Key Concepts –
1.
Revenue increased. This was driven by the infrastructure
division.
2.
Expenses increased. Mainly related to salaries and wages and this
is AFTER the corporate restructure.
3.
Group earnings increased.
4.
Operating cash flows increased – this was due to
a drive to ensure payment terms were met (is there more to this ‘drive’ or is
it simply a wise business procedure being amped up?).
5.
Net capital decreased.
6.
7.
General consulting business is down in Aus and
NZ due to larger competition.
8.
Commodity prices (particularly coal) have
decrease putting pressure on companies to reduce ancillary production.
9.
Downer Rail revenue fell. There is little information provided
regarding the Rail division.
10. The majority of Downer
Infrastructure’s work comprises contracts that are valued at less than $30
million and are recurring in nature. This makes the business more resilient
through economic cycles.
11. After several years of very
strong growth, current market conditions are challenging for Downer Mining with
customers reviewing their operations and seeking to reduce costs.
12. Debt and liabilities
decreased.
13. Shareholder equity increased,
mainly due to capital being raised.
14. The outcomes of the troublesome Waratah train
productions is being carefully managed and could have significant impacts on
the Rail division if not delivered according to scheduled time frames.
15. During the financial year, the
Company paid a premium in respect of a contract insuring the Directors of the
Company (as named above), the Company Secretary, 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.
16. Tighter controls are enforced regarding remuneration
and the withholding of payments dependent on ‘actual’ performance. Policy changes have taken effect to provide
framework for measuring outcomes of key personnel.
17. Between 30 – 50% of executive salaries are based on
key performance outcomes
18. In determining revenues and
expenses for construction contracts, Management makes key assumptions regarding
estimated revenues and expenses over the life of the contracts. Where contract
variations are recognised in revenue, assumptions are made regarding the
probability that customers will approve those contract variations and the
amount of revenue arising from contract variations. In respect of costs, key
assumptions regarding costs to complete contracts may include estimation of
labour, technical costs, impact of delays and productivity. Changes in these
estimation methods could have a material impact on the financial statements of
Downer.
19. In relation to tenders - Judgement is exercised by Management in
determining whether it is probable that the contract will be awarded. An
error in judgement may result in capitalised tender/bid costs being recognised
in the statement of profit or loss in the following financial year.
20. The Downer Asia business had
not performed to the expectations of the Group, as a consequence of increased
competition from other Asian contractors who have commenced operations in
Singapore and had not secured sufficient future work to support the carrying
value of the goodwill in the business. Management has decided to impair
goodwill of Downer Asia by $9.3 million in the prior year.
21. The Spiire business in
Australia had underperformed as a result of challenging economic conditions and
scarcity of work to support its operational and overhead structure. Management
had decided to impair goodwill of Spiire Australia by $8.7 million.
22. The Group did not acquire any
businesses during the financial year ended 30 June 2013.
23. The Group disposed the Spiire
Australia business by way of a management buy out (MBO) to three of its senior
executives for $1.8 million. The sale transaction was completed on 30 June
2013.
24. Downer suffered a workplace
fatality in New Zealand in October 2012. The Group has embarked on an analysis,
assessment and response at every level of the organisation on critical risk
management where hazards are identified and known controls are applied. An
example of this is the introduction of a set of Group-wide Cardinal Rules,
which address ten of the most significant areas of risk for harm to employees.
Key Questions –
1. What does this statement mean? Footer of page.
Total
revenue is a non-statutory disclosure and includes revenue, other income and
notional revenue from joint ventures and other alliances not proportionally
consolidated.
2. What does this mean, another notation.
-
Numbers are underlying, i.e. excluding Individually Significant Item.
-
Interest and other costs of finance paid minus interest received.
-
Unaudited.
3.
What does this mean?
Downer’s weighted average debt maturity
has been extended.
4. This statement is interesting and I’m not
entirely sure I understand it. Modest
expectation?
