Good morning, ladies and gentlemen, and welcome to Downer's 2022 Investor Day. My name is Adam Halmarick, and I'm the Group Head of Investor Relations and Strategic Planning. I would like to begin by acknowledging the traditional custodians of the land on which we meet today, the Gadigal people of the Eora Nation and pay my respects to the elders past, present and future in maintaining the culture, country and spiritual connection to the land. It's my pleasure to welcome you here today. It's great to see some familiar faces in the crowd and some new faces as well, and I look forward to meeting you over the course of today. It's also great that we can webcast this live to an audience who are unable to be here today.
I welcome you all, too. A couple of quick housekeeping points from me before we kick off the presentation. Firstly, in the event of an emergency, please take the note and instruction from the staff here at the Northside Conference Centre. If we do need to exit, we'll be exiting through the two emergency exits behind us. One where you came in and one just to the side here. Secondly, can I ask that you please hold any questions till the end? There's a designated Q&A panel at the end of the day where you have plenty of time to ask any questions, that'll help keep us on time. That'd be greatly appreciated. That's all from me.
I'll now pass to Grant Fenn, our Chief Executive Officer, to start the day. Thank you.
To this 2022 Investor Day We've got a great day or great morning in store for you. We've got a really interesting and I think really informative sort of discussion that's gonna happen today around Downer's role to be played in Australia and New Zealand's decarbonization. We're gonna focus our attention in that opportunity that's going to be quite massive for Downer. You, of course, you'll hear all about the individual businesses. You'll hear about the group. You'll very much we'll narrow that down into what we're doing in that area, and you'll see that we have a fabulous opportunity ahead of us. To start off, Michael and I. We'll just see how this goes.
Michael Ferguson and I will take you through an overview, we're calling that growth to net zero. We are one of the beneficiaries of this net zero position, and we'll talk to you about that in an overall sense. We're then gonna touch on a few of the areas that I think we do very well, and we're going to hear from Julie Wills, who's Head of Sustainability. We're also gonna hear from Natasha Palethorpe, who's our Group Health Manager, on how Downer is making our communities better. We do a very good job in the ESG space. We're gonna take you through that. Next, you know, right now, it's very good to be good at risk management, right? We think we do a very good job in this area.
Peter Tompkins, our Chief Operating Officer, who looks after this particular area, is gonna take you through sort of in-depth view of how we do this. He'll take us through some examples, some actual real-time projects that we work on and how we actually deal with risk in that from right from pre-contract through. I think that'll be pretty interesting for you. Then, of course, we get into the guts of really what we're talking about here today and Downer's role in decarbonizing the economy. Ricky Bridge, who's our Group General Manager of Sustainability, will be talking to us about that. He's gonna frame that in terms of what the world needs to do for net zero in 2050. We'll then bring that down to what Australia needs to do.
Within what Australia needs to do, Australia and New Zealand, I should say, then where is Downer going to play in that market? What are we doing today, and what are we going to be doing in the future? We'll go through into each of the business units over the course of the morning, who will take you through what's happening in their business, and then they will focus in on what they're doing in this decarbonization. I think you'll be quite amazed with already the amount of work that's going on and the discussions that are being had with this very wide customer base that we've got. We'll finish at the end with a panel session and Q&A, where you can ask any question you like, and we'll see how we go in answering it.
Let's kick off on a very important slide, probably the most important slide of the day. I always start with this. If you wanna understand Downer, you need to understand this slide. All right? This is our purpose, our promise, and our pillars. It is very much our foundational document. All right? It brings everything that we do together. It's a common link, a common bond. When we talk about how we answer questions, how we make decisions, we do come back to this. All of our material that we train our people in, we come back to this. This is what we're trying to achieve. In our purpose, it's to create and sustain the modern environment by building trusted relationships with our customers. What's very important there is the trusted relationships. All right? That is what we bring to the table.
You can't do our work without being trusted. It's just not possible. People will not bring you on. Often to do the most critical of tasks for them, they need to trust you, and you gotta be trustworthy. Our promise is to work closely with our customers to help them succeed using world-leading insights and solutions. Now, the key here is we're about helping our customers succeed. That's our number one path. All right? It's not about us and maybe our customers also get on. That's not the case. The way that we operate is that we help our customers succeed. The second. Of course, if they succeed, we'll be successful. It's very, very important. It gets to the ethos of the business. Of course, the pillars that back those up, safety, delivery, relationships, and thought leadership.
You know, zero harm is embedded in Downer's culture and is fundamental to the company's future success. Nothing could be more truthful than that. We spend an inordinate amount of time and money and investment in this particular area. On the delivery side, we build trust by delivering on our promises with excellence while focusing on safety, value for money, and efficiency. On the relationship side, we collaborate to build and sustain enduring relationships based on trust and integrity. On thought leadership, we remain at the forefront of our industry by employing the best people and having the courage to challenge the status quo. That is what we do, and you'll see that today in the presentations that will come from our business unit heads. Let's have a look at Downer today. We are the leading provider of urban services in Australia and New Zealand.
It is undoubted, and it's unchallenged. We're an Australian sovereign. We have a large capital base, 40,000+ people, most of those skilled. We're a sustainability leader. We're a market leader. We're critical to the sustainment and operation of a vast portfolio of government and private infrastructure. If Downer doesn't get up in the morning, right? If we don't go to work, it's a very bad day for Australia and New Zealand, I can assure you. Our business can't be turned off because the critical infrastructure that we look after can't be turned off. We're diversified across capabilities, markets, and geographies, and that is a very clear strength. Our service delivery excellence drives long-standing and trusted relationships. The AUD 35 billion of work in hand stretch 30 years, right? Very regularly, we are bringing onto books jobs that are, you know, 10, 12, 15 years.
What you'll hear a lot about today is we are uniquely placed to support the Australian and New Zealand economies in energy transition and decarbonization. Just a little look at that unique exposure to critical urban services. Looking around the wheel that makes up this company. We're about 50% transport. In transport, that's road services, 23%, projects, 17%, and rail and transit systems, 10% of that. Transport makes up 50% of our business. 35% is made up of facilities, and there's a very broad technical and skills base in there. Asset services, health and education, buildings out of New Zealand, defense, 7%, and government, 11%. The third part of our urban services is utilities. You know, telco, 4% of the business, water, 5%, and power and gas, 6%.
A very balanced portfolio. We are a market leader in most categories in both Australia and New Zealand, so we lead the markets in the things that we do around that circle. Now, those markets are high growth, and you'll see a little later on that we expect across the portfolio, or in fact, BIS expects across the portfolio, when we take the growth levels around those markets and we weight them to our percentages, a CAGR over the next number of years of 7%-8% is the amount of money that's going to be spent in extra money in those areas. One of the interesting things that's happening right now is that the significant barriers that already exist in these markets are increasing, and those barriers really exist around systems.
You can't work for the critical infrastructure players within Australia and New Zealand unless you have very, very good systems. I don't necessarily mean IT systems, I mean ways of going about your work. Quality systems, risk systems, safety systems, ESG systems. The barriers to entry to step into these markets is becoming higher and higher and higher. Of course, new energy and decarbonization opportunities are quite massive across this customer base, and you'll hear this today. Since COP26, we've seen quite a massive move in our customer base about how interested they are in net zero. Every manager from the CEO down has a target. In many cases, they're scratching their heads as to how they solve them. All right? This business, you will see across those, across this wheel and the customer base that sits below it, they've got a massive task.
In many cases, we are the major service provider. With a collection of skills, technical capabilities, et cetera, across that decarbonization path that can get them where they need to be. Again, you'll hear a lot more about that in a few moments. Now we have scale and capacity in both Australia and New Zealand. What we've put on the picture here is to show you the level and the percentages of the Australian-New Zealand position. What you take from this is that New Zealand is, in the most part, a microcosm of or the nature of the business is a micro of Australia. We do most of the things in New Zealand that we do in Australia. Not all, but most.
If you've been to New Zealand, Downer is very much a household name. The brand in New Zealand is very, very strong. We've got great growth prospects there, as well as decarbonization opportunities. The business in New Zealand continues to improve each year, and you'll hear from Steve Killeen today more about that. It's undoubted that the New Zealand business gives the broader Downer Group, you know, a lot of strength. You know, it is very much a bedrock of the Downer business. Now, I just touched before on what we expect in customer spend over the next number of years, and we expect it to be well above GDP.
I get this question a lot from investors around, "Is this business a GDP business?" I say, "Well, you know, maybe when all of the infrastructure is built, we're at net zero, you don't have deficits in infrastructure either in the capital build or in the maintenance, this business could be seen as a GDP business." It's certainly not that, and it won't be for decades. In this graph here, what it shows is. This is BIS Oxford Economics 2022. The expectations of facilities growth, 6.5% CAGR. These are our customer spends. Utilities, 5.3% CAGR, and transport, 9% CAGR. Now, when we work that down to our weighted average, right? That's 7%-8% if you think transport's 50% of the business.
Revenue is not an issue going forward for this business. Yes, you've got to be good to get it. You've got to be right at your mark. We are the market leaders. We're seen to be very good in these areas. As I say, revenue will not be the issue. Our customers continue to spend. There are unprecedented levels of government investment in construction and sustainment. You hear it almost every day, certainly hear it during the election cycle. It's not just that, it's also in the budgets. Every time we turn around, there's more to be spent in defense. We're now the fourth largest defense contractor in the country and getting bigger in that area. Development is now becoming a large part of our position with defense.
Our scale management systems, technical capabilities put us in a very strong position. As I said before, we've got a great cross-sector of customer base for new energy and decarbonization solutions. I'll just hand over to Michael now, and he will take you through a couple of slides on cash and a few other things, and then I'll come back, and we'll talk about outlook for 2022.
Great. Thanks, Grant. Good morning, everyone. All right, slide here. Well, today's a great opportunity for you to hear from our operational leaders. I'd like to spend a few minutes re-emphasizing the cash and capital profile of the reshaped business, how we're thinking about capital allocation and our focus areas on driving improved performance and returns. You can see that Downer has a proven history of strong cash generation, with the last 10 financial years averaging 88% conversion. This improves to 93% if you exclude the conversion rate of 40% in FY 2020, which was predominantly driven by resource-based engineering and construction losses with those markets having now been exited. If you look to the right of the slide, you will see that the strong operating cash flow performance is now complemented by a reducing capital profile, particularly without mining.
This has allowed us to invest in growth opportunities, including the recent acquisition of Fowlers Asphalting and some strategic landholdings in Queensland and Western Sydney for our Australian roads business. The group incurs approximately AUD 150 million in lease costs per annum, with the majority of this relating to property and light vehicles. Continued strong operating cash flow, disciplined capital allocation, both see Downer well positioned to grow. We reported net debt-to-EBITDA ratio of 1.5 x at 31 December 2021, which reflects the recent strong operating cash flow and reduced capital, but also the benefits of the 2020 capital raising and the proceeds received from the divestment program. This is lower than our target range of 2-2.5 x, which presents a number of opportunities and considerations. These include continuing to invest in bolt-on acquisitions.
These types of acquisitions drive value for Downer by expanding our geographic footprint into regions where we don't currently operate or by supplementing our existing capabilities to enhance our service offering to clients. I mentioned Fowlers Asphalting, which we acquired in the first half of this year, and Dante will run you through a case study later today, which provides a great example of value creation through bolt-on acquisitions. We have a number of strategic acquisition opportunities in front of us across the group, including some that will enhance our sustainability capabilities. Our share buyback program has recently been extended for another 12 months, and we will assess the ongoing rate of buyback relative to our other growth opportunities. With regards to dividends, we will continue to target a payout ratio of 60%-70% as the business matures under the new lower capital model.
Having rationalized Downer's urban service portfolio, we will continue to drive performance in our business units and head office to ensure we are delivering appropriate returns on capital. Increasing margins across the portfolio is a key focus for management. We are targeting improvement in project delivery, which Peter will cover in a moment, and reduced overhead costs. With the transitional services for the divested businesses expiring by the end of the calendar year, we will be able to further reduce our corporate services support model. We'll be disciplined in our approach to capital and acquisitive growth and ensure any investments are made within our defined risk appetite and required returns parameters. By driving our business to focus on growth, margin improvement, and efficient use of capital, we will deliver increasing value to our shareholders through consistent growth in earnings and dividends. Thanks very much. Back to you, Grant.
