Downer EDI Limited (DOW) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Downer full year results conference call and webcast. [Operator Instructions] But I would now like to hand the conference over to our CEO, Mr. Grant Fenn.

Thanks very much, and good morning, everyone, and thanks for joining us. My name's Grant Fenn, and I'm the Chief Executive Officer of Downer. And with me is Michael Ferguson, our Chief Financial Officer. So on 21st of July, I announced a number of initiatives to create a stronger Downer. Firstly, a path to take us to 100% ownership of Spotless, and finally, the full benefits of acquisition. Next, we announced the exiting of poor performing and noncore businesses. We committed to shaping the Downer portfolio in line with our Urban Services strategy. The third initiative we announced was the rightsizing of our cost base. Reducing management layers and head count, reducing the property footprint, systems costs and discretionary spend. And finally, we announced an equity raising of $400 million to fund the purchase of the remaining stake in Spotless, the rightsizing of the cost base and further investment in our core Urban Services. The reshaped Urban Services portfolio revolves around the core services of transport, utilities, facilities and asset services. Over the past 6 months, in particular, they have demonstrated their strength and resilience, and it's not hard to understand why they represent the future of Downer. They have leading market positions in essential services provided to government and industry. They're predominantly government and government-related contracts. And if not, then they're blue-chip industrials. It's a capital-light, surface-based business model, generating lower risk and long-term predictable revenues and cash flows. It leverages Downer's expertise in operations, maintenance, servicing and supply. We want to be in markets and businesses where quality service providers are valued and relationships can truly create success over time. If I move now to the results. The underlying EBITA for the group for FY '20 was $416 million, and underlying NPATA was $215 million. Michael will provide more details later, but the most telling aspect of the results can be seen in the performance of the underlying EBITA for Downer's core Urban Services. So despite the impact of COVID-19, FY '20 underlying EBITA for Downer's core service businesses of transport, utilities, facilities, excluding hospitality and asset services, is comparable to EBITA for FY '19, $511 million in FY '20 versus $525 million in FY '19. So despite all the issues of the COVID-19 environment, our core Urban Services have demonstrated amazing resilience and strength, and that is why they represent the future of Downer. Demand for our services, particularly in government, defense, road and rail, power and gas, water, health and education, has remained strong throughout the 2020 financial year. And in fact, in some areas, has increased. As predicted, and again, despite COVID-19, cash performance improved materially in the second half, with operating cash conversion at 74% of EBITDA, taking the full year operating cash conversion to just under 40%. Now this is a particularly pleasing result given the position at the half year. We'll now take a little closer look at each of our Urban Services, and we'll start with transport. So this part of the business includes road services, rolling stock services and transport projects across Australia and New Zealand. We maintain over 58,000 lane kilometers of roads and over 1,700 passenger rail cars. EBITA for FY '20 at $236 million was basically the same as the FY '19 result of $242 million. This is despite the lockdown in New Zealand and Yarra Trams' fair box reduction. This is a very pleasing result, but I guess not unexpected given the critical nature of the services we provide and the strength of our end market positions. We expect demand for transport services to stay strong as governments look to stimulate the economy and job creation through road and rail infrastructure spending, potential local manufacturing of rolling stock and shovel-ready road maintenance. In the transport space, customers are almost entirely government with little risk of late or unpaid debts and work in hand is strong at $16.9 billion over an extended period. Downer is the clear market leader in roads and rolling stock services. Now moving to utilities. The Utilities segment includes our critical services of power, gas, water and telecommunication networks across Australia and New Zealand. EBITA for FY '20 was $115 million, and that's 15% down on the FY '19 result of $136 million. The main contributor to the reduction was the drop in NBN revenue as construction winds down. But despite the drop, this was a very strong result, and has been reinforced through a number of significant contract wins and preferred positions over the last short period. We expect demand for our utility services to remain strong in FY '21. Work in hand is $5.2 billion, up from $4.7 billion in FY '19. And again, we have a very strong mix of government and regulated private sector customers who pay on time. Into facilities. Facilities include our FM and building services for defense, government housing, health, education and transport across Australia and New Zealand. EBITA for FY '20 was $134 million, in line with the FY '19 result. Despite COVID-19, our provision of FM services rolled on largely unabated. Again, this was a strong result and has been accompanied by key renewals in government and defense. Due to the critical nature of most of the facilities we manage or maintain, we expect demand for our services to remain strong in FY '21. Work in hand is $12.6 billion, again, in line with FY '19. We have a very high proportion of government customers in this space. Moving on to asset services, and this is the first time we've disclosed asset services as a separate business. It holds an important set of technical capabilities that are important for our customer base and the Downer group as a whole. The asset services business was born out of EC&M to service the oil and gas, power generation and industrial sectors with specialized turnaround shutdown and maintenance services. It's grown significantly over the last few years with revenue in FY '20 of $672 million. EBITA for FY '20 was $27 million, 102% up on the FY '19 result of $13 million. Asset services has a mix of private sector and government customers, such as Chevron, Santos, Origin Energy, BHP and CS Energy. Revenue for FY '20 was down around 13% as nonessential maintenance and capital improvements were deferred. But the critical nature of the assets that are serviced here in this business mean that we expect demand to return in FY '21. And work in hand is $1.6 billion. Our exit from high-risk construction markets in Downer's Engineering & Construction Business unit, and Spotless' Infrastructure & Construction business unit is now well underway, with less than $100 million in out-of-scope work in hand remaining to be completed on a handful of projects. The exit of capital-intensive businesses such as mining and laundries remain a key short-term objective. Mining EBITA for FY '20 was $79 million, 3% up on the FY '19 result of $77 million. The business continues to perform well despite the difficulties of COVID-19 restrictions and, in particular, operating across state and national boundaries. The laundries business suffered in the second half with restrictions on elective surgery across the country. EBITA for FY '20 was $9.1 million, down 48% from FY '19. With the return of most of the hospital volumes, the business is currently performing well. And as announced in July, the sale process has been paused for now and will resume when investment market conditions improve. We've placed the hospitality business into hibernation to minimize costs as we await demand to recover. With cost-plus arrangements in place for those customers requiring service, we are reviewing the prospects of our hospitality business to determine which parts will continue and which parts will be exited or sold as future market demand becomes much clearer. I'll now hand over to Michael for more on the financials.