With Downer having made substantial
progress rebuilding its balance sheet, in February 2013 the Downer Board
elected to recommence the distribution of dividends on its ordinary shares
electing a “cents per share” policy rather than a fixed payout ratio. This
allows Downer to set a modest expectation that can be achieved in terms of
available capital and franking credits. Once Downer returns to an Australian
tax paying position, a fixed payout ratio policy will be reassessed.
5. The company is looking to outsource more and use
contractors so as not to be ‘fixed’ long term to wages or salaries (in particular
operations). Is this to warrant future
issues?
6. Don’t completely understand the Fit 4
Business component and what is this about?
7. 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.
What is
the above statement really saying?
‘Substance of the underlying transaction’? Meaning what?
Meaning that information of substance is reported or meaning that
information is withheld?
8. Wondering if the below statement is a good or
bad thing for the company. Does the fact
they don’t have big contributors mean they are constantly competing in an
uncertain industry/future?
There is
no single customer that contributed 10 per cent or more to the Group’s revenue
in FY13. Sales arising from the Group’s largest customer in FY12 are related to
rendering of services and mining services totalling $45.2 million and $780.7
million respectively.
Melody - very insightful and thoughtful initial questions and comments on your firm and its financial statements ... will be great to see how your insights and your understanding develop about your firm, Downer EDI, and how its accounts can help, or perhaps hinder, you to better connect with and understand what is really going on with your firm. :)
ReplyDeleteThank you Martin. Great to have the feedback. Reading Chapter 3 - all very interesting!
ReplyDeleteHi Melody,
ReplyDeleteRegarding "5. The company is looking to outsource more and use contractors so as not to be ‘fixed’ long term to wages or salaries (in particular operations). Is this to warrant future issues?"
I can't be certain about Downers case of course but as an example - Sometimes a company such has Downer will have a service contract with a client that lasts for a number of years (eg 3yrs), however there is not necessarily work for them the entire duration of the contract. The work is on an as needed basis over the 3yrs.
So Downer would have maybe one or two full time staff working for the client and will bring in extra staff for the busy periods. Companies will often use contractors as the extra staff during the busy times, this way they don't need to keep them employed when work is scarce and the companies wages expense is kept low.
This happens a lot in heavy industry with companies that have contracts for maintenance or planning at a refinery for an example which would have regular overhauls on parts of the plant requiring a large labour force for a short amount of time.
Hope this helps,
Ben
http://bensassignment1blog.blogspot.com.au/
Thanks Ben. I did actually understand that but I really appreciate that you've taken time to respond. I suppose my thoughts are leading towards 'why the change' as it was stated as a change. Is the business preparing for a rough time, I suppose they have already stated that but as I look at figures, the business 'appears' to be doing well however, by actions such as this, it makes you wonder.
ReplyDeleteIt's just me throwing out thoughts. Again, I really appreciate your time.
Wow, you have put so much work into this blog! It has been very interesting and informative reading your blog. I look forward to following your future posts. Well done!
ReplyDeleteHi Melody,
ReplyDeleteI'm really enjoying how in depth you are going into your research!! So far I think you have raised excellent questions with regards to your KCQ's, the only answer I could think of would be for 5. When Downer says they want to outsource more, perhaps they would preffer to have contracted workers which would make it easier on the finance and HR staff, in a sense that if an organisation outsources its staff, to say a Labor recruitment agency, the only thing that Downers would have to worry about would be (please note that this is a very summarised version of what labour recruitment firms do):
1. the payment of wages and rates to the recruitment firm, which is the employees pay rate + an admin fee charged by the recruitment firm.
2. the training and induction of people, for if they need the induction for a certain mine site etc, assuming that the recruitment firm does not offer this service.
and
3. If there is any contractual obligations they need comply by which is negotiated between Downers and the recruitment firm.
Basically, downers wants to cut back on their administrative expenses, and employ short term workers, as opposed to long term, which may lead to larger expenses, such as remuneration, etc.
Ben has made an excellent point about the short and long term workers, and I think many large organisations have felt this way at some point or another
-Eve