Downer Edi Limited · ASX:DOW
Downer Edi — Investor Day (May 2011)
80 slides from Downer Edi's investor day presentation, May 12, 2011
Slide 1: Downer EDI 2011 Investor Day cover letter
12 May 2011 For personal use only Company Announcements Office ASX Limited Level 4, 20 Bridge Street Sydney NSW 2000 Dear Sir/Madam RE: Downer EDI 2011 Investor Day Please find attached a copy of the presentation to be made to investors today at the company’s annual Investor Day. Yours faithfully, D
Slide 2: Investor Day: Plenary session
For personal use only Investor Day Plenary session 12 May 2011 1
Slide 3: Format for the day
Format for the day For personal use only Time Event Room 8.35 – 9.35 Plenary session Room 6B 9.40 – 10.35 Breakout session #1 Various 10.35 – 10.45 Morning tea VIP Room 10.45 – 11.40 Breakout session #2 Various 11.45 – 12.40 Breakout session #3 Various 12.40 – 13.15 Lunch break VIP Room 13.15 – 14.1
Slide 4: Business profile
Business profile For personal use only Market People Work-in-hand capitalisation $1.6 billion 23,000 $20 billion Divisions Downer Australia Downer NZ Downer Mining Downer Rail Sectors - Minerals & Metals - Oil & Gas - Power - Communications - Transport Infrastructure - Water - Social Infrastructure
Slide 5: Transformation
For personal use only Transformation 4
Slide 6: Focus of past months: Zero Harm
Focus of past 9 months For personal use only Maintain focus on Zero Harm • Incidents and injuries continue to Downer safety performance: Jul 06 – Mar 11 decline as a proportion of hours worked • LTIFR down 8%/ TRIFR down 14%/ Severity down 40% • Competitive advantage 5
Slide 7: Focus of past months: Waratah project
Focus of past 9 months For personal use only Waratah project • New experienced project team recruited • Credible production/delivery schedule • Intervention plan completed and in progress • Improved relationship with RailCorp • First train presented for acceptance 6
Slide 8: Focus of past months: access to debt and equity capital
Focus of past 9 months For personal use only Ensure continued access to debt and equity capital • $420m syndicated debt facility refinanced in November • $279m equity issue in February/March • Maintenance of investment grade credit rating BBB- (stable) 7
Slide 9: Focus of past months: Build management capability
Focus of past 9 months For personal use only Build management capability and performance • New management structure with divisions direct to CEO • Overhaul of Head Office • Centralised key technical functions • Group HR lead appointed • New CEOs in Downer Australia, Rail • New CFOs in Downer Austral
Slide 10: Focus of past months: Portfolio shape
Focus of past 9 months For personal use only Portfolio shape • Detailed review of divisional performance and strategy • Creation of Downer Australia (Engineering and Works Australia, Emerging Sectors) • Further business stream rationalisation in progress 9
Slide 11: Focus of past months: Set business priorities
Focus of past 9 months For personal use only Set business priorities • Provide high level of market transparency • Drive organic rather than acquisitive growth • Overhaul tender and project risk management • Promote customer engagement and business development • Concentrate on ‘core’ business • Esta
Slide 12: Moving forward: Deliver Waratah project
Moving forward For personal use only Deliver Waratah project within program and cost • Delivery of first six trains/achieve reliability targets • Deliver change in China manufacturing to achieve quality and rate of production 11
Slide 13: Moving forward: Management and delivery of major projects
Moving forward For personal use only Management and delivery of existing major projects • Recover wet weather impact on Christmas Creek mobilisation • Complete Curragh project on program • Close management and review of major projects 12
Slide 14: Moving forward: Drive growth in core markets
Moving forward For personal use only Drive growth in core markets with key customers • Focus Downer Australia on key markets and customer engagement • Leverage cross-sell through CRM and growth & development (G&D) forum • Deliver on contracted growth in Mining • Core business focus • Less bidding/mo
Slide 15: Moving forward: Continued focus on risk management
Moving forward For personal use only Continued focus on risk management • Fixed price contracting limited to projects with low execution risk • Appropriate risk sharing in contract formation • Bid only where we have proven experience and skills • Continue to strengthen ‘life cycle’ processes 14