Thanks, Grant, and good morning, everyone. I'll pick up from Slide 22, outlining the overview of the group's results for the year ended 30 June 2020. Grant has spoken about the revenue performance for each of the segments and the relative performance of the group's core Urban Services, the businesses in wind down and the businesses under review or to be sold. On a consolidated basis, the group reported total revenue of $13.4 billion, consistent with the prior year. Despite COVID, the current year saw revenue increases in transport, utilities and mining segment, offset by reduced revenue in facilities driven by hospitality and EC&M, consistent with the group's revised construction mandate. Underlying EBITA and NPATA of $416 million and $215.1 million, respectively, sit within the earnings ranges provided as part of our market update on the 21st of July. Adjusting for the after-tax impact of the items outside of underlying, the group's statutory NPATA resulted in a loss of $105.8 million. As Grant highlighted, a stronger second half operating cash flow performance resulted in a full year operating cash flow of $178.8 million and full year operating cash flow conversion of 39.5%. Slide 23 provides further information on the financial results for the year. Consistent with our half year announcement, FY '20 has seen the group's initial adoption of the new accounting standard, AASB 16, accounting for leases. The new standard, in essence, requires all leases, including operating leases, to be recognized on the balance sheet. Further, and from a P&L perspective, the new standard replaces operating lease expense previously included in EBITDA with additional interest expense arising from lease obligations recognized on the balance sheet and the amortization of a right-of-use asset. Downer has adopted the new standard on a modified retrospective basis, meaning that the comparatives have not been adjusted. Accordingly, we have included the impact of the new standard in the table to allow users to make a like-for-like comparison with the change percentage referred to in the slide comparing the pro forma pre-AASB 16 column with the prior period. Whilst there has been very minimal impact to the group's reported earnings at an NPATA level, just $1.7 million, the table shows larger variances at EBITDA, depreciation and amortization and net interest expense due to the reclassification of the operating leases. On a consolidated basis, EBITDA adjusted for the impact of AASB 16 dropped by 19% to $686.2 million from $850.2 million. Reported EBITDA after the impact of AASB 16 was $862 million. Consistent with revenue, the full year has seen solid earnings performances despite COVID-19 in transport, utilities, mining and the government services divisions of Spotless. This has been offset by the performance in hospitality, EC&M and the I&C Construction division of Spotless. Depreciation and amortization on a like-for-like basis was slightly up by 1.6% to $294.2 million. Group EBITA was $416 million, again after adjusting for the impact of AASB 16 of $24 million, this decreased by 30%. Noncash acquisition-related amortization was $71.3 million compared to the prior year $70.4 million, with a slight increase due to the intangible assets arising from the acquisition of the Downer-Mouchel joint venture during 2019. Net interest expense includes additional interest of $26.4 million, arising from the recognition of an additional $728 million in lease liabilities on the adoption of AASB 16. Adjusting for this, lease interest has -- sorry, interest has increased 3.9% as a result of higher average debt levels, offset by lower interest-based rates and less interest from the unwind of the nRAH provision. Tax expense of $67.5 million reflects an effective tax rate of 29%. The effective tax rate remains below the Australian statutory rate of 30% due to nontaxable distributions from joint ventures and a lower corporate tax rate in New Zealand. This all equates to an underlying reported net profit after tax before amortization, or NPATA, of $215.1 million which is down 36.3%. Taking into account the net impact of AASB 16, comparable NPATA would have been $216.8 million. This reduction in earnings has resulted in Downer's return on funds employed reducing to 10.2%. The Downer Board declared an interim dividend of $0.14 per share, unfranked on 12th of February, and announced on the 24th of March the payment of the dividend would be deferred until the 25th of September 2020. Downer has not declared a final dividend for the year ended 30 June 2020. Slide 24, summary of earnings, highlights a number of items that have been recognized outside of the underlying earnings