒and we have disclosed the evaluation process referred to in paragraph (a) at: our Corporate Governance Statement and whether a performance evaluation was undertaken for the reporting period in accordance with that process at: our Corporate Governance Statement	☐ set out in our Corporate Governance Statement OR ☐ we are an externally managed entity and this recommendation is therefore not applicable

Page 4

ASX Listing Rules Appendix 4G (current at 17/7/2020)

Appendix 4G Key to Disclosures Corporate Governance Council Principles and Recommendations

Corporate Governance Council recommendation	Corporate Governance Council recommendation	Where a box below is ticked, 4we have followed the recommendation in full for the whole of the period above. We have disclosed this in our Corporate Governance Statement:	Where a box below is ticked, we have NOT followed the recommendation in full for the whole of the period above. Our reasons for not doing so are:5
PRINCIPLE 2 - STRUCTURE THE BOARD TO BE EFFECTIVE AND ADD		VALUE
2.1	The board of a listed entity should: (a) have a nomination committee which: (1) has at least three members, a majority of whom are independent directors; and (2) is chaired by an independent director, and disclose: (3) the charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a nomination committee, disclose that fact and the processes it employs to address board succession issues and to ensure that the board has the appropriate balance of skills, knowledge, experience, independence and diversity to enable it to discharge its duties and responsibilities effectively.	☒☐ and we have disclosed a copy of the charter of the committee at: https://www.downergroup.com/Content/cms/pdf/Nomination-and- Corporate-Governance-Committee-Charter.pdf and the information referred to in paragraphs (4) and (5) at: our Corporate Governance Statement page 19 of our 2021 Annual Report – Directors’ Report	☐ set out in our Corporate Governance Statement OR ☐ we are an externally managed entity and this recommendation is therefore not applicable
2.2	A listed entity should have and disclose a board skills matrix setting out the mix of skills that the board currently has or is looking to achieve in its membership.	☒and we have disclosed our board skills matrix at: our Corporate Governance Statement	☐ set out in our Corporate Governance Statement OR ☐ we are an externally managed entity and this recommendation is therefore not applicable
2.3	A listed entity should disclose: (a) the names of the directors considered by the board to be independent directors; (b) if a director has an interest, position, affiliation or relationship of the type described in Box 2.3 but the board is of the opinion that it does not compromise the independence of the director, the nature of the interest, position or relationship in question and an explanation of why the board is of that opinion; and (c) the length of service of each director.	☒and we have disclosed the names of the directors considered by the board to be independent directors at: pages 4-5 of our 2021 Annual Report – Directors’ Report and, where applicable, the information referred to in paragraph (b) at: Not applicable and the length of service of each director at: pages 4-5 of our 2021 Annual Report – Directors’ Report	☐ set out in our Corporate Governance Statement

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ASX Listing Rules Appendix 4G (current at 17/7/2020)

Appendix 4G Key to Disclosures Corporate Governance Council Principles and Recommendations

Corporate Governance Council recommendation	Corporate Governance Council recommendation	Where a box below is ticked, 4we have followed the recommendation in full for the whole of the period above. We have disclosed this in our Corporate Governance Statement:	Where a box below is ticked, we have NOT followed the recommendation in full for the whole of the period above. Our reasons for not doing so are:5
2.4	A majority of the board of a listed entity should be independent directors.	☒	☐ set out in our Corporate Governance Statement OR ☐ we are an externally managed entity and this recommendation is therefore not applicable
2.5	The chair of the board of a listed entity should be an independent director and, in particular, should not be the same person as the CEO of the entity.	☒	☐ set out in our Corporate Governance Statement OR ☐ we are an externally managed entity and this recommendation is therefore not applicable
2.6	A listed entity should have a program for inducting new directors and for periodically reviewing whether there is a need for existing directors to undertake professional development to maintain the skills and knowledge needed to perform their role as directors effectively.	☒	☐ set out in our Corporate Governance Statement OR ☐ we are an externally managed entity and this recommendation is therefore not applicable
PRINCIPLE 3 – INSTIL A CULTURE OF ACTING LAWFULLY, ETHICALLY AND RESPONSIBLY
3.1	A listed entity should articulate and disclose its values.	☒and we have disclosed our values at: our Corporate Governance Statement https://www.downergroup.com/about-us	☐ set out in our Corporate Governance Statement
3.2	A listed entity should: (a) have and disclose a code of conduct for its directors, senior executives and employees; and (b) ensure that the board or a committee of the board is informed of any material breaches of that code.	☒and we have disclosed our code of conduct at: https://www.downergroup.com/Content/cms/media/2019/Documents/ Policies/DOW_Standards_of_Business_Conduct_interactive.pdf	☐ set out in our Corporate Governance Statement
3.3	A listed entity should: (a) have and disclose a whistleblower policy; and (b) ensure that the board or a committee of the board is informed of any material incidents reported under that policy.	☒and we have disclosed our whistleblower policy at: https://www.downergroup.com/Content/cms/media/2019/Documents/ Policies/Business_Integrity_Policy__Final_.pdf	☐ set out in our Corporate Governance Statement
3.4	A listed entity should: (a) have and disclose an anti-bribery and corruption policy; and (b) ensure that the board or committee of the board is informed of any material breaches of that policy.	☒and we have disclosed our anti-bribery and corruption policy at: https://www.downergroup.com/Content/cms/media/2019/Documents/ Policies/Anti- Bribery_and_Corruption_Gifts_and_Benefits_Policy__Final_- External.pdf	☐ set out in our Corporate Governance Statement