Slide 16: Moving forward: Improve project management capability
Moving forward For personal use only Improve project management capability • Common project systems and methodology • Investment in people and skills • Close monitoring by division and corporate management 15
Slide 17: Moving forward: Funding for growth
Moving forward For personal use only Funding for growth • Refinance $260m Syndicated Bonding Facility • Complete ECA funding for Mining and Rail growth • Access additional OEM and Bank operating/finance lease facilities • Improve working capital management 16
Slide 18: Key opportunities identified for FY12
Moving forward For personal use only Key opportunities identified for FY12 • IT efficiency Simplify/consolidate • Group procurement • Insurance Group /enable • Property • Biodiesel • Asset management Mining • Overhead reduction • Fit 4 Business • Loco cost reduction Gross • Maintenance process • Exi
Slide 19: Moving forward: Right people/right jobs
Moving forward For personal use only Right people/right jobs • Attracting and retaining staff in “hot” market • Talent and succession planning • Performance management 18
Slide 20: Divisional update: Downer Australia
Divisional update For personal use only Downer Australia Market position • Major engineering services contractor • #1 electrical & instrumentation contractor • Largest private sector operator in roading & pavement services • National mobile self-performing trades workforce • Leading power and mechan
Slide 21: Divisional update: Downer NZ
Divisional update For personal use only Downer NZ Market position • Leading road services and telecommunications provider • Strong Water capability and market presence • Nationwide presence to service customers Divisional priorities Contact wins/extensions • Operating within continued tough market e
Slide 22: Divisional update: Downer Mining
Divisional update For personal use only Downer Mining Market position • Leading diversified mining contractor • Unique services capability – Blasting, Otraco • Strong focus on Zero Harm Divisional priorities Contact wins/extensions • Mobilisation/production ramp-up of major contract • Fortescue Meta
Slide 23: Divisional update: Downer Rail
Divisional update For personal use only Downer Rail Market position • Leading provider and maintainer of passenger and freight rolling stock • National footprint of high quality workshops and facilities to service customers’ needs • Long term strong customer and partner relationships Divisional prio
Slide 24: Work-in-hand
Work-in-hand For personal use only Work-in-hand by division Work-in-hand by type Mining $7.5 billion 38% Alliance $0.4 billion 2% Rail $5.2 billion 26% Cost plus $1.0 billion 5% Downer Aus $4.8 billion 24% Fixed price $5.7 billion 28% Downer NZ $2.5 billion 12% Schedule of rates $8.8 billion 44% TOT
Slide 25: Work-in-hand: Waratah and fixed price projects
Work-in-hand For personal use only Waratah Fixed price projects Total value % Profitable 14% (approx) complete Fixed price 28% Waratah – TLS $1,970 million 1% 14% Waratah – RSM $1,650 million 48% x KDR – Yarra Trams $1,400 million 15% Locomotive orders (four separate) $460 million 60% Schedule
Slide 26: Group outlook
Group outlook For personal use only • FY11 outlook – Managing a number of downside risks – Weather continues to impact operations – Downer NZ (including UK) results worse than expected • Outlook for FY12 – Strong market dynamics particularly in Minerals & Metals, Oil & Gas and Infrastructure – Depen
Slide 27: Waratah Train Project update
For personal use only Waratah Train Project update 26
Slide 28: Production plan: Stage 1 quick wins
Production plan For personal use only Revised production plan implemented in two stages: Stage 1: Quick wins Objective • Stabilise the production blueprint and reduce re-work requirements Approach • Configuration Freeze 1: Production baseline complete for sets 3-8, 9-12; in progress for sets 13-25 •
Slide 29: Production plan: Stage 2 redesign process and products
Production plan For personal use only Stage 2: Redesign process and products • Increase output quality and rate of manufacture through re-design of Objective interior components or amendments to production processes Approach • Configuration Freeze 2: Production baseline with improved manufacturabili