for FY 2020. Again, these items are consistent with Downer's announcement on the 21st of July. The total of these items, pretax, is $386 million. The full details were included in our ASX release on the 21st of July with the largest items relating to the impairment of Spotless goodwill of $165 million, portfolio restructure and exit costs of $142 million and the settlement of a legacy Spotless class action for $34 million. Moving on to operating cash flow on Slide 25. Whilst we reported that first half FY '20 saw a number of operating cash flow challenges, it has been pleasing to see the operating cash flow improve substantially in the second half of the year. Total operating cash flow after adjusting for net interest paid and tax for the second half totaled $320.9 million, with an operating cash flow to EBITDA conversion of 74.2%. Combined with the first half, full year adjusted operating cash flow was $340.4 million with a conversion of 39.5%. Included in the second half cash performance are the following items: strong cash performance from Downer's core Urban Services Business, including cash performance -- cash conversion from Spotless of approximately 80%.; completion of the Waratah bogie overhaul program within budget in May seeing a return to predictable cash flows and higher conversions from FY '21 onwards; improved cash flow performance from NBN as the residual programs reach practical completion; the impact of construction losses, including Murra Warra generally being contained to the first half; and a slight reduction in receivables factoring and no factoring of payables. Turning to our overall cash flow on Slide 26. Net capital expenditure was $302.8 million, a reduction of 23.4% on the prior period. Consistent with prior periods, Downer's mining and the Spotless laundry business accounted for 65.2% of total capital. Other acquisitions related to deferred purchase consideration for businesses acquired in prior periods. Downer also continues to invest in technology, with capital being invested in data center upgrades and productivity improvement platforms across the Australian and New Zealand services businesses. Financing cash inflow relates to the additional financing in the year with the net proceeds of $348.7 million predominantly explained by the additional MTN issuance of $200 million and additional drawdowns, offset by the repayment of some residual USPP debt. Total dividends paid of $90.7 million has reduced as a result of deferral of the FY '20 interim dividend, whilst total lease payments made totaled $152.9 million. Cash held at 30 June was $588.5 million, which when combined with undrawn facilities of $1.3 billion, provides us with significant liquidity of just under $1.9 billion. Turning to Slide 27. The Downer group balance sheet remains strong with a strong net asset position of $2.6 billion. This has reduced from $3 billion as at 30 June 2019, predominantly as a result of the opening retained earnings impact of the adoption of AASB 16 of $66 million and the legacy payroll remediation costs of $17.4 million, and the impact of losses arising from the recognition of the after-tax impact of the items outside of underlying of $320.9 million, including the impairment of the Spotless goodwill. These items have also impacted gearing, which has increased 35.5% on a 30 June 2020 reported basis. Taking into account the impact of the recent $400 million equity raising and the acquisition of the Spotless minority interest, pro forma gearing would reduce to 29.5%. Our group debt profile is set out in Slide 28. Group's total net debt is $1.48 billion, with $824 million in Downer and $656 million in Spotless. Both Downer and Spotless are in compliance with their debt covenants as at 30 June 2020. Weighted average debt maturity has reduced from 3.6 years at 30 June '19 to 3.4 years, predominantly due to the additional $300 million of liquidity on a 2-year term that the group attained at the commencement of COVID-19. Whilst this facility has not been drawn, it was considered prudent to secure additional liquidity whilst the impact of COVID on the group remained uncertain. However, following the equity raise, and the acquisition of the minority interest of Spotless, Downer intends to amalgamate the Spotless debt in accordance with the Common Terms Deed of Downer. This will allow Downer to reduce funding costs and extend its average maturity profile as it will be able to access longer-term debt capital markets previously unavailable to Spotless. This is expected to commence in September or October of this year as soon as the compulsory acquisition process concludes. Thanks very much. I'll now hand back to Grant.