Yeah, thanks, Michael. Right. FY 2022 trading update. A few things. Demand remains really strong across the business. All right. That's really the point that I'd like to make. It's very strong. You know, we're getting our main customers wanting more from us more often across the range of services that we provide. All right. Our standing, our brand, our quality seem to be very good, and that's coming through by way of demand from our customers. There's no doubting that. We can see that. We're getting very strong contract awards and preferred status at the moment, which is excellent, which I'm very happy about. We've had challenges in Q3. You know, this year has been quite tough, as you can imagine.
All right? It's been probably the toughest year for most companies in most of their executives' living memory. Having said that, we're still very profitable, doing very well. In Q3, you know, as we spoke about this at the half year in February, weather has continued to impact across the Australian business units, most notably in roads, but also in utilities and also in facilities. You know, you just can't get away from it, but every business has got the same issue. You know, we're not the lone ranger here. You'll hear more, I guess, as people speak about this particular quarter. We continue to do the work. Our service quality to our customers continues to be very, very good.
We're getting on and doing it, but it's more difficult. The cost to serve is a little more, et cetera. One of the new things, or not new, but certainly a bit different from many countries, companies that are Australian-based is because we've got a large New Zealand business, of course. The cycle of COVID is a little different, right? We've seen the Omicron variant hitting in quarter three, as they opened up the economy or opened up from restrictions. We've seen that also hit our New Zealand business, which is a little, you know, it's a lag compared to the Australian business.
In many ways, that happened in quarter two in Australia, not as much in quarter three, but it's certainly, it's a little later in New Zealand. Now, as we look at New Zealand, you know, the same situation, we've sort of hit the peak. We're now on a downward run there, and Steve will talk about this later when he talks about the New Zealand business in more depth. Look, we, you know, the worst is over, and that is going to improve over the course of the last quarter. When we tally up, you know, of course, always, you know, we have an eye on the impacts on the various businesses of COVID-19 and of course, weather.
When we tally those up, our best estimate at the moment is that that's AUD 50 million-AUD 60 million. As of the end of the third quarter. That's a big number. Our core year-to-date EBITA is just a little off from last year. As you can see here, around 4.7%, but we are expecting a strong fourth quarter. Everything going well, let's see how much of that 4.7% we can make up. That's our current view at the moment. The immediate priorities, of course, are earnings and cash performance for 2022. You know, we'd like to finish on a really good note. Our business is skewed to the second half. All right?
We do have a load of work in New Zealand in certainly the last quarter of the financial year, and the rest of our businesses are skewed that way as well. We're very hopeful of a very good fourth quarter. We'll be managing, of course, the remainder of the COVID-19 issues. Yes, there are supply chain issues, workforce availability issues, which the guys will talk about as we go through the day. We're very focused in on contract pricing. Now is not the time to underprice your work.
In a very similar vein, it's also a time to be very careful about cost management, making sure that we're not paying anything more than we absolutely have to, and that we make sure that to the extent that those prices, those costs are increasing, that we're passing them on at the, on the price side. Of course, what that means, and you're gonna hear from Peter Tompkins a little later about this, your pre-contract risk management has to be spot on. Right? Now is the time that we have to be very, very careful about this. You know, in many ways, this is a boom time for business and businesses like ours. And that is the time when many of those that aren't managed will go bust. All right?
That risk management is very, very key. If we look through the noise, as we call it, of 2022, there's a few things just to focus in on here. Our weighted average sector spend growth from BIS, right, 7%-8% CAGR through to 2025. As I say, our customers are spending in the areas that we are. We are in the right sectors at the right time. We're heavily leveraged to the new energy economy, and you'll see that today. We do expect a strong rebound in earnings in FY 2023, and you would expect that. Of course, you know, we're expecting not to have the issues, anywhere near the issues of COVID-19, and we're expecting better weather patterns, but we certainly are expecting FY 2023 to be a better year. I'll just touch on growth to net zero down as opportunity.
A net zero emissions future, and you're hearing a lot about this in the election campaign, but it will require just massive adjustments to almost all urban infrastructure. Particularly power generation, power transmission and distribution, energy management and transportation. Right? The numbers that are gonna be spent in these areas, no one can calculate, they're too big. Right? We're right in the middle of this. Downer's technical bent, right, is power. That's what we do. You're here today, we're the largest transmission builder. We're the largest in managing distribution networks. The largest electrical contractor. You're gonna hear a lot about that. Through power generation, transmission and distribution, facility management, public transport, all of those things are gonna have to change dramatically, and we're right in the guts of it. We've also invested heavily in the circular economy.
You're gonna hear a lot more about that. In the meantime, Julie Wills, our Head of Sustainability, is gonna take you through all of the fantastic things that we're doing on the ESG front. Right? It's very important. We spend, as I say, a lot of time and effort on this, and I think we do a very good job. Julie, you're gonna talk to us about that. Thanks.
Thank you, Grant, and good morning, everyone. Many of you would be familiar with Downer's purpose, as Grant had on the slide earlier, which is to create and sustain the modern environment by building trusted relationships with our customers. For us, it goes beyond that. Downer exists to improve communities. The services that we deliver for our customers touch the lives of millions of people across Australia and New Zealand every day. The water they drink, the power they use, the roads they travel on, the public transport they rely upon, and the communications networks that they use to stay connected. However, Downer's social relevance is deeper than the services we provide. With a footprint stretching across all corners of Australia and New Zealand, we have a unique platform to make our communities better.
We're one of Australia's largest employers, as you've heard from Grant, with more than 30,000 people in Australia and 10,000 in New Zealand. We take the responsibility that comes with employing that many people very seriously. We are a people business, and we're committed to a workplace environment where our people feel included, where their health and wellness is supported, and where they have opportunities to develop new skills and grow their careers. I'll be talking to you a little bit about that today. We pride ourselves on being a good corporate citizen through the actions we take, the support we provide, and the lengths that we go to ensure our operations have minimal impact on the environment. This morning, you're going to hear a lot about decarbonization. You've already heard a fair bit, but there's gonna be a lot more.
I won't go through much of that. I'm going to leave it to some of my team to go through, as well as the operational managers. Including the opportunities, the path that Downer has on the pathway to net zero. I will take a few minutes to talk about Downer's ESG strategy and how that's guiding us in making communities better right now. I will start a little bit with environment, as you'll see on this slide. I introduced this last year to those that were here. I'm not gonna go through it in detail again, but you can read it, but I would.
Well, I really would like to give you an update on how we're progressing on our own decarbonization journey, and I'm proud to say that Downer continues to be an industry leader in this. Last year, we became a signatory to the Science Based Targets initiative framework, and we're currently progressing validation of our science-based targets. We focus on six key areas, which you can see on the slide, to meet our net zero commitments. You can read a lot more about the specific actions that we're taking under each of those areas in our sustainability report. As a result of the focus that we've been taking, our absolute Scope 1 and 2 emissions have reduced by 40% since FY 2020. I do note that the majority of those emissions reductions have come through the divestments of the mining and the laundries business.
Downer continues to monitor emerging trends in sustainability reporting. You've heard me refer to our sustainability report. We take great pride in improving that report year on year, and we hope that it provides like very extensive value to you in guiding the thoughts that you're having about how Downer is progressing in our ESG journey. We do also continue to keep an eye on the developments of the International Financial Reporting Standards Foundation's newly created International Sustainability Standards Board in their quest to establish a global sustainability reporting framework. While another framework we continue to monitor is the progression of and the implementation of the European Union Taxonomy.
We have undertaken a review of the integrated reporting standards and the SASB standard, two frameworks that have aligned with the ISSB, with a view to aligning our disclosures in future sustainability reports. In addition, you would be aware that the Task Force on Climate-related Financial Disclosures or TCFD, there's an awful lot of jargon in this space, released an annex in October 2021 that updated their implementation guidance around the TCFD recommendations. On this annex, we've undertaken a review, and over the last 12 months, we've undertaken some significant work to further assess the financial implications of decarbonization. Building on the TCFD disclosures that we've made since 2019, and coupled with the changes in Downer's business strategy, we've also completed a detailed review of Downer's most material climate-related risks and opportunities.
This work has continued to inform business unit decarbonization plans and growth strategies, and you'll be hearing about some of that today. We are also undertaking an assessment with the aim to quantify the estimated financial impact of different climate scenarios on Downer's value chain and assess the potential costs of mitigation against identified risks. There are three key areas of focus for this work, our fleet, our asphalt plants, and the physical climate impacts on our fixed assets and our key operational locations. We're also in the process of completing a third piece of work to review Downer's current capital allocation decision-making process. We've drawn from mechanisms used by peers to look at opportunities to integrate a more formal climate consideration into our capital allocation decision-making processes.
The insights and findings from this work will form Downer's TCFD disclosures, due to be released in August this year, along with our sustainability report. I can confirm today that the work that has reinforced that Downer, with our urban services strategy, is a net beneficiary in the transition to a net zero emissions economy, with more significant opportunities than risks. I'll now move on to our approach to social sustainability, which is another area we've made great progress on, both in initiatives to support our own people as well as mechanisms to support our communities. There is strong competition for talent in many of our sectors, which places a strong emphasis on our talent attraction and retention strategies. We focus on delivering a rich employee experience where all our people feel accepted, valued, and respected.
We have just launched Downer's first group-wide inclusion and belonging strategy and action plan, which outlines our objectives and actions over the next three years to empower our people to celebrate their diversity and own their differences. This marks a shift in the focus of our traditional diversity approach to emphasize the importance of inclusion and belonging as essential components to support our current and future workforce. Our inclusion and belonging strategy is underpinned by our Own Different campaign, which celebrates Downer's culture of inclusion, acceptance, engagement, and encouragement, and aims to build confidence and ambition in our people. Own Different is about accepting we each have different preferences and perspectives, histories, and heritage. It's about understanding that we're different in the way that we think, the actions we take, and the value that we contribute.
It's about celebrating our differences, and it places us at the forefront of our industries in this space. Just as we aim to improve the assets that we maintain for our customers, we recognize that our biggest asset is our people. We are focused on improving and developing our workforce through a suite of learning and development opportunities, which includes formal learning and development programs to enhance professional skills and capabilities, complemented by a range of courses to support the growth of our people as citizens of our communities. We've also continued to expand our female leadership, professional development, and capability program, which we've called THRIVE. Over the last 12 months, this program has been rolled out, and it aims to cultivate and develop women at all levels.
Of course, it wouldn't be a complete slide on people from me unless I speak to you about zero harm. When it comes to our people, the most important aspect is that they arrive home from work every day in the same condition that they left in the morning, or perhaps better. Our commitment to zero harm is well, and our industry-leading safety performance is a market differentiator for Downer. You've heard me speak about this before, because it enables us to work safely and environmentally responsibly in the industry sectors where there are inherent hazardous environments. We reported our LTIFR at the half year at 0.97 and our total recordable injury frequency rate at 2.57 per million hours worked. I'm pleased to say that these have improved further since that time.
We've also expanded the reach of our community support programs this year. We've established a number of significant community partnerships, but I'll touch on just a few today. Downer's corporate giving strategy covers three core pillars, which is mental health, support for indigenous peoples, and a workplace giving program. As we announced last year, Downer joined the National Mental Health Organization, Beyond Blue, as its major partner. We also matched donations from the public for Beyond Blue's 2021 national fundraising campaign, up to a total of AUD 250,000. I'm pleased to announce that we've renewed that partnership for their 2022 campaign.
In February this year, we also commenced a new partnership with the Mental Health Foundation of New Zealand to support the mental health and well-being of our people, while also enabling the Mental Health Foundation to do more of their great work and reach out to more people in the community in New Zealand. We've also commenced partnerships with Indigenous organizations, Stars Foundation and NRL Cowboys House, to assist the great work both organizations do supporting the education of young Indigenous people. In March, we launched Downer's first-ever workplace giving program, which allows our people to donate money from their pre-tax pay to support four carefully selected charities, with Downer matching our employees' initial donations up to AUD 250,000.
Through this program, we are partnering with four very worthy charities, and these are the Australian Cancer Research Foundation, Greening Australia, TLC for Kids, and the Salvation Army's family violence stream. This is to help them help millions of people across Australia every year. We're also committed to supporting our large and diverse supply chain. Downer will not tolerate any form of human rights abuse, including modern slavery in our operations and supply chain. We believe our risk of exposure to modern slavery in our supply chain is low, given around 96% of our AUD 8 billion supply chain spend in FY 2021 was in low risk countries. As we continue to reshape our business moving forward, we believe our exposure to modern slavery risks in our supply chain will reduce even further.