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ASX Listing Rules Appendix 4G (current at 17/7/2020)

Appendix 4G Key to Disclosures Corporate Governance Council Principles and Recommendations

Corporate Governance Council recommendation	Corporate Governance Council recommendation	Where a box below is ticked, 4we have followed the recommendation in full for the whole of the period above. We have disclosed this in our Corporate Governance Statement:	Where a box below is ticked, we have NOT followed the recommendation in full for the whole of the period above. Our reasons for not doing so are:5
PRINCIPLE 4 – SAFEGUARD THE INTEGRITY OF CORPORATE REPORTS
4.1	The board of a listed entity should: (a) have an audit committee which: (1) has at least three members, all of whom are non- executive directors and a majority of whom are independent directors; and (2) is chaired by an independent director, who is not the chair of the board, and disclose: (3) the charter of the committee; (4) the relevant qualifications and experience of the members of the committee; and (5) in relation to each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have an audit committee, disclose that fact and the processes it employs that independently verify and safeguard the integrity of its corporate reporting, including the processes for the appointment and removal of the external auditor and the rotation of the audit engagement partner.	☒☐ and we have disclosed a copy of the charter of the committee at: https://www.downergroup.com/Content/cms/media/2018/PDF/Board/ 2018_06_20_Audit_and_Risk_Committee_Charter_website_version. pdf and the information referred to in paragraphs (4) and (5) at: our Corporate Governance Statement page 19 of our 2021 Annual Report – Directors’ Report	☐ set out in our Corporate Governance Statement
4.2	The board of a listed entity should, before it approves the entity’s financial statements for a financial period, receive from its CEO and CFO a declaration that, in their opinion, the financial records of the entity have been properly maintained and that the financial statements comply with the appropriate accounting standards and give a true and fair view of the financial position and performance of the entity and that the opinion has been formed on the basis of a sound system of risk management and internal control which is operating effectively.	☒	☐ set out in our Corporate Governance Statement
4.3	A listed entity should disclose its process to verify the integrity of any periodic corporate report it releases to the market that is not audited or reviewed by an external auditor.	☒	☐ set out in our Corporate Governance Statement

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ASX Listing Rules Appendix 4G (current at 17/7/2020)

Appendix 4G Key to Disclosures Corporate Governance Council Principles and Recommendations

Corporate Governance Council recommendation	Corporate Governance Council recommendation	Where a box below is ticked, 4we have followed the recommendation in full for the whole of the period above. We have disclosed this in our Corporate Governance Statement:	Where a box below is ticked, we have NOT followed the recommendation in full for the whole of the period above. Our reasons for not doing so are:5
PRINCIPLE 5 – MAKE TIMELY AND BALANCED DISCLOSURE
5.1	A listed entity should have and disclose a written policy for complying with its continuous disclosure obligations under listing rule 3.1.	☒and we have disclosed our continuous disclosure compliance policy at: https://www.downergroup.com/Content/cms/Documents/Board_Polic ies/Disclosure-Policy.pdf	☐ set out in our Corporate Governance Statement
5.2	A listed entity should ensure that its board receives copies of all material market announcements promptly after they have been made.	☒	☐ set out in our Corporate Governance Statement
5.3	A listed entity that gives a new and substantive investor or analyst presentation should release a copy of the presentation materials on the ASX Market Announcements Platform ahead of the presentation.	☒	☐ set out in our Corporate Governance Statement
PRINCIPLE 6 – RESPECT THE RIGHTS OF SECURITY HOLDERS
6.1	A listed entity should provide information about itself and its governance to investors via its website.	☒and we have disclosed information about us and our governance on our website at: https://www.downergroup.com/corporate-governance	☐ set out in our Corporate Governance Statement
6.2	A listed entity should have an investor relations program that facilitates effective two-way communication with investors.	☒	☐ set out in our Corporate Governance Statement
6.3	A listed entity should disclose how it facilitates and encourages participation at meetings of security holders.	☒and we have disclosed how we facilitate and encourage participation at meetings of security holders at: our Corporate Governance Statement	☐ set out in our Corporate Governance Statement
6.4	A listed entity should ensure that all substantive resolutions at a meeting of security holders are decided by a poll rather than by a show of hands.	☒	☐ set out in our Corporate Governance Statement
6.5	A listed entity should give security holders the option to receive communications from, and send communications to, the entity and its security registry electronically.	☒	☐ set out in our Corporate Governance Statement