Thanks, Michael. So now just on the outlook. As you know, we won't be providing earnings guidance for financial year '21, but there are a few points that I'll make in closing. The acquisition of the remaining shares in Spotless will finally allow us to get the full benefits of the acquisition. Spotless is an important part of Downer's Urban Services strategy, driving consistent earnings and reliable cash flow from long-term customers in critical sectors. Downer's strong market positions and diversification across critical services continues to deliver resilience in earnings and cash flows. Across all of our core businesses, there is a strong demand for our services and strong pipeline of opportunities. The Downer business has a bright future. Thank you. And I'll now hand back to the coordinator for questions.

[Operator Instructions] And our first question comes through from Alex Karpos from Goldman Sachs.

Can you hear me?

Yes, we can hear you.

Perfect. Just a few on my end. First on EC&M, just on the wind downs there, how should we think about timing as far as any fixed price risk, any big contracts to watch? Is that risk largely gone? Or are there any kind of milestones we're going to hit in the next couple of months to be wary of?

No, it's largely gone. Yes. It's largely gone. The out-of-scope work is less than $100 million in work in hand. There's some work on Maitland Hospital, and there's some work in Chevron towers in Western Australia. But the issues that plagued us in -- and that's in the I&C business within Spotless. The issues within EC&M have basically been retired.

Perfect. And on that asset services disclosure, it's really helpful, thanks for that, good growth there, obviously. And obviously, some headwinds likely on COVID. How should we think about growth just from the backlog coming in and potentially kind of deferred work returning, I guess, in FY '21?

Yes. It's a good question. The -- look, they've done an outstanding job over the last 2 to 3 years. They've really made a mark on the market share there. They're the leading providers now across oil and gas and power gen. They've really done a great job. Look, I think it just depends on the impact of oil and power prices and how that rates back into maintenance and sustaining CapEx. I make a comment in the presentation today that we do think it will remain strong and continue to improve, but -- over time -- but it just depends on whether there's any bumps in the road in the short term. It's a question as much for us as it is for you. The nature of the -- yes, the only thing is the nature of the work that they do, it can't be held off for that long. This stuff needs to be maintained, and this work needs to get done. So it's a matter -- just a matter of timing.