Over the last six months, Downer has brought our sustainable sourcing practices into focus, and we are presently carrying out a current state and future state review. As part of this review, we've refreshed our modern slavery framework. Modern slavery is an important issue to Downer, and we are committed to continuously improving our processes. This includes engaging our direct suppliers to educate, assess, and encourage improvement in their own capacity to manage modern slavery risks within their broader supply chains. Now, the last aspect of our sustainability strategy that we wanna talk to you about this morning is supporting the mental health of our people and our communities. Mental health is so important to Downer that we included Mental Health First Aid training as one of the four KPIs attached to our sustainability-linked loan that I spoke about last year.
I'm really pleased, actually quite excited to give you the opportunity to hear from our group health team. In fact, the head of our group health team, Natasha Palethorpe, who has been leading this exciting opportunity across Downer, to tell you more about our industry-leading mental health program.
Thank you, Julie. Good morning, everyone. I get incredibly passionate talking about Downer's mental health and wellbeing strategy, so I'm going to utilize my notes so I stay on task today. What I'd like to start with is, how fortunate is it that we can talk more freely and more comfortably about mental health these days? When, say, five years ago, it wasn't the case. It was still a fairly taboo topic. In 2017, Downer acknowledged and recognized mental health as a growing societal issue, and so formed the group health function. Our team is tasked with a multi-tiered strategy to really look after and skill our employees and their families with ways of supporting their own mental health and wellbeing.
This was also an opportunity for Downer to leverage the size and scale of the organization to make a wider impact in the communities in which we work. The key role of the health team is to upskill through various training courses such as Foundations of Mental Health or Mental Health First Aid. Both of these courses arm our people with knowledge and insights to look after their own health and well-being, but also to help look after their colleagues, friends, family, and wider communities. In just over three years, we have trained thousands in Foundations of Mental Health. This course really targets in on the emerging mental health issues in Australia and New Zealand. Also, we have partnered, in addition to Beyond Blue and the Mental Health Foundation of New Zealand.
We have partnered with Mental Health First Aid Australia to deliver an accredited and recognized gold standard program. Now, through this partnership, we have been recognized as a skilled workplace, and we have a 2,000-strong mental health accredited employees, each and every one of them trained to notice the signs and symptoms and the support services available if someone has deteriorating mental health. Having such a mature culture, at the beginning of 2020 when the pandemic emerged, we were able to partner with Mental Health First Aid Australia and trial and implement a 100% online version of the course. This course has been endorsed by Mental Health First Aid Australia, and it's actually used still internally at Downer and around the world.
This allowed us to continue our training through the pandemic, and we trained over 790 employees despite COVID lockdowns and restrictions. This armed our people with skills to navigate such an uncertain period, and we were hoping that those skills also trickled across the community. Most recently, in response to a need for continuous development and ways to redefine our resilience, we created a program called Protect. It's a seven-week webinar-based program that focuses in on various resilience topics such as how to create psychologically safe workplaces and spaces, how to use the latest neuroscience to really enhance our wellbeing, how to use mindful techniques, communication and empathic leadership.
As Julie mentioned before, our mental health training performance is linked to Downer's sustainability-linked loan, which further is a very clear example of how committed Downer is to the health and wellbeing of our employees in the long term. Now, I know the official data for the loan KPI we submitted was 2,000 employees have been trained, but I can tell you it's far more than that. We've trained over 2,500 because we open up the course to employees' family members, our joint venture partners and other community members. Our commitment to mental health goes far beyond our own workforce. I do start every Foundations of Mental Health First Aid course genuinely saying how lucky we are that Downer provides these courses for us, because these are not work courses, these are life courses.
We learn the skills to be able to maintain our own health and well-being and also support those around us, those we love. I've been working in the health and well-being space as a clinician for over 25 years, and I can truly say the proudest thing about being a Downer employee for me is that Downer truly cares about its people. Downer not only leads best practice, but have been genuinely focusing in on employee mental health and well-being long before international standards and concepts such as psychological safety at work were really embraced. Downer recognizes that if we can train and skill and arm our people and their families, we have the ability to reach out, touch and impact positively the communities that we work across, both in Australia and New Zealand.
Anyway, thank you for allowing me a brief moment to share our passion in the health and well-being space. I'm off to run another Mental Health First Aid course right now, so I'm gonna say goodbye, and I wish you all a fantastic rest of your day. Thank you, everyone.
That's great, Natasha. You do a great job in that area. Okay. We're now gonna hear from Peter Tompkins, who's our Chief Operating Officer on risk management at Downer.
Thanks, Grant, and good morning to everybody.
Yeah, this part of the day is intended to give you an update on our approach to managing contract and commercial risk across our tendering and contract portfolio. I think it's really important that we, you know, given the particular conditions that we're facing, to focus primarily on our pre-contract, contract award, and then into the contract mobilization. Now what's going on here?
Wrong button, mate.
I just turn it off. Here we go. Click it.
The arrow. That works.
I'm not the IT manager. What you'll see up here is really a layered view of the Downer Standard and how that sits, first of all, within our purpose, promise, and pillars. Grant showed you our pillars, and this is very squarely within those pillars of relationships and most certainly delivery. Within the Downer Standard, you have your 17 core process areas, whether you're doing mental health training with Natasha, whether you're doing on-site critical risk inspections. These are the things that our key people have developed and over time improved.
When you're out in the field, whether you're in a management review, you have the cues and you have the responsibilities, and then you have the processes which you can check and verify what the people are doing in the field all the way up through to the top, very top of that governance hierarchy. I'll get to some of that detail in a moment, and guide you through what we mean by the Downer Delivery Management philosophy and how you can see that in action. A bit of context. Businesses right now are dealing with major supply chain uncertainty. You know, whether that be in transport, logistics, base materials, technology, long lead time items, and certainly labor costs. Now, for a multifaceted services business like ours, we are in the business of managing risk, but also opportunity.
Regardless of the prevailing economic conditions, and these are particularly unique, we are all about constantly managing time, cost, and quality, and the commitments we make through our contracting arrangements. You know, business and investment communities right now are looking at the impact of post-pandemic uncertainty. Really when I sit back and look at our delivery management methodology, we are managing the risks of the time through our existing governance frameworks, and they remain the same.
As an example of that, when I went back and we did a review of our more material, more long-dated contracts to understand the coverage for escalation, you know, dealing with CPI, how we look at inflation, you will see a very, very high level of coverage, and that's because we have a very broad mix of contract types that give us coverage through alliance, cost reimbursable managing contractor. Where we have more fixed commitments, we have formulas and adjustments for CPI and other indexes that make sure that we're not taking the risk on these cost, the cost base as the prices and the uncertainty increases. I think that should give us all a very good level of comfort.
To expand on some of this a bit more, our key really is to be clear on the type of work that we do, where we do it, and the contract models, the payment mechanisms, and the commercial conditions that we sign up to. We spend a lot of time up front on job selection and spending a lot of time the way we look at risk, we negotiate our commercial arrangements so that we get a very fair allocation of risk. Quite simply, if we can't manage the risk, if we can't see a way to mitigate it, we don't touch it. What I'm describing now are the endpoints of what happens when you follow the delivery management methodology. You'll see from the display up here, we sit within the Downer Standard, which is our integrated management system.
Over the last few years, we've put a lot of effort into the TDS, and I will go into a few acronyms here, so bear with me. This gives us our single governance framework, our operational policies, the procedures, tools, and templates that sit across our entire business, regardless of the functional area, the sector, the job type, or the market. It is the same. You'll see up on the screen this phrase, "Consistent, repeatable outcomes." That has absolutely been the design philosophy as we have developed and enhanced the TDS. You'll see here the TDS, you've got the key features. But what I think we're really talking about here is Downer's evolving culture and the systemization of our risk and opportunity management.
It's the way our people think, and any integrated management system is fine, but it needs to be used and the culture of the people and the managers to make sure that it is tested, verified, looked for, looked at for conformances, non-conformances, and the escalation of things to make sure they get closed out quickly. I think this, along with our our commitment to our purpose, promise, and pillars, our sustainability focus, this is one of our top business characteristics, and it gives us a very distinct and a very sophisticated approach to our decision-making and the way we monitor performance. Right. We'll get into some of the detail now, and I only have, you know, 10 or so minutes.
Again, we'll be looking very much at that yellow mustard section through to the blue and to the beginning of that handover and kickoff phase where I think we, you know, put a lot of work up front. I think the points to make here, if you are a project manager, an executive involved in preparing for delivering contracts or monitoring the performance, you'll be seeing this landing screen on your computer, and it will look very similar to this. By clicking on these buttons here, drop-down boxes, the various sub-elements of the methodologies, processes and templates can be accessed, and they need to be correctly followed in order to move through the governance gates that sit around our delivery life cycle.
If you don't follow the steps, you will get caught at one of our governance checkpoints, and I'll go into a couple of those in a minute, but primarily, we're talking about our tenders and contract committee. All opportunities are monitored and developed through our CRM. Now, while this is not unusual, the discipline of entering the opportunity, pursuing those which conform to our risk appetite is an important first step. What has to happen at this gate is that we classify opportunities in accordance with our risk classification. One being low, all the way through to elevated risk, which are categories four and five. Categories three, four, and five are typically greater than AUD 30 million in value, may have design elements, and are generally of a higher complexity.
These tenders must be approved by our tenders and contract committee, and anything greater than AUD 250 million must also be approved by our board subcommittee. All opportunities which come to the TCC are now also assessed against our contracting-specific risk appetite statement. Now, under this additional assessment, we look at the technical capability of the business to perform that scope of work against a prefilled scope document, and we apply a scoring system against key contract features. These being client type to provide a ready reckoner of creditworthiness, public, private, the contract type, I mentioned alliance, cost reimbursable, lump sum, and whether there are other important characteristics like an early contractor involvement, which might mitigate against some of these headline items, and of course, any standout commercial terms like uncapped damages and the like.
Now, this is intended to provide another assessment point along the way. Importantly, it also allows us to keep track of our contract mix, the key features, and how we report that to the board. Again, another level of checking at the management level and monitoring by our board and its subcommittee. Now, if we dig into the tenders and contract committee a little bit more, you've got three gates of review. The first being an approval to pursue, i.e., before we spend money on a bid, when there's still time to consider shaping the opportunity, who we might wanna partner with, and importantly, we look at the opportunity cost of going ahead with the bid or not. The other two gates, the approval to prepare the tender and the approval to submit the tender, just before it goes into the box.
Now, when the TCC does reject an opportunity, it is nearly always at that second gate. Early enough, but it's once we have gathered enough information from the customer's delivery requirements, the business unit have done their work, and that allows us to work out fairly early if it meets the company's risk profile or not. Now, around all of this, you've got the project management office, and it's critical in providing overall governance to the DMM, supporting functions like the tenders and contract committee as well. The PMO is the process owner of the delivery management methodology. It is in charge of the constant refinement of the policies and responsible for the many checks and balances which sit around this delivery life cycle.
I'll get to some of these in a moment, but you'll see the bullet points which talk about the touch points to the process. This process and this methodology never just sits in the drawer. It's living, and it's in the management psyche, and it's actually hardwired into the roles, responsibilities, and the way that we also measure and look at the performance of our key people. The DMM, I think it's also important to note that it's followed regardless of job type. You'll see in this green section up here of the diagram that it covers jobs where you have an engineering component, a build, a construct, an operate, a maintain, or a service responsibility. Now, while there are key differences between maintenance and a construction contract, they've got their own requirements around technical delivery and capability.
The same governance processes applies. It's just that these are accessed through a different part of the wheel when you're clicking in. They just can't be missed. Why don't we look at some recent examples? If we take a high voltage transmission line opportunity recently that had a Category four risk profile, it fitted the core capability in a location where we had capability. The head of the business unit brought the opportunity to the TCC well before it came to market, so there were no surprises and no issue with the customer that had assets and financial substance.