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ASX Listing Rules Appendix 4G (current at 17/7/2020)

Appendix 4G Key to Disclosures Corporate Governance Council Principles and Recommendations

Corporate Governance Council recommendation	Corporate Governance Council recommendation	Where a box below is ticked, 4we have followed the recommendation in full for the whole of the period above. We have disclosed this in our Corporate Governance Statement:	Where a box below is ticked, we have NOT followed the recommendation in full for the whole of the period above. Our reasons for not doing so are:5
PRINCIPLE 7 – RECOGNISE AND MANAGE RISK
7.1	The board of a listed entity should: (a) have a committee or committees to oversee risk, each of which: (1) has at least three members, a majority of whom are independent directors; and (2) is chaired by an independent director, and disclose: (3) the charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a risk committee or committees that satisfy (a) above, disclose that fact and the processes it employs for overseeing the entity’s risk management framework.	☒ and we have disclosed a copy of the charter of the committee at: https://www.downergroup.com/Content/cms/media/2018/PDF/Board/ 2018_06_20_Audit_and_Risk_Committee_Charter_website_version. pdf and the information referred to in paragraphs (4) and (5) at: our Corporate Governance Statement page 19 of our 2021 Annual Report – Directors’ Report	☐ set out in our Corporate Governance Statement
7.2	The board or a committee of the board should: (a) review the entity’s risk management framework at least annually to satisfy itself that it continues to be sound and that the entity is operating with due regard to the risk appetite set by the board; and (b) disclose, in relation to each reporting period, whether such a review has taken place.	☒and we have disclosed whether a review of the entity’s risk management framework was undertaken during the reporting period at: our Corporate Governance Statement	☐ set out in our Corporate Governance Statement
7.3	A listed entity should disclose: (a) if it has an internal audit function, how the function is structured and what role it performs; or (b) if it does not have an internal audit function, that fact and the processes it employs for evaluating and continually improving the effectiveness of its governance, risk management and internal control processes.	☒ and we have disclosed how our internal audit function is structured and what role it performs at: our Corporate Governance Statement	☐ set out in our Corporate Governance Statement

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ASX Listing Rules Appendix 4G (current at 17/7/2020)

Appendix 4G

Key to Disclosures Corporate Governance Council Principles and Recommendations

Corporate Governance Council recommendation	Corporate Governance Council recommendation	Where a box below is ticked, 4we have followed the recommendation in full for the whole of the period above. We have disclosed this in our Corporate Governance Statement:	Where a box below is ticked, we have NOT followed the recommendation in full for the whole of the period above. Our reasons for not doing so are:5
7.4	A listed entity should disclose whether it has any material exposure to environmental or social risks and, if it does, how it manages or intends to manage those risks.	☒and we have disclosed whether we have any material exposure to environmental and social risks at: our Corporate Governance Statement and, if we do, how we manage or intend to manage those risks at: our website and Sustainability Report at https://downergroup.com/sustainability	☐ set out in our Corporate Governance Statement

Page 10

ASX Listing Rules Appendix 4G (current at 17/7/2020)

Appendix 4G Key to Disclosures Corporate Governance Council Principles and Recommendations