Perfect. And one final one, just on hospitality. What's the kind of -- how should we think about the potential losses there? The run rate, I guess, losses now that you kind of rightsize the cost base. Let's say we don't get a return in first half '21. Like, what should we think about for earnings impact just from the kind of baseline made overhead and all that?

Yes. So the nature of what we've got at the moment is the very, very vast majority of the employee base has been stood down. So you've got a very small fraction of a handful of critical people in a number of contracts. The rest have been stood down. Now -- so the nature of the costs that continue on those relate to the employment costs around people that have been stood down. So you continue to accrue and you'll leave and long service leave, et cetera. And at the moment, it's, in a cash sense, it's not a great amount, but I think it's around about $1 million a month in the P&L.

Our next question comes through from James Byrne from Citi.

I just wanted to pick up on one of the remarks you made then to Alex just around the asset services. I'm wondering whether you saw much of your potential revenue that you would have earned in second half '20 for maintenance deferred into FY '21. And if that was the case, whether you might be able to help quantify what kind of impact that might be.

Yes, we did see certainly quite a sizable sort of reduction in revenue in the second half for all the reasons that you know, and we're very hopeful that, that picks up into '21, but we'll just have to wait and see, James. That's -- I guess that's the question. We think it will. But we're not on the other side of those transactions, mate. But I -- again, the nature of the work, the assets that we're looking after would suggest that that work is still going to be done.

Yes, indeed. Any remarks that you can make on the impacts of the Stage 4 lockdowns in Victoria.

Yes. At this stage, very little impact on Downer and Spotless. I would say no material impact at this point. The only area that we see some impact at the moment will be elective surgeries has been postponed again in hospitals. So that will be less volume into the laundries for that short period. And we've just seen a -- because of the restriction, we've seen in some of the facilities that we maintain some pullback of nonessential maintenance. Just to make sure that we comply with the requirements of the government there. But everything else that we do there, most of what we do there is you would say is very essential and we're not vertical builders, so we don't have the issues that are impacting on all of that. So virtually anything that we're doing there is in the horizontal space, and the business continues to roll on. Of course, what we're all businesses in Victoria are working very hard on making sure that we maintain social distances and make sure that we've got the right COVID-safe plans in place. And I think our people are doing a very good job on that.

Yes. All right. That all makes sense. So just think about the pipeline of opportunities in the Transport segment, have you been encouraged by what governments are doing with regards to pulling forward projects or adding new projects to the pipeline? Or is it really only a small incremental benefit that you're seeing for that opportunity set?

Look, I think governments are working hard on trying to do what they can to speed things up, and we can see that in a lot of the discussions that they're having. I think it will be wrong to say that we're seeing a huge increase of stuff actually happening at the moment. But certainly, it's in train, and I think they're doing what they can to try and bring stuff forward. And so we're not critical of them at all. They're doing their best in trying to do that. So -- and I think it's -- that sector is an area that the government, I think, must use as job stimulus, et cetera. So we're looking forward to getting on with it, as are the rest of the sector, I think.

Yes, indeed. Just last quick one from me. Receivables up about 15% year-on-year. Just wondering whether there's anything in there that I should be concerned about -- pardon me, I should clarify that, current receivables up 15% to $2.3 billion. Anything around payment terms from nongovernment counterparties or anything like that?

No. I think it's just timing of the receivables as work recommenced, particularly in our New Zealand market. But payment terms have been very good, particularly for the government part of the business. We've looked very closely at our private sector receivables. We had some exposure with Virgin, which we've provided fully in our numbers. But otherwise, we're pretty comfortable -- we're very comfortable with the receivables book.

Our next question comes through from Rohan Sundram, MST Financial.

Just a couple of questions for me. On that disclosure of the projects in wind down work in hand of less than $100 million. Just for context, are you able to say what that was maybe 6 months ago? Just keen to understand how much you shrunk it.

I'd have to go back and have a look 6 months ago, mate, but it would have been maybe $200 million, but I have to come back. Maybe you can speak to Michael Sharp. I'm sure Michael will have those numbers. But...