At the second gate, the business unit worked through the governance requirements through this wheel, build out all of the pro formas. These included a peer review of the estimate, a review of the program, which was particularly tight, but that was worked through as well, the preparation of the three-way cash model to make sure that we're not funding the customer's operations and build process, and of course, a legal and commercial checklist. You'll see up here, this is quite an important point. We have legal, accounting, tax, insurance, and treasury input to that checklist, which is a very sophisticated document, but varies depending on whether it's a more straightforward opportunity or something like a, you know, a very long-term PPP style arrangement. What were the issues here? Ultimately, the usual things.
There were elements here of sourcing overseas materials and the price assumptions for steel lattice conduits, labor, and other key equipment. Ultimately, there needed to be base dating in the submission because we could see that the client was dragging its heels in the assessment process. We also agreed here that there would be extensions of time entitlements for long lead time items because of supply chain. The legal and commercial checklist also threw up an unacceptable interface risk and a liquidated damages exposure. Now, as I said before, if we can't manage it, we won't take it, and that's exactly what the business did in this case.
The endpoint for this process being the contract submission was conditional on no responsibility for connection risk to the grid because of this adjacent wind farm development, a commercial qualification around LDs and a tag that met our responsibilities finished prior to the energization of the line, which is a very important point. That's more of a construction focus. If you look at a second example and how the process sits across a maintenance contract. We've had one recently for a state government authority with a seven-year term looking after all of their social housing. The scope included all planned reactive preventive maintenance. Again, a Category 4 rating. The issue here was really around the commercial model and validating supply chain. Now, noting that we were a managing contractor, subcontractors were going to be delivering the work.
At the early stage of the process, the business unit undertook benchmarking and assessed the availability and quality of our supply chain. What this meant was, at the end of the review, we'd only bid six of the eight regions to make sure that our resources and our capability matched the confidence level in the supply chain. This just shows the process looking at different issues in different situations. The TCC checklist validated it was a pass-through contract. Qualifications were there to deal with CPI increases, and because it was greater than AUD 250 million, it was reviewed again by our board subcommittee and ultimately approved. You'll see from these examples how the TCC, the functional managers, the PMO, and the business managers and leadership group work together.
This is what I meant earlier when I said the TDS is really about our evolving culture, the systemization of our risk and opportunity management, and the organizational psyche of our business leaders to set the tone for how we want our work shaped, done, and delivered. What I'll do now is just briefly touch upon this very early phase of the green quadrant, and this is our delivery phase. Now, we'll finish up shortly, but we can talk about this over coffee or in the Q&A section, just because of the time constraints.
When the opportunity is won, the focus of the DMM shifts into mobilization and completion of key project deliverables and checking back through the TCC conditions, the bid qualifications, and making sure there's a proper handover between the bid team and the team that's ultimately gonna deliver the job. This is where the TCC and the PMO provides that conduit as well as the operational leadership of the business. The complexity of the deliverables and governance oversight is again determined by the complexity of the work that we have won. Regardless, all of our Categories 2-5 jobs must upload their core documents into our proprietary delivery management application. This includes the project mandate, the budget, the forecast, all of their procurement plans, engineering, commercial competencies, strategy and framework plans, and the schedule.
Now, this is I think one of the really exciting parts of our evolving system, and what it actually allows us to do is to hardwire in all of the contract deliverables and all of the governance deliverables that the client has set and which our organization has set in terms of the parameters for delivering this work. How that is then checked off and balanced is the reference up here to hold points. This is one of the key governance gates that needs to be completed once the DGM app has all the documents loaded into it. For larger jobs, the PMO will actually release that hold point before anyone in the project can incur costs on that job.
The app has become the critical reference point for both the project team and our operational managers in the delivery phase to measure and monitor project performance. The beauty of this is that it is proprietary, and it was actually developed by Steve's team over in New Zealand. It was geared up very much for our sorts of operations and the way in which we manage our risk and link it to our various governance forums. Look, I'm gonna wrap up now, but experience will show that the work done up front in those mustard, blue, and early parts of the green quadrant are the key drivers for project success. Like any integrated management system, it's only as good as the people that follow it, the reporting that's done, and the actions that are taken in relation to non-conformances.
While the PMO owns our process, the key requirements are owned by the business and the leadership group, and these are incorporated into their reporting metrics and escalated through to our executive committee and other monthly forum as conformances, non-conformances, actions, and closeouts. These are then reviewed and reported on to the board. I'm gonna wrap up there. We have got, you know, a little bit more in that green box to chat about over coffee. Look forward to those discussions a bit later on, and thank you for your time.
Thanks, Pete. We'll all be contract managers and risk managers now. That's great. Okay. We're now gonna hear from Ricky Bridge on Downer's role in decarbonizing the economy, and you're gonna take us through the global aspects, the Australian aspects, and then what that means for Downer.
Thank you, Grant, and good morning to you all. My name is Ricky Bridge, and I'm Downer's Group General Manager for Environment, Sustainability, and Reporting. Today, I'm gonna talk to you about Downer's role in decarbonizing the economy, focusing on Australia and New Zealand. Looking at various sectors that require the greatest effort to decarbonize and highlighting Downer's presence in these sectors. This will provide a segue into the rest of the day, where you'll hear from our operational leaders. Now, current data shows that globally, society emits around 50 billion tons of greenhouse gas emissions each year. This equates to a carbon dioxide concentration in the atmosphere consistently above 410 parts per million, and increasing. This is increasing, which is a significant increase compared to pre-industrial levels of 270 parts per million.
This increase has been driven by economic and population growth, largely due to the society's dependence on fossil fuels. To reduce emissions and achieve increase, increasing prosperity at the same time, society needs to decouple greenhouse gas emissions from economic growth, and this is decarbonization. While population growth will continue, we are already starting seeing the economics of climate change rapidly shifting. This presents significant opportunities and demands for Downer services. As mentioned by Grant and Julie, Downer is well-positioned to service its customers through the energy transition that is necessary to achieve net zero by 2050. Let's first take a look at the Australian and New Zealand government policies and commitments. Australia has pledged to achieve net zero emissions by 2050, while New Zealand has already passed laws committing to achieving net zero by 2050.
Australia took that pledge to the COP last year. It's yet to be legislated, but the commitment is there. Australia is committed to reducing emissions by 26%-28% below 2005 levels by 2030, while New Zealand has committed to being 50% below 2005 levels by 2030. Once again, the Australian government has come under some criticism about that near-term target in its ambition. Despite that, each state in Australia, each state and territory in Australia has also set net zero targets by 2050, along with a range of near-term 2030 targets, in addition to renewable energy targets, and you can see those on the slide. These commitments are driving capital allocation, investment decisions, and how we deliver our services and products.
Downer's customers, as you know, are predominantly government or government-related, and governments have a major role to play in the sectors where the greatest effort to decarbonize is required. These sectors include transport, utilities, and facilities. Now, decarbonization is presenting opportunities for growth in the private sector as a result of investor and shareholder pressure, and corporations like Downer have set ambitious and net zero commitments that Julie has already discussed. This presents increasing opportunities for Downer to partner with the private sector organizations to help them on their decarbonization journey, and we expect that this is going to increase tenfold. Let's take a look at the Australian emissions. We're getting to the sectors now. Let's take a look at Australian emissions profile by sector. The major sectors are power generation, electricity, you can see there in blue.
We've got transport, we've got manufacturing and construction, we've got industry, and we've got buildings. All of which Grant talked about in the earlier presentation today on the wheel, and all the other sectors that we have a strong and leading presence in, with the exception of agriculture, aviation, and shipping, of course. Downer is well-positioned to support the decarbonization of these sectors that is required for Australia to reach its net zero commitments. Let's now take a look at New Zealand's emission profile. A slightly different profile to Australia's. Just under half of New Zealand's emissions is from agriculture, with the other major sectors being transport, power generation, mainly electricity, manufacturing, and construction.
Once again, with the exception of agriculture, aviation, and shipping, Downer has a leading presence in all major emitting sectors. Downer is well-positioned to support the decarbonization of these sectors that is required for New Zealand to reach its net zero commitments. You're starting to see a common theme. I just draw your attention to this slide. This slide is it's the intergovernmental panel on climate change, the IPCC. Its latest report, AR6, which was released last year, confirmed the science that we must cut global greenhouse gas emissions by 50% by 2030 and reach net zero by 2050 to have any chance at limiting global warming to 1.5 degrees by the end of the century and prevent catastrophic and irreversible harm.
This diagram or the graph here you can see, it talks about. I mentioned before that we're currently emitting 50 billion tons of greenhouse gas emissions, and you can see where we are today. You can see there's five different scenarios based on different concentration pathways which equate to different temperatures by the end of the century. You can see that the no climate policies is sending us on a direction of 4.1-4.8. Now, the recent supplementary report by the IPCC indicated that we're well on track to reach 3 degrees by the end of the century. There's a huge amount of effort that's required.
If we take into consideration the current policies, and referring to that earlier slide, Australia and New Zealand, and the other commitments made by other countries around the globe, you can see that we're probably gonna get to around a 2.5-degree world at best. With additional pledges and targets, we can get to 2.1. The 2-degree pathway was the one that was set at the Paris Agreement in 2015. Back then, we would've been looking at that thinking, "Geez, 2030, it's a fair way away." However, we have eight years. We have eight years to get to that 2030 target. From the recent IPCC report, that has now increased to a 1.5-degree pathway.
You can see there, the shaded area, just the rapid decline in GHG emissions that is required to achieve that 2030 target, to have any hope in hell of having and meeting the 1.5 degree by 2050. I guess the cadence here is that the amount, like as Grant mentioned, the amount of transformation that is required in a short space of time to get those emissions and to decouple greenhouse gas emissions from economic growth is huge. The amount of capital and the amount of investment that is required, it is phenomenal. It is really unprecedented. I think, yeah, I'll leave that slide for that. Moving on from that.
The International Energy Agency released its 1.5-degree pathway to net zero by 2050, and here it is on the screen, which shows the energy transition required in the key sectors being power generation, industry, transport and buildings. The International Energy Agency modeled that to reach net zero emissions by 2050, annual clean energy investment worldwide will need to be more than triple by 2030 to around $4 trillion. While this is a global view of the energy transition, it is very comparable to what is required in Australia and New Zealand. Once again, I'll highlight that Downer has a leading presence in all these sectors, being power generation, industry, transport and buildings.
At a high level, the energy transition required includes, I won't go through all of them, but they're on the slide there that you can see. It's no new unabated coal plants by 2021. Phase out of unabated coal plants by 2030. No new ICE vehicles, and vehicle sales and phasing out of ICE vehicles by 2030, 2035. Overall net zero emissions electricity in advanced economies by 2035. At least 70% of electricity from renewable sources, wind and solar. Right now, in Australia, 70% of our electricity comes from coal-fired power generation.
That's a complete flip, and we think about how many years it's taken us to get to that point and how many years, I guess, we've been able to transition and been able to bring some renewables into the mix, and how many wind farms and solar farms that is. Just think about the magnitude of how much more investment in that infrastructure that is required. It is phenomenal. All new buildings are zero carbon ready by 2023. We're retrofitting by 2050. You look at every building out there, you look at the building right here, you look at every building, everything that we do, everything that we service, when it comes into the facilities and the building sector, Downer has a role to play. Increasing alternate fuels.
For those sectors that are hard to abate, where you can't electrify, there is going to be the advancement of alternative fuels such as the hydrogens and your biogases and other forms of synthetic fuels. Then, of course, we've got carbon capture storage. The International Energy Agency has recognized carbon capture storage as one of the key technologies that will get us to a net zero by 2050. Once again, Downer plays in this space. I'll move now from that into this next slide, which talks to you about the federal government released Australia's Long-Term Emission Reduction Plan. Underpinned by Australia's Technology Investment Roadmap, it provides a strategy to accelerate development and commercialization of low emission technologies to achieve Australia's net zero commitments.
The low emission technologies that will enable net zero across multiple sectors, as you can see on the screen, include low emission electricity, energy storage, electrification, energy efficiency, carbon capture and storage, and other emerging technologies. Once again, common theme. If you look on the left-hand side, the major sectors, electricity, building, transport, industry, mining and manufacturing, agriculture and land. Now, we play in all those sectors, although we don't play too much in the agricultural and land. I'm sure you're gonna hear from Jim Kafanelis a little bit later on, and we do, we are involved in some pretty unique technology when it comes to wastewater treatment plants, whereby you gasify the biosolids and you turn that into biochar, and that becomes a land application that sequesters carbon. It increases the uptake of carbon in the soil.