Slide 30: Production implementation phases
Production – implementation phases For personal use only Sets 1-15 Sets 16-25 Sets 26-78 • Completion of sets in Cardiff: • Configuration Freeze 1: now • Configuration Freeze 2: still some scope now being scheduled for set 13 scheduled for set 26 retained in China • Implementation of quick win • Ful
Slide 31: Example of re-design: handrail (stairwell)
Example of re-design: handrail (stairwell) For personal use only • Current problem – Difficult to install – Little tolerance allowance • Proposed change – Connect handrails with collars instead of internal spigots where suitable – Remove welded connections and replace with collar/clamps • Benefits a
Slide 32: Handrail (stairwell): current design
Handrail (stairwell) For personal use only • Context (current design) 31
Slide 33: Handrail (stairwell)
Handrail (stairwell) For personal use only • Current • Proposal Clamp connection 32
Slide 34: Handrail (stairwell)
Handrail (stairwell) For personal use only • Current • Proposal Clamp connection 33
Slide 35: Handrail (stairwell)
Handrail (stairwell) For personal use only • Current • Proposal Collar connection 34
Slide 36: Status of Set
Status of Set 1 For personal use only • Presentation documents formally submitted to RailCorp on 19 April – in line with revised schedule produced in Jan 2011 • Inspection period of 20 business days started officially on 21 April – daily test runs taking place to mimic passenger service • Alternativ
Slide 37: Team in place
Team in place For personal use only • Senior project vacancies filled – Manufacturing Manager China – Project Manager Value Engineering – Commercial Director – Project Manager Train Acceptance – Production Director (starting in June) 36
Slide 38: Through life support (TLS)
Through life support (TLS) For personal use only • Auburn maintenance facility operational – practical completion achieved in June 2010 • TLS team have been successfully maintaining the test trains for over seven months • Expectation of ability to meet required performance benchmarks based on – exte
Slide 39: Summary
Summary For personal use only • Set 1 delivered to RailCorp on 19 April 2011, in line with revised schedule − demonstrates effective bottom-up approach and detailed internal process • Alternative operating regime proposed to RailCorp to account for software anomalies with Set 1 – proposal not reject
Slide 40: Investor Day: Plenary session
For personal use only Investor Day Plenary session 12 May 2011 39
Slide 41: Downer Australia
For personal use only Downer Australia Investor Day 12 May 2011
Slide 42: Business profile
Business profile For personal use only Share of Group revenue1 • Capabilities include: 50% ($3.3b) − Asset Management − Civil Contracting − Project Delivery − Electrical Contracting − Surfacing − Mechanical Contracting − Engineering/Design − Multi-discipline − Industrial Maintenance Key customers Co
Slide 43: Points of presence
For personal use only Points of presence 3
Slide 44: Business mix
Business mix For personal use only Business mix by geography1 Business mix by type Technology Other Instrumentation 1% Civil Products 1% 3% Consulting Asia Construction Overseas 1% 2% 6% 7% North East Electrical Australia Power Contracting 27% Systems 26% 8% Western Australia 29% Surfacing 12% Indus
Slide 45: Work-in-hand
Work-in-hand For personal use only Work-in-hand by region/business1 Work-in-hand by contract type CPG CPG ANZ Asia Alliance 1% Schedule 1% Asia 2% of rates 10% 14% East Engineering 39% Projects Recurring/ 8% annuities Fixed price 47% 18% West 28% Cost Plus Specialist 20% Services 12% 5 1 Charts refl
Slide 46: Transformation
Transformation For personal use only Strategy • Shaping our business offering with customer-centric and market-facing service lines in each of our key markets • Building service line leadership and capacity in local delivery regions • Building our core competencies in project management & controls,
Slide 47: Divisional priorities
Divisional priorities For personal use only Integrate Works and • Business development capability organised around key customers Engineering and markets • Establish service line capability in each key region supporting our key customers • Deliver efficiencies through standardised and shared back off
Slide 48: Divisional priorities