Yes, no problem. And just to confirm, you mentioned a couple of projects, $100 million. How -- I guess my question is on some of those renewable projects you were working on. How close to completion are you on those, the ones that we've talked about in the past like Clare, Beryl, Limondale, are they all practically complete?

Yes, they are. They're -- in some cases, we're just in the period of just sort of performance testing. So they're actually working, and you've got a performance period. But all those are just about done and dusted so we're spending very little money on them.

Our next question comes through from John Purtell from Macquarie.

Just had a few questions. Firstly, on the utility side, Grant, you made a comment that you're expecting demand for utilities to remain strong in '21. I mean what are the drivers of that? And it does imply that you're not expecting a big NBN drop off this year.

Well, NBN is sort of converting, right? It was -- it's -- for us, it's been mainly construction of the network. And now it's -- we're very hopeful that that will roll into maintenance. And that maintenance contract will also include construction. And any movement of technologies from fiber to the node and to the curb, et cetera, anything that's going on to make those more consistent will be held in that contract. I doubt whether it's going to be as profitable but we think that there's going to be plenty of revenue there. It's not just NBN, it's also Telstra and the other sides of the whole telco space. It's pretty -- it's become more important and there's a lot happening there. So you can see that there's a drop off in the profit for FY '20 as a result of sort of the scale down of the construction. We don't think that it's going to drop much into the next year. So it'll be pretty good into next year. And the revenue itself will be strong but it won't be as profitable work.

A question for Michael, in terms of thinking about cash conversion for the year ahead. I appreciate you've got a fair amount of cash restructuring costs, which you've outlined. But how should we think about sort of that sort of target cash conversion either on a sort of pre or post cash restructuring basis?

Yes, John, I think our -- we've been able to deal to all the construction losses and quarantine those into 2020. I think that has had a history of sort of above 85% cash conversion across the services portfolio for a number of years, and we would see it sort of pre the impact of the one-offs returning to levels like that. And the difference between there and $100 million is just the timing of sort of working capital and other things across the portfolio. But for the majority of the core Urban Services businesses now they -- we do and get paid monthly. So we don't see a lot of sort of variation between the earnings and the cash going forward.

That's helpful. And just the last one. Look, obviously, we've got the Victoria lockdowns. But outside of that, just thinking sort of more broadly in terms of your other states and obviously, New Zealand. But to what extent are your businesses back to normal in terms of on-the-ground operations and specifically thinking about labor productivity impacts which hurt you in '20, to what extent do they normalize in the year ahead?

Yes. So despite what's happened in Victoria and also overnight, what's about to happen in New Zealand, those businesses -- unless New Zealand goes into Level 4, which we don't think they will do, then the business continues. And in New Zealand, it is largely back to normal. Apart from sort of the rebuild of what is a rather small build business in hospitality over there. In the Australian side, most of that is, apart from hospitality, back to doing what it does. And we're getting used to managing in the COVID environment, social distancing, et cetera, work and all the rest of it. So this is the way that we'll work into the future, John, and I think it will be a matter of making sure that we continue to look at efficiencies within that environment. But at this point, if we don't see any further lockdowns, then we're sort of back to what will be, I think, the consistent way of the future, at least for the next 12 months.

Our next question comes through from Nathan Reilly from UBS.

Just the first one is in relation to the work in hand for the Utilities business, so just looking on Slide 9. It looks like you've got about, I think, it's $1.8 billion in orders that you'd expect to convert to sales, I think, in FY '21. So just looking at how that sort of compares relative to the revenue generated in F '20, looks at that sort of 65% work in hand coverage. So I'm just trying to understand, is this a level of activity or work in hand that you would expect to have at this point in the year heading into the new year? Or you just really need to win a fair bit a little -- or would you need to win a bit of -- a bit more work there?

No, we don't believe that we need to win much work at all in utilities, mate. We think that's largely baked in.

Okay. So would you be winning work through the year to sort of catch you up there relative to the revenue generated this year to hold that revenues flat?