That's becoming also another technology that the International Energy Agency and the IPCC, they're all recognizing as key to decarbonizing by 2050. I wanna reiterate that this is a federal government pathway, and once again, you can see the major sectors as I've discussed. Moving on from that. We now drill down into Downer's capability and are looking at those priority and low-emission technologies. Across the top, you can see on this matrix we've got a very simplified version of what Pete was just talking about with program development, program delivery, operations, and optimization, and where Downer plays in each of these areas. When we talk about low-emission electricity, it's not just all about renewables.
While it will be, we have to transition. We have to service our existing customers on their journey with coal power generation, gas power generation, the networks and enabling infrastructure required for them to transition into other fuels. We've heard about the recent bringing forward of the closures of coal power plants in Australia. By no means is this gonna be orderly. You know, we talk about an orderly transition versus a disorderly transition. This is not gonna be orderly. That creates opportunities, and we're here for our customers to support them through the uncertainty associated with that transition.
It is, as I said before, it's about flipping that 70% and having of coal-fired power and having 70% renewables with wind, solar, and hydro. Also looking at the enabling infrastructure and, you know, Grant touched on it, and you're gonna hear more about that from Mark Mackay later on around just the magnitude of what's required in terms of upgrading our electricity network here in Australia and New Zealand, taking it from a centralized dispatchable energy source, going into renewables and basically changing that entire network, which looks at the, you know, the battery storage and all the other things to make it a reliable and secure and stable network.
When you get low-emissions electricity, we can then move to electrification, and this is the pathway, I guess, that globally everyone is looking to go down where it's achievable. Electrification won't be for every situation. We look at the buildings, the roads, the rail networks and infrastructure. Steve Kakavas will talk to us about the rail, rolling stock and so in that case, our networks, the rail networks are already electrified. But there is a lot to do in terms of efficiency, reliability, the rolling stock that sits on that network, and it also will need upgrades as time goes on.
Again, when you start thinking about the magnitude of electrification that is required, it's actually meaning we're gonna be generating more electricity than what we do now, but it's just gonna be from different sources and different networks to support that. With that electrification, we're gonna need energy storage. Now, Downer plays, as you can see by the ticks, we play in all these spaces, in all those low-emission technologies that I've just talked about, including energy storage. Now, where we don't play in energy storage at the moment is pumped hydro, but I'm sure we've got the capability to enter that market if we choose to. We then look at energy efficiency from the facilities and the buildings. I've touched on that. We talk about the alternate fuels for those sectors that are hard to abate.
You start looking at the network, such as Dante will talk about the road network. Whilst the vehicles might be operating off electric vehicles, might be operating off hybrids, might be operating off hydrogen, there is still a road network that then needs to support those vehicles. Those road networks will need to become smarter. They'll need to become electrified, and with that comes automation. Again, a lot of opportunity in that area. I've talked about carbon capture storage. We are probably one of the only or one of very few service providers in Australia that have got capability in carbon capture use and storage, and I'm sure Pat will talk about that.
I've talked about the land-based solutions, talked about the soil sequestration using the biochar, and we're also keeping a very strong eye on other emerging technologies. You know, one that comes to mind there is the carbon removal technology such as direct air capture. Now, this is an emerging area and it's also been recognized by international agencies in terms of the role that it will play in decarbonizing. We'll keep a strong focus on that in addition to new technology with batteries and other forms of technologies that come available. Now, that's not an exhaustive list of everything we do, but it gives you a good flavor in terms of the areas that we play, the areas that we don't play, and those low-emission technologies, and you'll have seen that thread all the way through. Thank you for your time.
I think I'll end it there, Grant, and hand back to you. Yeah, thanks, Ricky. That's a great teaser for the rest of the day. We're just going to have a short break, I think, 10 minutes?
15? Okay, we'll be back in here at 10:20. Thanks. You're now going to hear from our business heads. They're going to go through their businesses, what's happening in them, how they're handling all the issues and,
Really what's in store for them. They're also then going to look at what we're doing in their areas on decarbonization, and it's a very good story. The slide that Ricky was showing us here, that one as well. I'm just looking backwards. There we go. These two slides sort of highlight at the moment where we're thinking about where we're going to focus. In many cases here, we are already in the game, and you're going to hear about that from the business heads as we roll through today. This isn't wishful thinking. We haven't sort of changed our strategy and said that we're now going to, you know, jump into this area and we're gonna make hay.
This is very much core business that we are doing with our customers. As I said, the customers now all have targets in this particular area, and they're looking for people to help them. You know, how am I actually going to reach it? Reach the targets that have been put on this business, on this organization? They're looking for people to help them here, and that is what we're doing today, and we're gonna ramp that up very significantly. The challenge, as Ricky is talking about, is massive. You know, no one can put a number on it. You haven't heard any number in the election around the amount of money that's got to be spent for 2050, and you won't because it's very, very large.
First off the block is Pat Burke. Pat runs Facilities and Asset Services. It has a very large footprint in power generation and also buildings, but other industrial situations as well. Pat and his team have been doing a lot in this space, and I'm looking forward to a very good 10 or 15 minutes here. Pat? Maybe 20 minutes.
25.
25. Okay. Righto. Very good. Over to you.
Thanks, Grant. Yeah, it's an area where we play in every day in terms of the decarbonization space. You know, it's. We have lots of regular conversations with our customers on the topic, so it is something we live and breathe, and it's not new to us by any means. Just a bit of a reminder, Facilities and Asset Services was formed on the first of July last year. I'll just change slides here. It was really the coming together or the final step in integrating the Spotless business into Downer. The Spotless New Zealand businesses went to Downer New Zealand.
The Spotless defence contracts went into the Downer Defence business, and basically everything else that was left over was joined with our industrial services businesses and became Facilities and Asset Services. As you can see, we have five key lines of business. We're structured across what we believe are our key growth sectors, where we have considerable upside exposure to the ongoing growth in health. There's steadily increasing government outsourcing, which seems to be ongoing all the time. The energy transition, of course, you know, commodity markets, and also a really important factor for us, which is really the re-emergence of Australian manufacturing and Australian industry.
Our asset and development services business. It provides specialist FM integrated facilities management services and HVAC, being heating, ventilation, air conditioning services across all of our other businesses, across all of our other sectors. We turn over a bit over AUD 2 billion per annum. We'll finish this year with about AUD 14 billion in with work in hand. Really pleasingly for us, you know, this year, we've not only replaced the revenue that we burnt through the year, but we've also added another AUD 1.8 billion to our work in hand. We've been growing quite steadily. There's three key trends that really impact our business in a positive way, and the first, of course, is decarbonization, which is the theme I'll focus on today.
The second is what we're seeing around that, I guess, the post-pandemic reflection on the quality of our health services and our government services and what we expect from governments and the health sector in general, what the community expects from health. The third's really that, the current geopolitical situation and how that's impacting, you know, the renewed investment in oil and gas, in power generation and in industry in general. There's a few big numbers on the slide. You know, you'll see there, you know, 17 health and education PPPs. You know, we're definitely very much in the leading position when it comes to those sorts of PPPs in Australia.
You'll also see things like 287,000 buildings that we maintain and 100,000 social houses that we look after. They're just important to keep in mind as I refer to decarbonization through the presentation because the reality is that decarbonization isn't just about new infrastructure and new technology. It's also about retrofitting schools, buildings, hospitals and assets that we already look after. You know, modifying, etc. I'll talk about that a little bit later. I'll just flip across here. So just a quick one on the national footprint. So about 14,000 people in the business. So just to kind of gives you an idea of our spread. You know, you'll notice very importantly that we're...
The red dots, I'm not sure how well you can see that, but the red dots are where we have over 1,500 people. You can see our key presence in all the key capital cities and urban centers. You know, we've also got a fairly good coverage outside of the major cities. You'll also see that we have a fairly significant presence in all of the major ports around the country, which is gonna be pretty important in the future. You know, Gladstone, Port Kembla, Newcastle, Kwinana, Port Hedland, basically, we've got reasonable sized businesses in all of those key industrial centers. I'll also point out, I think Julie mentioned earlier on the zero harm performance of the business.
You know, when you can see just the statistics in the top right-hand corner there, you know, 0.52 for our LTIFR and 1.6 for our TRIFR. You know, they really are class-leading statistics of which we're pretty proud. Safety is a ticket to play in a lot of the industries that we actually work in. It's quite important for us to maintain that sort of outlook. Just over to our lines of business. Our power and energy business covers oil refining and petrochem, LNG, coal seam gas, coal and gas-fired power generation, pumped hydro and renewables, including the O&M of four utility-scale solar farms.
Whilst we currently don't have the capability to build, I wouldn't say the capability to construct pumped hydro, but we're not in that space, we're in the maintenance space. Hydro is a very important part of our business, and in fact, we do have the largest hydro maintenance business in Australia. Our work scope consists mostly of long-term maintenance contracts with tier one customers performing specialized turbine and boiler engineering, maintenance, capital works, and shutdowns. As Grant said earlier, you know, certainly, we have very key presence in that power generation space. Key customers include Santos, Origin, AGL, all the usuals, but very much a tier one customer base. As you'd expect, decarbonization for us, especially in this sector, is both...
You can see it as both a threat or an opportunity. In our case, we're very much in the latter. You know, we really just see this as an opportunity piece. We made that decision some time ago that we need to take the approach of helping our customers on their decarbonization journey rather than just being passengers along for the ride, if you like. Helping our customers to decarbonize is really the opportunity here. This is. We've got a very, very large asset base that we look after in this space, and we've certainly got the technical capabilities to help them to do that. We've been working pretty hard on developing solutions in that space since we held our first Future Energy Forum in 2019. All right?
Again, it's not new to us, and I'll come back to that later in the presentation. If I slide across to our industrial and marine business, similar scope in terms of maintenance, shutdowns, capital projects and programs. We've got our traditional oil majors on oil markets, and BHP is quite a big customer of ours, as you'd probably expect. Also we've got quite a lot of exposure to nickel and copper, which are pretty exciting markets to be in right now with the investment that we're expecting or we are seeing now and expecting to see over the next few years. An example of that is our key presence as the largest contractor in Kalgoorlie.
Kalgoorlie is in the middle, right in the dead center of BHP's Nickel West nickel manufacturing assets. We're in these prime positions, if you like, in several locations around the country. We also completed an AUD 80 million parcel of work performing a large parcel of the Olympic Dam shutdown at Roxby Downs recently for BHP. In that IOM business, that industrial and marine business though, we really see the key opportunity here or key growth opportunity. It's really around the rejuvenation and renewal of Australia's industrial and manufacturing fleet of assets.
You know, that whole sector has been run down for many years due to globalization and a lot more offshoring, as you know, and we're really starting to see some key investment decisions being made by some of our customers at the moment, where we're seeing them start to reinvest in those plants and actually create a vision in the future of what the future of those plants might look like. So really, I might add that when we see those sorts of investment decisions being made, that we're also seeing those investments being made in the light of obviously lowering the carbon footprint for the future.
A key example of that we're dealing with at the moment actually, and it's very early stages, but you'll have seen the announcement recently that BlueScope are gonna realign number six blast furnace at Port Kembla Steelworks. All right. That's gonna be a multi-year project, and it's going to also mean the introduction of several new technologies along the way. They're the sort of decisions that have been put off and put off for years, and some of these companies are now a lot more confident in terms of their ability to make the call because they're starting to see a bit more clarity around what the future looks like. Key customers there, of course, include BHP, as I've already mentioned, BlueScope, Wesfarmers and Orica, to name a few.
We've got a pretty good spread across the industrial base right around the country. Just across now to health and education. Our focus in health and education, apart from COVID, of course, which this hasn't helped, has very much been on consolidation and renewals. Over the last several months, we've renewed approximately AUD 680 million in the reviewable services components of our PPPs at the Royal Adelaide and the Bendigo hospitals. We've also renewed our soft services contract at the Alfred. We've renewed those on improved terms and conditions to what we had previously in place.
With 17 PPPs in our H&E portfolio, we're very well positioned in this space to take advantage of increased government expenditure in line with both the increase in community expectations and population growth, as I mentioned earlier. We're also reviewing a number of adjacent growth options in the health space because we really have been focused on that PPP area for the past few years as we've pulled that together. Our government business, though, is quite diverse geographically, and it provides mostly hard FM services across various state and federal agencies, as well as cleaning and security services across trains and trams, mostly in the rail space and light rail space. This includes a substantial number of government buildings as well as social housing, as we mentioned earlier, of over 100,000 houses there across New South Wales, WA and South Australia.