Corporate Governance Council recommendation	Corporate Governance Council recommendation	Where a box below is ticked, 4we have followed the recommendation in full for the whole of the period above. We have disclosed this in our Corporate Governance Statement:	Where a box below is ticked, we have NOT followed the recommendation in full for the whole of the period above. Our reasons for not doing so are:5
PRINCIPLE 8 – REMUNERATE FAIRLY AND RESPONSIBLY
8.1	The board of a listed entity should: (a) have a remuneration committee which: (1) has at least three members, a majority of whom are independent directors; and (2) is chaired by an independent director, and disclose: (3) the charter of the committee; (4) the members of the committee; and (5) as at the end of each reporting period, the number of times the committee met throughout the period and the individual attendances of the members at those meetings; or (b) if it does not have a remuneration committee, disclose that fact and the processes it employs for setting the level and composition of remuneration for directors and senior executives and ensuring that such remuneration is appropriate and not excessive.	☒ and we have disclosed a copy of the charter of the committee at: https://www.downergroup.com/Content/cms/pdf/Remuneration- Committee-Charter.pdf and the information referred to in paragraphs (4) and (5) at: our Corporate Governance Statement page 19 of our 2021 Annual Report – Directors’ Report	☐ set out in our Corporate Governance Statement OR ☐ we are an externally managed entity and this recommendation is therefore not applicable
8.2	A listed entity should separately disclose its policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and other senior executives.	☒and we have disclosed separately our remuneration policies and practices regarding the remuneration of non-executive directors and the remuneration of executive directors and other senior executives at: our Corporate Governance Statement pages 21-51 of our 2021 Annual Report – Remuneration Report	☐ set out in our Corporate Governance Statement OR ☐ we are an externally managed entity and this recommendation is therefore not applicable
8.3	A listed entity which has an equity-based remuneration scheme should: (a) have a policy on whether participants are permitted to enter into transactions (whether through the use of derivatives or otherwise) which limit the economic risk of participating in the scheme; and (b) disclose that policy or a summary of it.	☒and we have disclosed our policy on this issue or a summary of it at: https://www.downergroup.com/Content/cms/media/2019/Documents/ Policies/Securities_Trading_Policy__Final_-external.pdf our Corporate Governance Statement	☐ set out in our Corporate Governance Statement OR ☐ we do not have an equity-based remuneration scheme and this recommendation is therefore not applicable OR ☐ we are an externally managed entity and this recommendation is therefore not applicable

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ASX Listing Rules Appendix 4G (current at 17/7/2020)

Appendix 4G Key to Disclosures Corporate Governance Council Principles and Recommendations

Corporate Governance Council recommendation	Corporate Governance Council recommendation	Where a box below is ticked, 4we have followed the recommendation in full for the whole of the period above. We have disclosed this in our Corporate Governance Statement:	Where a box below is ticked, we have NOT followed the recommendation in full for the whole of the period above. Our reasons for not doing so are:5
ADDITIONAL RECOMMENDATIONS THAT APPLY ONLY IN CERTAIN CASES
9.1	A listed entity with a director who does not speak the language in which board or security holder meetings are held or key corporate documents are written should disclose the processes it has in place to ensure the director understands and can contribute to the discussions at those meetings and understands and can discharge their obligations in relation to those documents.	☐ and we have disclosed information about the processes in place at: ……………………………………………………………………… [insert location]	☐ set out in our Corporate Governance Statement OR ☒we do not have a director in this position and this recommendation is therefore not applicableOR ☐ we are an externally managed entity and this recommendation is therefore not applicable
9.2	A listed entity established outside Australia should ensure that meetings of security holders are held at a reasonable place and time.	☐	☐ set out in our Corporate Governance Statement OR ☒we are established in Australia and this recommendation is therefore not applicableOR ☐ we are an externally managed entity and this recommendation is therefore not applicable
9.3	A listed entity established outside Australia, and an externally managed listed entity that has an AGM, should ensure that its external auditor attends its AGM and is available to answer questions from security holders relevant to the audit.	☐	☐ set out in our Corporate Governance Statement OR ☒we are established in Australia and not an externally managed listed entity and this recommendation is therefore not applicable ☐ we are an externally managed entity that does not hold an AGM and this recommendation is therefore not applicable
ADDITIONAL DISCLOSURES APPLICABLE TO EXTERNALLY MANAGED LISTED ENTITIES
-	Alternative to Recommendation 1.1 for externally managed listed entities: The responsible entity of an externally managed listed entity should disclose: (a) the arrangements between the responsible entity and the listed entity for managing the affairs of the listed entity; and (b) the role and responsibility of the board of the responsible entity for overseeing those arrangements.	☐ and we have disclosed the information referred to in paragraphs (a) and (b) at: …………………………………………………………………………….. [insert location]	☐ set out in our Corporate Governance Statement

Page 12

ASX Listing Rules Appendix 4G (current at 17/7/2020)

Appendix 4G

Key to Disclosures Corporate Governance Council Principles and Recommendations

Corporate Governance Council recommendation	Corporate Governance Council recommendation	Where a box below is ticked, 4we have followed the recommendation in full for the whole of the period above. We have disclosed this in our Corporate Governance Statement:	Where a box below is ticked, we have NOT followed the recommendation in full for the whole of the period above. Our reasons for not doing so are:5
-	Alternative to Recommendations 8.1, 8.2 and 8.3 for externally managed listed entities: An externally managed listed entity should clearly disclose the terms governing the remuneration of the manager.	☐ and we have disclosed the terms governing our remuneration as manager of the entity at: …………………………………………………………………………….. [insert location]	☐ set out in our Corporate Governance Statement

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ASX Listing Rules Appendix 4G (current at 17/7/2020)