Yes. So within each of the contracts, remember that there's work that happens within those contracts that are not captured within the dollars of contract. So additional capital works, et cetera, that aren't factored in there. So there's extra work that comes from the, if you like, the franchise contracts that you have in that particular business. So we've got a very high level of confidence in the revenue in -- moving into '21 with Utilities.

Got it. Understood. And then just another follow-up question in relation to the construction work in hand. So I think back in Feb, you had the slide in the pack where you broke down your construction exposure across the business. So it looks like it was about $5.7 billion of construction work. And you spoke to the split between fixed price and D&C work relative to your cost-plus and alliance. So I think there was about $2 billion in price work. And you're now talking to this $100 million figure in terms of being out of scope? So just talk to me what is the definition of out of scope. And what's the, I guess, the policy with respect to onboarding fixed price work going forward?

Yes. So what we said when we exited the out-of-scope work was that we would only be completing construction in areas where we had competitive positions, and in particular competency there which set us apart from others in niche markets. So we said that we would continue with transport-related projects. Although within transport-related projects, we heavily risk-manage the size of the projects in combination with the type of contract. So you'll see -- and within those numbers that you're quoting, I don't have them in front of me, but if you're looking at that split, the sizable projects there were alliance-based contracting, so no risk of loss. And you'll see that the very large contracts are in New Zealand on CRL. We've also in Metronet in Perth, and we're bidding for a number of other alliances and -- alliance-style contracting is actually -- we're seeing a lot more of it, so we're working hard on those. In terms of hard dollar, we limit very heavily in the transport space the size of the projects that we do, but it's transport and it's power systems. And power systems, that's high voltage. Construction of high-voltage power lines or substations, which we are the #1 player in the country. But even then, we are very careful in both size and type of job. For the most part, those jobs are ECI so we get in early and we work with the customer for pricing arrangement. So the very vast majority of that -- the number that we're quoting then relates to those 2. So the out of scope relates to the mechanical and electrical in the resources sector, right? So we've lost a lot of money on process plants, et cetera, for resources. It's also in major construction in buildings. So -- where we're working may collect in large scale, high-rise developments. So we're out of that as well as out of scope. So we've really -- the swim lines are pretty tight. It's transport, it's power gen -- it's power systems. And in the I&C, so in the Spotless side of things, it's -- there's no major construction, down to minor construction under sort of $5 million. So that's what we talk about when we're talking about out of scope.

Our next question comes through from Wei-Weng Chen from JPMorgan.

Just a couple of questions for me. First one was just on cash conversion. Just wondering if cash conversion in the second half benefited from cash that you would otherwise supposed to collect on in first half. But specifically, I guess I'm referring to rail and NBN payment timings, which you called out in first half '20 to have a cumulative impact north of $150 million?

Yes. So they both swung around favorably to us in the second half as we expected they would when we forecasted that 40%. So we had a lockup of WIP with NBN as the jobs got to practical completion to trigger the final milestone payments that we made; very good progress on those things. And so the cash for that released into the second half. There's a little bit that will come out first half of '21 but for the most part, that corrected in the second half.

Okay. Great. And then just a question on your earnings in the second half. The EBITA was roughly $200 million in the second half. Just wondering if you could give an idea of how much of that was weighted to the third quarter as opposed to the fourth quarter.

We'd have to come back to you on that. The majority of the impact's on the hospitality. So the hospitality impact was pretty much all fourth quarter. The construction loss impact was probably equally across 3 and 4. But yes, I'd have to come back to you with the specifics of what was Q3, what was Q4.

Okay. And then just wondering if recent changes to JobKeeper eligibility allowed Downer to access JobKeeper going forward?

We don't think so. We looked at it after announcements came out last week. But as we sit here today, we don't think so.

Okay. Great. And then just last one. Obviously, no earnings guidance for '21 today. But is there any consideration around maybe providing guidance at a later point, perhaps at your AGM?

Yes, I don't know, we'll see. So I won't give a commitment to that. But we'll just see where we're at and how things settle in. Obviously, it's a difficult environment to give anybody too much comfort in anything apart from to spell out the type of business we are and the type of markets and positions that we have, which is what we've done. And I guess we'll see by November whether we're in a position to do anything different.