It's quite a well-spread business. It's also quite a large market with significant organic growth opportunities. This business in particular stands to benefit from any post-COVID stimulus. We're also starting to see flood recovery works come through, especially in the New South Wales areas and the northern New South Wales regions as well. From a carbon footprint perspective, both of these businesses are very much more at the end user side as opposed to power generation we discussed earlier. They're very much the end user part of the equation. I think if you refer back to those numbers we mentioned earlier around the 17 PPPs, all the hospitals, the schools, the 287,000 buildings, the 100,000 homes.
If you consider that each one of those is going to have to be modified in some way as the country seeks to reduce our carbon footprint, even if the expenditure is only AUD 2,000 or less than AUD 10,000, you multiply that by the number of assets that we look after, and that's a substantial opportunity for us that sits just in that space alone within our existing asset base, where we've got contracts in place that actually allow us to do that type of work. You can sort of see how this is just such a huge opportunity for us over the next few years. Just a little bit, if you haven't heard enough about decarbonization already, I thought I'd mention it again.
Hopefully you get the message that it's certainly a very important part of where we sit going forward. Just to better explain our general approach to decarbonization, we've kind of identified sort of three key areas of opportunity that we've been positioning towards to really help our customers through the energy transition and their efforts to reduce carbon footprint. If I just draw your attention to just the three horizontal boxes, if you like, across the top there. The first area, transitioning our customers' assets to new technology, is really through providing specialist skills, engineering support and technology aggregation to help our customers transition to new technologies.
These new technologies might vary from the installation of hydrogen turbines, of which we have OEM agreements in place to help us to do that, and hydrogen fuel cells through to carbon capture, and also through to improved building energy management control systems. It's really about helping them to actually change technology or modify kit. The second area is really providing, supporting and helping our customers operate their existing equipment differently to achieve a lower carbon footprint, or because the market in which they now operate demands different operating parameters. An example there would be the engineering studies that we've already completed on numerous power stations to help our customers run their power stations on lower loads and to ramp up and down more quickly to respond to market pressures with the impact of renewables on the NEM.
It might also include changing the maintenance regime to better suit efficiency rather than the plant availability. Some of these coal-fired power stations, they've got all this capacity that they're not using. In the past, they were all maintained around going flat out 100% of the time pretty well. In the future, they've got, with that excess capacity, they're going to be running those plants over the next few years on the basis of perhaps only requiring one or two of the four units they have available. Therefore, they don't need to maintain their equipment the same way they did previously, because they're not trying to achieve that higher availability, and they've got more redundancy in their system.
It changes the whole way they maintain their kit, and we're certainly in the space and have been helping them to do that. The third, you know, especially with our directly impacted customers, like some of our power station, coal-fired power station customers, again, for example. The third there is really helping our customers through their own structural changes. This is a really big opportunity for us. You've got large workforces with some of these power generators in predominantly fairly highly unionized regions and industries that basically don't really have a job anymore, to be honest, right? Renewables are fantastic, but a solar farm needs four to six people to run. You know, a coal-fired power station might have 400 people in it, right?
We're helping some of our customers very specifically, and we've been doing this now for well over probably 18 months. We're helping them to find pathways to redeploy their people, right? There's that redeployment piece where we can use these people elsewhere in our business because we need people in other parts of our business that are growing, right? There's that redeployment piece, but it also presents opportunities around outsourcing, where some of these power station customers are trying to variabilize their cost base more. We're starting to see that pick up in the marketplace.
One of the other points I want to make on this slide is if you go down to the bottom half, it's really about the stuff that we're already doing. Right now, we have about AUD 250 million worth of projects just in Facilities and Asset Services that are decarbonization related. They're from you know very specifically around some new technologies like carbon capture. I think Julie and Ricky mentioned before that you know we're one of the few contractors that have actually built carbon capture plants in Australia you know. It's something we've had some heavy involvement in.
We've got some very unique perspectives on technology in that space through some of our technology and agreements and partners that we have in play. If you do have a look on that list, especially down the left-hand side there, you know, like I said, we're seeing some very specific technology plays. We're also seeing decarbonization manifest itself in terms of helping our customers to electrify their assets, for example. We are seeing electrification come through, and that's not high tech, that's not big technology stuff. This is building poles and wires. For some of our customers, where they had gas-fired engines in the coal seam gas fields, for example, right? They're now converting to electric engines to run their wells.
There's opportunities associated with changing kit that's already in play with kit that has a lower carbon footprint. We're seeing that manifest itself across the business too. Just a bit of a case study quickly on Eraring. You know, Eraring Power Station's been previously announced as closing in 2025. We have what's called a consolidated maintenance contract there, which covers maintenance, et cetera, right across the plant and some operating activities as well. But that contract goes to 2026. You've got to think of these power stations in the context of Eraring Power Station and most coal-fired power stations were built in a specific location for a reason. It's their location on the grid that counts, right?
You think of all the infrastructure in terms of power transmission that sits around them. Companies like Origin, they won't walk away from Eraring, right? Even if Eraring does close in 2025, they've already made announcements around a fairly. I think it's a 700-odd kW BESS, battery energy storage system on site. We may also see other energy generation solutions on that site, and we're certainly in a really good position to help them both from the transition period, as I've already discussed, but also in terms of building and constructing and installing, if you like, new technology on site. I will point out that we don't see ourselves as constructors. This is a services business, right? But we do install technology, right?
We do install technology for our tier one customers under very specific terms and conditions and a very specific risk profile. Just quickly, solar farms. We do operate a number of solar farms. You can see there, you know, at 340 MW, you know, this is why I know how much it takes to operate and maintain a solar farm, 'cause we do that. 340 MW. You know, we've got about 1.18 million panels.
It's quite a nice capability to have, if you like, given what we're seeing across the market and given that when you talk about things like hydrogen and some other alternative fuels, that they actually have to be generated by renewables. It's another part of the puzzle, if you like, in terms of capability. Just on hydrogen, again, there's always a lot of debate on hydrogen, of course, but I do wanna touch on it and I'm sure you've seen this slide in a number of forms, but it really just showcases the currently proposed hydrogen projects around the country.
There's about AUD 200 billion in total, and I'm not sure if you did this slide today and then next week you'd get different numbers, but either way, there's a lot of zeros involved. I know there are a lot of doubters out there about what the hydrogen market looks like, but I think that you have to come from the perspective that along with renewables, batteries, pumped hydro and synthetic fuels, to name a few, hydrogen will have an important place, especially when it comes to replacement of reliable seasonal power generation and heavy freight. You know, I'm pretty certain we'll also see an export market of some scale. There's a lot of money being invested in that space, not only in Australia, but offshore as well. Still on hydrogen.
Over the last three years, we've been developing strategies and solutions and how we position ourselves as not only a ready-to-go choice for our customers, but also as thought leaders. You know, we've really tried to get ahead of the game in terms of what the technology looks like and how to aggregate that technology. To this end, we formed a number of technology and market relationships and partnerships, and this slide, I guess, showcases a few of those. You know, we have been executive members of the Australian Hydrogen Council since just after its inception. As far as I know, we are still the only contractor that sits on the Hydrogen Council, by the way. We've taken very active roles in various policy-setting committees.
We've also built relationships ranging from exclusive partnerships, like we do with with Mitsubishi, through to signed NDAs with a number of technology partners across the hydrogen value chain. We have an engineering-led future energy solutions group that sits within our power and energy business that, in conjunction with our technology partners, gives us a deep understanding of how to pull these different technologies together. A lot of these technologies are off the shelf. You've just gotta aggregate them in the right way. It also allows us really to pivot quickly and respond to our customers, respond to the market, which is changing every day. Whether that's hydrogen production, storage, generation, fueling, and/or related infrastructure, storage infrastructure, for example.
We really respond to the market in this space. In fact, as I said, I would suggest we're probably a bit ahead of many of our customers. It's an area we've put a fair bit of effort in. But I guess the takeaway really is that if we were to receive a hydrogen inquiry from the market tomorrow, we'd be pretty well placed to respond to that. Just a bit of a shift of focus, if you like. Just on to Royal Adelaide Hospital. A contract at Royal Adelaide Hospital, so it's a great example of the variety of complex services that we provide in our health and education business.
As per the slide, you know, every day at RA we prepare and deliver 3,600 meals, we complete 110 operating theater setups, transport around 200 patients, and take around 1,000 calls to our help desk, while at the same time providing 24/7 security services, operating and maintaining a fleet of 25 AGVs, automated guided vehicles, and maintaining over 130,000 assets. It's actually a very complex and unique capability that we have. We're held to a very high standard by the state as well, which is important. Again, it's just a fantastic example of the complexity that we're able to deal with and, you know, within our business. Certainly, you know, as they...
As these sort of opportunities come up in the future, we've got a real showcase in the Royal Adelaide Hospital, in and Bendigo Hospital , and Orange, et cetera, in those PPPs that we currently have in play. I haven't really mentioned much about our asset development services business, but they basically provide a number of specialist services across our sectors. These include installation and maintenance of HVAC and building management systems. Given that HVAC is usually the largest consumer of electricity in any building, then they again have an important role to play in rolling out low energy solutions across our customer base.
You can see that on the slide there that some of the areas we've already done that in over the past year or so have been the Melbourne Airport and also Baxter Healthcare, to name a few. The next slide, still a part of our asset development services business is basically just demonstrates, you know, how we're pulling together the post-pandemic clean air theme with energy efficiency. Given the competing demands for better ventilation and air conditioning tempered by lowering our carbon footprint. I mean, it's, they're almost at odds with each other, right? Wanting more, better air con and better ventilation, but also wanting less electricity use. Basically, we spent a lot of time and effort pulling together technical solutions that allow us to do that.
As I said before, when you apply these sorts of solutions across the broad asset base that we have, you start to rack up the scale of the opportunity. Just finishing off on some digital technology highlights aimed at reducing costs to both our customers and ourselves. Firstly, we have successfully piloted our blockchain trial with BHP at Port Hedland. That contract that we have there, maintaining the port facilities, it's large, it's very logistically complex because the amount of employees we're having to fly in and out and accommodate and feed and so on, and assign work to. It's very complex and incurs significant administrative effort.
It's early days, but so far we're seeing some very promising results in reducing that administrative effort as well as a number of other opportunities that we're seeing with blockchain. BHP aren't on our blockchain yet, so we've just set it up within our own team, and it's already showing some real advantages for us and we believe that's the first in industry, our industry at least. You know, it'll really make a difference to us as some of these contracts grow over the next few years. Among the various other digital initiatives, including some of the trials we've been doing and implementations of augmented reality, we've also recently implemented a digital twin of our Melbourne Connect PPP. This is a tertiary education precinct in Melbourne.
The clear early signs are that we will see real savings generated in the way we maintain the assets and the assets that we have responsibility for, you know, in terms of being able to improve the lifecycle or extend the lifecycle of those assets, reduce repair time and costs should anything actually break down as well. It's got real ramifications for the rest of our PPP portfolio, you know, given our ability to roll this out amongst those other 17 odd PPPs where we have lifecycle cost responsibility. It's a real promising technology for us. That's basically my last slide.
I guess just in closing, the message I really wanted to leave you with is that our four key lines of business all sit in growth areas aligned with our urban services strategy. We have considerable work in hand. We've got a strong pipeline of work that's growing. We do have a very low risk profile as a business, and we've done a lot of work to reduce that over the past few years. We're very well positioned and in fact, delivering on helping our customers on their decarbonization journeys. Huge opportunity for us and, you know, we're really looking forward to obviously a bit of clear air post COVID. Thank you.
Yeah, thanks, Pat. You know, that part of the business for us is a real technology leader. So thanks. So next up is Mark Mackay, who runs our projects business. You know, a really important business for us. Very much focusing on transport on one side, but also on power on the other. We're gonna hear from Mark now, particularly about the power aspects.
Good morning, all. Just go to my first slide. There we go. All right. Our business is predominantly a project delivery business. At any one time, we've got about 40-odd projects going around the country. They range in size from, you know, quite small up to the billion-dollar scale at the other end. It's a business that plays in predominantly two areas, power and also transport. We do a little bit of defense work as well, you know, joint opportunities with Jacob's business that I'm sure he'll speak about. What makes us a little bit different to a lot of the tier one players is the internal engineering services capability that we have. If we're looking at a power project, we can do end-to-end.