Divisional priorities For personal use only Strengthen East Coast • Restructure into a service line model business platform • Enhance our proactive business development and customer engagement teams • Secure additional work from Qld Disaster recovery panel • Streamline back office support services B
Slide 49: Divisional outlook
Divisional outlook For personal use only Well positioned in growth markets • Robust opportunity funnel ($10 billion in potential works) • Resources and Rail are forecast to be the major growth sectors (14% & 10% CAGR 2010-13), driven largely by resource sector investment • WA is moving fastest, with
Slide 50: Market to delivery alignment
Market to delivery alignment For personal use only 1. Market/Business Plan Engagement Market Customer Hub Relationship 2. Key Account Account team Service 3. Opportunity Pipeline Capture Opportunity team Shaping 4. Tender Preparation Bid 5. Tender Submission Bid/Tender team Solution Negotiation 6. C
Slide 51: Downer Australia – key customers
Downer Australia – key customers For personal use only Initiatives Customer Regional key Development account 40% of Top 20 Customers Development Revenue & Optimise Service Line Owners Customer Engagement Enhanced 50% of Top 800 Customers Regional Revenue Sales/BD Capability 10% of 2,800 Customers En
Slide 52: Fit Business: case study
Fit 4 Business: case study For personal use only Downer Australia has a number of projects being implemented to drive down our cost base and step change our operational productivity. Asphalt Production Efficiencies • In 2009, Downer implemented an energy consumption audit process to meet EEO require
Slide 53: Downer New Zealand
For personal use only Downer New Zealand Investor Day 12 May 2011
Slide 54: Business profile
Business profile For personal use only Share of Group revenue1 12% ($0.8b) • Capabilities include: − Road maintenance and construction; road services; product (bitumen, asphalt, aggregate); airport and port maintenance and construction; open space management; rail maintenance − Telecommunications −
Slide 55: Points of presence
For personal use only Points of presence 15
Slide 56: Business mix
Business mix For personal use only Business mix by geography1 Business mix by type Pacific Water Energy UK 2% 6% 1% 3% Facilities Mgt 9% NZ 95% Transport 69% Telco 15% NZ 95% 16 1 Charts reflect FY11 forecast revenue
Slide 57: Work-in-hand
Work-in-hand For personal use only Work-in-hand1 by contract type Cost plus Fixed price/ 1% lump sum 8% Recurring/annuities 52% Schedule of rates 39% 17 1 Charts reflect current work-in-hand (NZ only).
Slide 58: Divisional priorities
Divisional priorities For personal use only Operating within • Downsize NZ resources appropriate to market opportunities continued tough market • Doing more with less; e.g. Super crews environment • Target profitable revenue opportunities • Increase focus in energy sector • Extend customer connectiv
Slide 59: Divisional priorities
Divisional priorities For personal use only Optimise management • Move to single sector leaders structure, cost base and • New EGM Strategic Capability and team in place overheads • Stop doing unprofitable work • Improved utilisation of resources – people, plant and equipment (“get the basics right”
Slide 60: Divisional outlook
Divisional outlook For personal use only • Very difficult economic and trading conditions with significantly increased price competition across all sectors • Expect significant reduction in Central Government and Local Authority expenditure across NZ (with exception of Christchurch) • Reduction in N
Slide 61: New Zealand population
New Zealand population For personal use only Auckland Region Population (000’s) 33% North Island – Taupo North 2,350 North Island – Taupo South 979 South Island 1,038 Waikato Region Taupo North 9% 54% Total Population 4,367 Main Population Regions Auckland Region 1,460 Taupo South 22% Waikato Region
Slide 62: Fit Business: Road Space Efficiency in Auckland Super City
Fit 4 Business For personal use only Activities Case Study: Road Space Efficiency in Auckland Super City (ASC) • Increasing productivity: • Downer traditionally worked to a − reducing overtime standard day shift pattern – however was not aligned to daily − reducing non-productive time availability h
Slide 63: Downer Mining
For personal use only Downer Mining Investor Day 12 May 2011
Slide 64: Business profile
Business profile For personal use only Share of Group revenue1 • One of Australia’s leading diversified mining 21% ($1.4b) contractors. Capabilities include: − Open-cut and underground − Mobile plant maintenance mining − Mine planning and design − Drill and blast services − Civil and bulk earthworks
