Downer avoids board spill over executive pay concerns

Troubled engineering giant Downer EDI has staved off a board spill after convincing shareholders it was on the road to recovery despite a series of profit downgrades.

Workers inside the Downer Rail Manufacturing Facility at Maryborough. Picture: Lachie Millard

Troubled engineering giant Downer EDI has staved off a threatened board spill over executive pay after convincing shareholders it was on the road to recovery despite a series of profit downgrades and its involvement in a corruption inquiry in NSW.

Downer chairman Mark Menhinnitt told the company’s annual general meeting in Sydney that while the company had faced significant challenges it was committed to “transforming and simplifying the business.”

Downer EDI swung to a $385.7m loss this year amid heavy writedowns on its acquisition of Spotless and an Independent Commission Against Corruption (ICAC) inquiry into the conduct of some of its employees.

More than 90 per cent of shareholder votes were cast in favour of this year’s remuneration report, meaning a threatened vote on spill of all board positions was not required. Downer shares dropped 1.7 per cent to $4.06.

The board faced a first strike on its remuneration report last year meaning it risked a damaging board spill if shareholders remained unhappy with executive salary packages.

Mr Menhinnitt said that after incurring the “first strike” the board had now linked the financial performance of the company more closely to short and long term incentives. Shareholders also approved a long-term incentive package for chief executive Peter Tompkins, who was appointed last December to replace Grant Fenn.

He said that in response to shareholders’ concerns that the board should have more ‘skin in the game’ the company also would require non-executive directors to hold shares in the firm equal to or greater than 100 per cent of their annual base fee.

Anthony Albanese visiting Downer EDI train factory in Maryborough.

Turning to the ICAC public hearing into the conduct of some Downer employees involved in transport contracts in western Sydney, Mr Menhinnitt said the company “does not tolerate any dishonest or corrupt conduct.” The ICAC inquiry, which was announced in March, relates to the conduct of employees of Inner West Council, Transport for NSW and some Downer staff.

“We expect all of our people to uphold the values and behaviours set out in our standards of business conduct,” he said, adding individuals facing specific allegations were no longer employed by Downer. “The behaviour of these individuals is incredibly disappointing. They do not represent the integrity of our organisation.”

He said Downer had taken to strengthen its internal processes and systems since the inquiry commenced, including engaging independent probity and procurement experts. “The review is now complete. and the primary finding was that the relevant procurement control environment was largely sound,” said Mr Menhinnitt. “We have established a working group to implement actions, and a steering committee comprising the executive leadership team to oversee the implementation of these actions.”

Downer chairman Mark Menhinnitt.

Mr Tompkins said the company remained in a strong financial position and despite the need to implement “urgent change,” he remained highly confident in its potential.

Downer is favourably exposed to economic and social trends that drive demand for our work including decarbonisation, national security, the push by government to prioritise our local industrial base and population growth,” Mr Tompkins said.

He said Downer would continue to sell or close down small, low-margin operations such as the HVAC construction business that was divested in August. The company also sold its Australian Transport Projects business for $212m this year.

He said the company, which is delivering 65 passenger trains for use on the South East Queensland network, was now focused on the transport, facilities and utilities sectors. “We have completed a cultural diagnostic of our strengths and weaknesses, and have set a performance orientated target culture that reinforces our customer centricity and technical capability,” he said. “Since taking over as CEO, I have worked closely with the board and executive leadership to set us on a transformation to achieve the operational and cultural enhancements necessary to improve our business.”

Originally published as Downer avoids board spill over executive pay concerns