From project formation through to the engineering, through to delivery and hand off to maintenance, sometimes in Pat's area, that's all in-house for Downer, which is what's fantastic in this market 'cause we're seeing a lot of demand on tier one designers in terms of them being able to deliver being stretched. We can control all the pieces when we control that particular service offering. It's fantastic for power, and we also have it in our rail business.
We have an internal rail systems engineering business that does rail signaling design, rail safety assurance, rail systems assurance. That's also an important differentiator for securing a project because our customers in rail wanna know that we've you know we've got this risk profile under control. We're not outsourcing it to anyone. We can manage it end to end. It is a differentiator for us. Clearly we're one of Australia's largest and most experienced providers in the renewable energy market and power systems. On the right there we've detailed our specific capabilities. In power we construct transmission lines, high voltage substations, solar farms, battery energy storage solutions, and wind balance of plant.
In rail, everything from track construction to overhead wires and of course, the areas I mentioned around the rail systems, assurance and signaling. We do road and bridge construction and, you know, and adjacent markets such as water and defense as well. Again, on the right, a little bit more detail on the specific engineering capability that we have in our business, around that power, rail, water and systems engineering. I've got some good pictures at the bottom of some recent projects that we've completed and are ongoing. On the left-hand side, we've got our Parramatta Light Rail build. That's in the tail end of delivery now. We'll complete the infrastructure works in around June or July this year.
You know, it does demonstrate that light rail can be built in Sydney on time and on budget, and also, you know, with COVID going on in the background. It's quite a successful project by all accounts. Certainly Transport for New South Wales are very pleased with the efforts. Numurkah Solar Farm in the middle, a project we completed a few years ago. We've got the Eyre Peninsula transmission line job that we're doing down in SA right at the moment. I'll talk a bit more about power on the next few slides. The pipeline. We've heard it today several times. I mean, in the areas that we play in the project business, they are absolutely massive pipelines.
Power and renewables, we're talking about a AUD 70 billion pipeline, of which specifically AUD 40 billion is in transmission substations, and also in battery energy storage solutions. Now that, you know, I've heard a range of figures on the BESS, but suffice to say, there needs to be AUD 10 billion-AUD 15 billion spent to facilitate the transition away from coal-fired power just to deal with the demand curve. That's an absolutely huge market for us. In the transport area, roads, rail and civil, you know, this is a pipeline that just keeps on giving, a lot more infrastructure projects to come. Specifically AUD 40 billion of that is in rail. Again, sweet spots for our business.
On the right-hand side, it's another graphic that attempts to show funded projects. Again, very, very large. That's an infrastructure partnership slide. I'll let you look at that at your leisure. Importantly, on the bottom left, picking up from Peter Tompkins' earlier discussion, and I did spend a bit of time last time I presented on this, but we do have a very defined project selection criteria, which we call internally the swim lanes. It is around contracts that have the right commercial model. Clearly we favor, you know, alliance, cost recoverable, managing contractor type opportunities. Known customers are really important to us. Again, with the size of the pipelines, we can really afford to be picky and choosy about who we wanna work for.
Importantly, we wanna play to our strengths. You know, the capability and previous track record is very important for us in determining which opportunity to go for. This slide, I wanna go a bit deeper here on power. There is no transition without transmission. The current power network needs to be and is being significantly augmented to deal with the amount of renewables that need to come online. There's currently 45,000 km of high voltage transmission currently in Australia. Just on that point, you know, understanding this was a very dormant space for a lot of years. There is a lot of maintenance work and upgrade work that needs to happen on the existing network.
Additionally, 10,000 km of new high voltage power transmission line to be built over 10 years. There's a AUD 20 billion transition funding pot proposed by Federal Labor that you would have seen in the press currently. Right now, the current industry capacity is 700 km per year, and that this is our estimation of what's available in the market is clearly inadequate. You know, that presents a big opportunity. As Grant said before, you know, this isn't a flash in the pan idea for us to go and have a run at. I mean, Downer's got a 70-year heritage in Australia in power transmission. We are the clear market leader. Behind us, we've got UGL, and then there's a lot of space to the next players.
You know, unlike the transport area, where there's a plethora of tier one, two, three and four players, not so in power. Some of the reasons for that are, you know, it's a highly regulated environment. You know, you can't be anybody and go and play on a high voltage power transmission network. It's heavily regulated. Accreditations are needed. A range of competencies need to be demonstrated before you can go and play there. Fortunately for Downer, we have all those. We really have an opportunity to pick through this market over the next few years, and that means premium margins. We're a trusted provider to all the major TNSPs, and some of which are on the board, and we're doing work with all of those TNSPs at the moment.
More broadly in power, it's not just in high voltage power transmission and substations. You know, we've built a lot of wind farms and a lot of solar farms over the years, so you know, we've got a lot of capability in that space. And also in the big battery space, a number of projects under our belt. Right now we're seeing the Renewable Energy Zone outsourcing opportunity in New South Wales, and Downer will play in that space. Right now we've got Central West Orana, which is currently out in the market, and it'll be closely followed by New England and then potentially two or three more. These are major opportunities and clearly a different delivery model being entertained by the New South Wales government.
We expect that to be replicated in other states. Some of the major wins we've had in this particular market, SA Project EnergyConnect, AUD 200 million secured. That was the second major, you know, new build that's come to market and the first ones on the right-hand side that we're in build right at the moment. We're going to complete that job in November, December of this year, so a fairly fast build. It's gone really well. We're ahead of schedule and, you know, great project for us, for sure. Good space to be in. Graphic up here of a solar farm that we completed recently. This is at Chichester up in Western Australia. It was a project. Our customer was Alinta. Their customer is Fortescue Metals.
That was a mixed scope project for us, played to all our capabilities. 60 km of transmission line, substations, plus a 60 MW output solar farm as well. You know, we expect to have more opportunities and right now we're in negotiation with both Rio and BHP about similar projects. I mean, Rio's just made a recent announcement of introducing 1 GW of this type of project to their particular network in WA. They're a trusted customer of ours. We've worked for Rio for five years on the rail. Our recent project up there, our Ballarat Energy Storage System BESS project completed in 2021. Grid-connected 30 MW, first standalone BESS installed in front of the meter and directly connected to the network.
It was a bit of a first. Since then, you know, as we know, the BESS solutions have only got bigger and as I mentioned before, many more of these projects needed around the country over the next few years for network stability. On transport, we have a big transport business. On the right-hand side, Warringah Freeway. It's a joint venture opportunity that we're currently into. That's a major piece of work just north of the Harbor Bridge. It's an enabling project to connect the Western Harbor Tunnel and Beaches Link. Also Waurn Ponds duplication, an alliance rail contract down in Victoria, that we're currently preferred, and we're working towards contract execution by June. Another fantastic project for the team in rail.
Then, a defense project on the right-hand side at Williamtown that Jacob will talk to a little bit later in more detail. The place, you know, that we wanna play and we do play, roads upgrades, metro rail systems, faster rail projects, transport access program. That particular program, we've worked on 35-odd railway stations around Sydney over the last six years, putting in new lifts, DDA compliance, platform extensions, enabling works, to give us a better transport network in New South Wales. That's been a very, profitable, ongoing and fantastic stream of work for the business. The picture up there, that's our METRONET project over in WA, which is a joint venture project with CPB.
It's new rail in WA, so we've got 11 km of new railway line down on the southern side, connecting Thornlie and Cockburn, and then a 17-km new section of rail in the north, including four new stations, which enables Perth to continue its urbanization in the north. Right. That's it. Short and sweet for me today. Happy to take questions later or catch me at the break. Thank you.
Yeah, that's great, Mark. Thanks very much. Next up is Jim Kafanelis. Jim runs our utilities business in Australia. Jim's had a number of years recently in New Zealand. He's had a sort of a large role there in running various parts of that business, including utilities, but also the ex-Spotless businesses that we acquired. This particular part of the business, you know, obviously with the name Utilities, is right in the middle of this decarbonization path. All of the customers there are really interested in what we can provide. So Jim, let's let the investors know what you're doing.
Thanks, Grant. Good morning, everyone, and good afternoon to our New Zealand colleagues and family. Thanks, Grant. Could have listened to that all day. Look, I just thought it's a great opportunity for me to be here. I mean, recently transitioned
About three weeks ago now, from New Zealand straight to Australia. I was welcomed back with COVID, now I feel better and right into it. It's great to be home. I'm based out of Melbourne and as Grant said, the tie and the connection to our New Zealand business has been absolutely sensational over a period of seven years. Look, I just thought I'd cover a few slides today that'll give you some insights as to what the utilities business is about in Australia. You know, we have a balanced portfolio across power, water, gas, telco, the obvious standard utilities. We include renewable energies, the emerging sector, as you've heard quite clearly today, and we'll touch on some cases across that shortly.
If we look at the last sort of period, we've come out of a transition of a big build for NBN, a once in a generation build, arguably, and you know, what's next? Well, what's next has been a fantastic take-up of services, new connections, maintenance, optimization, and still a considerable amount of program work taking place and being presented to the market. We're offering unique. That's in the telco or technology and communication space, and in the water space, not too dissimilar, a lot of presence in that space right now. We'll touch on the gasification, which Ricky mentioned a little bit earlier, but also the elements of services that we provide right across the water business. The innovative solutions that we provide across the board, you know, the IP, we've touched on the design that Mark's just covered.
We do a lot of engineering and design, and that'll show through some of the cases, the business cases that we've put up here. Also in our normal operations as a point of difference and expertise within the actual utilities division. Keeping in mind, regulated industries, certified resources, qualified and well-versed in what we do in that space. It's a really critical space for all the reasons that we would understand. We're well positioned to capitalize on the market. You heard Grant talk earlier about our compounded annual growth rate of about 5.3%. That tells us we're in that space. Also more importantly, not just to the external market, but our one Downer presence, if we look at right across the business. One of my focus areas and objectives is certainly to leverage that one Downer.
Having formed utilities in the New Zealand business, leading the utilities business in Australia gives us a great opportunity to leverage that capability, the IP, the technical fraternity and community right across the board. The opportunities are interestingly increasing through the relationships that are existing from the businesses you've just heard about, where value add proposition does create a point of difference for us right across the board. That's certainly a key area of focus. If you look at the infographics, basically, you know, our clients, long-term relationships, generally, we've been servicing them for a long time. They're an important part of our existence, and we're an important part of theirs.
We support many thousands of families right across the group, which is absolutely paramount to us, and they're all extremely valuable in ensuring that we deliver services with a value add proposition to our clients. If you look at our revenue, utilities business in Australia, AUD 1.3 billion. Couple that with the New Zealand business, you're now starting to get to, for the utilities space in New Zealand, you're now getting close to AUD 2 billion of revenue annually. When we put up the number one, we say it with facts, and we certainly have growth opportunities sitting in that space as well. Our pipeline, there is a slight shift into the water space, is growing right now.
You can see, you know, 49% work in hand is sitting in the water space, but opportunities are still presenting right across all the utilities sectors, the renewable space working closely and aligning with our businesses. One of the areas of focus for us is now starting to develop. You know, we talk about renewables, we talk about decarbonization, but now starting to look within the Downer business, whether it's Keolis Downer and understanding how can we build the infrastructure that supports their buses, whether that's through charging stations and the like.
We've also got the opportunity to look at our buildings and our facilities right across the board, and we're working closely with rail, and we're working closely with the other parts of the business to see where we can add value in that space and bring some of that point of difference that we've got and demonstrating for clients out there in the open market. The general services, you know, 1 million electrical assets inspected. What does that mean? It means that we're out there in a big way doing a lot of work that is really important. I wanna cover the two national industry awards that we've received, and I think these people, it's nice to recognize where people really step up. Michelle Oberg was a best individual contribution.
She runs a human operational performance program for the utilities business and has been recognized by Logan Water. Congratulations to her. Chris Hatzistavrou, right, who received the Multinet Gas Chairman's Award in Victoria for his contribution to a zero harm culture. Shout out to those people. Look, the numbers are straight there. I'm not gonna talk about every little aspect of it, but there is a lot of activity, a lot of moving parts, and a lot of good things happening in the business. The business is in a really good position. I'm really excited about working closely with it and really complementing the good work that's already been undertaken. As you've seen, again, pretty self-explanatory.