Slide 65: Points of presence
For personal use only Points of presence 25
Slide 66: Business mix
Business mix For personal use only Business mix by geography1 Business mix by commodity Overseas Other Other 3% 2% Gold 4% 9% NSW 19% QLD 47% Coal 65% Iron Ore 23% WA 28% 26 1 Charts reflect FY11 forecast revenue
Slide 67: Work-in-hand
Work-in-hand For personal use only Work-in-hand by commodity1 Work-in-hand by contract type Other Cost plus Gold 1% 1% Alliance 1% 4% Iron Ore Coal 45% 53% Schedule of rates 95% 27 1 Charts reflect current work-in-hand
Slide 68: Divisional priorities
Divisional priorities For personal use only • Complete mobilisation activity for expansion of operations Mobilisation of major at Norwich Park and Goonyella contract wins/extensions • Complete early Infrastructure work at Christmas Creek • Mobilisation of plant and personnel ongoing for operations a
Slide 69: Divisional priorities
Divisional priorities For personal use only Contract formation to • Recognise and implement key lessons from the past – manage risk value in Downer Mining and Downer Group learnings • Implement payment structures and contract terms in mining contracts that reflect better sharing of risk • Flexibilit
Slide 70: Divisional outlook
Divisional outlook For personal use only • High market share concentration in Australia • Two major players • Competition also includes owner-operators • New markets evolving overseas • Australian contract miners pursuing international opportunities • Short to medium term outlook for pricing of key
Slide 71: Fit Business case study – B20 Biodiesel
Fit 4 Business For personal use only Activities Case study – B20 Biodiesel • Continuing to reduce carbon • Since Downer Mining introduced footprint by substituting diesel with B20 biodiesel blend (20% tallow biodiesel, focus on energy and waste cooking oil/80% efficiency petrodiesel) at the Commodor
Slide 72: Downer Rail
For personal use only Downer Rail Investor Day 12 May 2011
Slide 73: Business profile
Business profile For personal use only Share of Group revenue1 17% ($1.1b) • Whole of life rolling stock management solutions • Capabilities include: − Design, manufacture and maintenance of passenger and freight rolling stock − After-market technical, parts and service support Key customers • Appro
Slide 74: Points of presence
For personal use only Points of presence 34
Slide 75: Business mix
Business mix For personal use only Business mix by geography1 Business mix by type SA WA 4% 6% Waratah 20% NSW Freight VIC 38% build 20% 31% Passenger maintenance 18% Freight Passenger maintenance QLD build 21% 32% 10% 35 1 Charts reflect FY11 forecast revenue
Slide 76: Work-in-hand
Work-in-hand For personal use only Work-in-hand by business1 Work-in-hand by contract type Recurring/ annuities Passenger 12% maintenance 25% Waratah 53% Freight build 4% Passenger build 5% Fixed price/ lump sum Freight 88% maintenance 13% 36 1 Charts reflect current work-in-hand
Slide 77: Divisional priorities
Divisional priorities For personal use only Waratah (Cardiff) • Seamless integration into Waratah supply chain • Standardisation and consistency of production • ‘Lean’ deployment • Flow-line implemented Meeting strong • Improving throughput locomotive demand • Reduce lead time • Integrated fleet pla
Slide 78: Divisional priorities
Divisional priorities For personal use only Delivering Tilt Train and • Deliver iconic Sunlander 14 project to customers’ locomotive orders expectations, on time and on budget • Significant investment in product enhancement and standardisation • Continue to deliver freight locomotives on time/budget
Slide 79: Divisional outlook
Divisional outlook For personal use only Customers becoming more demanding • Higher expectations on cost reduction, innovation, performance, utilisation and reliability of product • Sourcing globally • Focus on sustainability and environment Passenger rail • Patronage growth • International competit
Slide 80: Fit Business case study – Rail reducing cycle time
Fit 4 Business For personal use only Activities Case study – Rail reducing cycle time to build more locomotives • Locomotive cost down • Locomotives are sold on a build to • Maintenance process and order basis creating pressure on productivity improvement delivery cycle time to meet customer expecta