And our final question comes through from Scott Ryall from Rimor Equity Research.

Grant, you gave an answer to an earlier question, which was with regards to whether or not you're seeing any step-up in pipeline from infrastructure spend out of government, and I understand the point you made. Could you just tell us what is the thing -- I have in my memory, and I don't have my notes in front of me that historically, your roads business, in particular, is most leveraged to local councils as opposed to state or federal. And so what is it that you're hoping for, looking for, expecting in that space that would give you a little bit more of a pipeline? And how soon after we see whatever the announcement is that comes from the government bodies, how soon does it translate into earnings typically for you? And then -- sorry, the second part of my question, which you may answer as well is you've mentioned your sustainability investments and -- in -- specifically in your annual report, sustainable asphalt leader in the circular economy, using recycled products, et cetera. How does that help you at the moment? Are you seeing any tangible evidence that that's helping in that discussion you're having with government side?

Yes, sure, sure. Yes. So just on the first point that you made. Look, we are -- we have a large market share of state government network management. If you think about what our roads business is, it's a vertical business ranging from management of networks of roads, also doing the maintenance, also creating the materials for the maintenance, and also importing those materials or creating the products for the maintenance, doing the maintenance and importing the materials for the creation of that particular bitumen. So that full chain is in action right now, and we have a very, very strong position in the market. At the very top of that, these network management contracts, which we have, we have a number in Victoria, in Queensland, in New South Wales, in South Australia, in Western Australia, they're for state government road managers. So we do have a very large position with state governments, not just local councils. But we so do work for local councils. We don't do much for federal governments, obviously. So the mix there, I'd have to have another look at -- I'd have to have a look at exactly the mix between local and state governments, but it's -- but both sides are very big parts of our business. And that's in the road maintenance space, not in the transport projects. So in the timing of the projects that might come on board -- well, there's a couple of things that I think the government will hopefully push here. One will be new projects being accelerated, and we will participate that -- in that in as far as we may win those jobs in our transport projects business. But if we don't, we may participate, in any case, through providing road surfacing into those particular projects. And let's hope that they're on deck in the near future. But the timing of our earnings would be similar to timings of what you'll get from a construction of those particular elements in those projects. The other side is maintenance. So there is a lot of shovel-ready maintenance backlog that can be accelerated here. And of course, to the extent that is on networks and areas that we're attached to, that will come directly to us. If not, then we would be bidding for that. And again, that would be as soon as government gives the go ahead that that's where they're going to spend the money, then indeed, we would hopefully profit from that, and the timing on the earnings would be as that amount of work rolls on. So it's in the projects that are new, and that's both in the construction side, but also in the surfacing side with our product. If they move to accelerate maintenance backlog, we'll be involved in that. And hopefully, both of those can be accelerated. On the sustainability side, look, that's been an ongoing discussion, particularly with local councils who have been very keen to, I guess, show their environmental credentials. And we've had very significant success on the products that we have designed and manufactured using soft plastics, using toners, spent toner cartridges, and toner replacing bitumen as a binder, also recycled asphalt, et cetera. And we've seen local councils sort of seeking us out to provide those services into the local council's areas. And you can see, and I get a constant stream of very positive news from local councils around the benefits that's providing. And I think it is a differentiator for us, and we're doing very well with it. And it's also not just that, we've also -- we're also investing in recycling centers. We've got a large one in Victoria, Repurpose It. And we're also looking at other areas. So we're right into this circular economy in waste. We're a very large player in waste. You probably don't understand that, but that's what we are in detritus plants and Repurpose It. So it's a whole new and exciting area for this roads business, and we're very happy with it. But it's been going on for certainly the last 2 to 3 years. And that's very popular with the local councils.

Thank you, everybody, for your questions. As there are no further questions, we'll close the Q&A session. I'll hand back to Mr. Fenn for any closing remarks.

Thank you very much for, again, interest in Downer. And I hope you all stay safe. Thanks very much.

Thank you.