The areas that we're looking and we currently operate in and will continue to operate in and flex and leverage with my colleagues and their businesses to get the best out of, our service offerings, our construction offerings, and our engineering offerings to our clients are right across the standard sectors of utilities. Really important we acknowledge that and the emerging technologies that present with it. This slide's really just to give an indication of, you know, what's our national footprint. If I put the New Zealand footprint there as well for the utility space, we're right across, well spread across both countries. It's a good diverse business presence across all states, territories, and also New Zealand. That's complementary of all the good work that's been undertaken over many years and the relationships we've held with our clients.
A lot of these contracts aren't five-minute exercises. We work with a relationship, we work with clients, we're part of a strategy, and we deliver services and projects for a long time. Obviously, the list of clients there, you can see, and New Zealand's not too dissimilar. They're the tier one clients of the country, and play a significant role in every aspect from social to economic and alike within those countries and territories and states. Look, the case studies that I thought I'd just really touch on today was, especially to the decarbonization elements. But the team had looked at renewable energy in Queensland. It was 600 schools, the project. It was really where we went out there, talked to every particular school, understood their needs, and developed a solution.
Developed that solution from a design perspective, and then delivered and installed and implemented whatever that solution was. That program ran across a number of phases. It's obviously referred to Advancing Clean Energy Schools. What's been interesting is, as part of that process and to educate our youth, there's some technology that's been applied where the actual school children can actually see the power being generated through the cells and actually start to understand where how electricity is being utilized right across the group. It's quite educational sort of process and quite good. The fact is, we've saved our clients there significant amount of money on energy use, which is quite important.
You know, we've installed over 81,000 solar panels just in the space of schools, and we're looking at what other opportunities, for example, LED lighting, and see what other things we can do with the government and some of the programs that exist or will be existing in the near future. This particular project ran over a number of phases and obviously due to delivery, and originally there was three providers, now it's been reduced to two. We're continually taking up additional work in that space. Equally as important, we're having a lot more input as to what goes on. It's really good because clients or schools, if we refer to them as customers or clients, are now changing their needs.
They're expanding their assets, and they need further work to upgrade or add further, technology or so forth to their, whether it's through batteries or anything else through, those facilities. Quite an exciting project and one that's been delivered extremely well across the group. Just on the last one, so you heard Ricky talk about it. Now, I'm not the subject matter expert on this, but I'll certainly convey some of the information that I've learned and read over the last sort of few weeks. Effectively, biosolids, as Ricky talked about, produced right across every wastewater treatment plant. It's not complicated to understand that. This new technology, which Downer's been a part of for over five years developing this with partners, being Logan Water and certainly Pyrocal as well.
Specific gasification partner there and obviously a client to enable us to get involved in that process and some serious engineering capability, process engineering and that from the Downer team. The technology now allows that biosolids to be basically dried out, not shipped. Currently what happens is, say for example, for that wastewater treatment plant, treatment plant services 300,000 households. 90 tons a day of waste product gets shipped out of that location 300 km away, to get disposed of or dried out, which is not good. We can all understand the logic of that. This process has enabled that product to now be dried out through a process engineering perspective, an upgrade to the plant, and then that used, basically it forms a biochar.
Another product that can be used as energy, and the remainder of that product is actually a conditioner for soil. You can see it's basically a net zero aspect out of that technology that's been applied right across, and we see a big future for it. There's now a lot of interest in these particular plants, and there's a lot of clients or other customers or potential interested parties now visiting this particular site to understand more about the technology. No doubt we'll wanna expand that further into the New Zealand business as well and the New Zealand clientele that we service there as well. This is a great opportunity, and it'll account for about 70% or so of the actual energy through the biogas that it produces.
The other 30% part of this project required a 1,000-panel installation of solar to support that. That's when I say it's a net-zero type facility now. It supports itself through its energy consumption, environmentally friendly, reduces. Excuse me, a lot of trips going 300 km a day to offload product and basically creates a new avenue for what, you know, innovation, technology and sustainability coming together or the ESG elements of some of that all coming together for a common goal. It's quite exciting from that space to know we've been in that arena for the last five years, working closely with our two partners, and it gives us rights basically to that IP to start liaising with a number of other clients that we have right across our portfolio.
Some stats around it reduces CO2 output by 4,800 tons per annum. It's quite significant. It reduces the disposal of biosolids. Bioenergy from waste reduces energy input. Again, the obvious things that we've been covering off and technology is relatively simple, and we can retrofit any wastewater treatment plant basically with this technology. It provides an avenue for us to continue to be able to work on that. Look, that's just a quick-fire way of just a bit of an update for the business, the key focus areas for us going forward. If I look at it, I have the honor of leading this division, and I'm extremely excited about it. The team, you know, we support 3,500 families. At our external partners, it's probably closer to 6,000.
does a lot of great work and need to acknowledge the efforts getting through all these challenging periods like everyone else. We've got we're quite passionate about what we do, and we're quite excited about the opportunities that present. My job is to enable a lot of those elements will be what you heard from Peter Tompkins, whether it's projects, whether it's governance, these are all enablers for our business that we're embracing and we're working through at a rapid pace and will continue to evolve as a business. Thank you.
Yeah. Thanks, Jim. That's not bad for three weeks, sort of getting across it. I must say, so Jim has come in, and Trevor Cohen, who, if you were here last year, you would have seen who was running utilities. Trevor's retiring, so Jim's coming in to replace Trevor and who's done a great job, and yeah, good for three weeks, mate. Right. Jacob, you're up. Our defense business, as I said, we're the fourth-largest defense contractor now across the Australian defense business and Jacob has got a number of really interesting things happening within that business right now. Of course, you know, the government's spending a lot of money in this particular area and specifically in the areas that we play. Thanks, Jacob.
I'll talk to three key themes this morning. Firstly is to give you a bit of an idea of the shape of our defense business and what we do, and perhaps for some of you some clarity around what we don't do and where we don't play in this space. Second point I'll cover off is our heritage, where we've come from, and what makes us slightly different to the other participants in the market. Thirdly, I'll try and map out where the growth is coming in defense and how we're well-positioned to take advantage of that growth. In June last year, we formed Downer Defence, which effectively brought together Spotless and Downer's former defense businesses under one single business unit.
We've got three business units there, and to Grant's, I guess, opening remarks, we've got three business units of scale and three business units that are regarded as market leaders in their particular spaces. We talk about ourselves as being thinkers, builders and maintainers. There's, you know, the market is awash with large U.S. defense primes who play very narrow and very deep. We're one of the few providers that plays across an asset life cycle. I'll talk a little bit about the three businesses and how they relate. The first is our Downer Professional Services business, which is really a white collar, high-end consulting business. We have two primary clients there. The first is the Capability Acquisition and Sustainment Group, or CASG.
In layman's terms, on behalf of Defence, they are figuring out what kit do we need for the defence of our nation, how does that fit in with the portfolio of kit we've already got? How are we gonna get it to communicate and talk to each other? And how are we going to sustain it over the long term? We're in a very strong position there. CASG has a panel of only four providers that do all of the acquisition work of bringing new military capability into the system, and we are one of those four providers on the panel. Extremely well-positioned there. The second major client group is the Chief Information Officer Group, which effectively is the comms and technology part of Defence.
Again, how do you get these disparate bits of kit that you bought from the Europeans and the Americans, how do you get it into a coherent fighting system where it can actually talk to each other, communicate, it's protected from cyber, it's protected in terms of its security and it's a modern system there? We've got about 500 of our own guys and girls that are playing in that space, and we've got an additional 500 either SMEs or partner organizations that are working as part of our offering to Defence. A large-sized consulting business in its own right. The second business we operate is a base and estate management business that is more of a traditional facilities maintenance business. Really looking at the sustainment of Defence's built estate.
We're effectively doing asset management, maintenance, and running the Defence PPP at HQ JOC there. The third business unit is an estate development and base upgrades business. That is effectively around how do you refresh, extend, and refurbish the Defence estate. We're working at two ends of the scale there. At one end of the scale, we're doing programmatic work, so very large programs of effectively very small projects. Give or take, we're doing 300 small upgrades across the Defence estate currently with a June 30 completion date on them. They are quite quick, churn and burn. At the other end of the scale, we're doing large multi-year base redevelopments, where effectively we take Defence. We act as an agent for them.
We go through a process of two years of optioneering and design to work out what should we do with the estate. Following a public works committee approval, we then move into traditionally between a four- and seven-year construction phase, where we procure and manage construction on behalf of Defence to totally refurbish those estates. Perhaps just to help you understand, the nature of the businesses exposed to estates. These estates are, you know, you've obviously got air force bases, you've got ports, you've got education precincts. You should think of these as like a small country town. They are precincts in their own right. Unlike a small country town, they are effectively a gated community. Any infrastructure from the rest of the world ends at the gate.
Defense need to look after their own power generation, or backup power generation, water, wastewater, roading systems, telecoms, gas. Any of that stuff effectively gets looked after by us. In terms of where we come from, you know, we have a long and proud heritage of working with Defense. We started in the 1940s, actually up at Steve's facility at Maryborough, building frigates for the Australian Navy. For 30 years, we built ships for the Navy, churning out about 47 of those. We then moved into a couple of decades of building infrastructure across the Defense estate. In the last 30 years, we've really pivoted our presence with Defense into this professional services and consulting offering, and also an upgrade and facilities management business.
I guess the kind of takeaways here is, in terms of our role in the Defence ecosystem, we are one of the last remaining Australian sovereign providers. There's really only us and Lendlease. The great Australians that Defence traditionally turned towards, the United Groups, the Leightons, the Transfields, the John Hollands, have all moved into a phase of foreign ownership. Our ability to bid and position ourselves as a sovereign player, particularly around that kind of strategic advice, is a very strong characteristic for us. The second takeaway here is really just our role as a partner. A loyal and enduring partner to Defence over 80 years.
Again, when we have those conversations from us to them, that they really see us as a long and enduring partner, helping to maintain their capability. One of our cornerstone contracts is our EMOS contract, and EMOS stands for Estate Maintenance and Operating Services. We look after 170 Defence facilities. It's effectively a geographic franchise or patch style contract where we look after everything within the patch of Queensland, the patch of ACT, and the patch of Southern New South Wales. We provide a very broad range of services. In layman's terms, we do everything on a base other than the soldiering. I said I'd provide some clarity about what we're not doing. Generally, we're not exposed to and we're not involved with, in layman's terms, things that go bang or pop.
We look after the infrastructure, but we are fundamentally not building or maintaining the war fighting kit. A very broad range of services that we provide to keep these bases operational and functional. Impressive in their own right, but probably more impressive is just the sheer industrial scale of which we do them. We do somewhere around 1.3 million planned statutory maintenance tasks a year across the base. You know, in terms of accommodation, we don't just provide accommodation and housekeeping management. We do it for the equivalent of 28 commercial hotels. Everything we do, we do at scale. You just about can't turn on the TV or radio at the moment without having an announcement around increased spending in Defence.
I'll finish up by talking a little bit about where we play in the market and why we are well-positioned to benefit from that growth. As you kind of hear stuff get announced, how that maps through to us. Effectively, there are four major areas of government spending, and I'll run through each of those. When you hear increased spending around Defence, call it material or capability, in layman's terms, it's the kit. It's the ships, the tanks, the planes and the boats. As Defence makes increased spending in that area, that all generally will run through the capability and acquisition group where we're on the panel of four. We work to help Defence work out what they need and how they bring that in.
You know, we have very large teams of up to 60 or 100 people working hand-in-hand with defense there. Every time the government buys more kit, they'll put an integrated works program together to basically look after that acquisition program, and so we benefit in that form. Where you see announcements around the upgrading of bases, and in recent days, we've seen the Prime Minister announcing the upgrade to RAAF bases, where you see upgrades to barracks and ports and coast, we're well positioned there, both in terms of the smaller programmatic works of upgrades but also the larger managing contractor-style upgrades for redevelopments there. We are really a market leader in that space. Defense has a huge budget but have not had a track record of being able to spend all their money.
What they are starting to do is smash together smaller programs into larger mega programs, and we have made a choice to try and position ourselves at the top end of those MC programs that are gonna come out to market, which gives you access to bigger parcels of work. It's low-risk work under a managing contractor framework, and there are really only three or four competitors in the market that are capable of bidding and delivering that work. Where you see announcements around the increase in Defence personnel numbers, and we've recently seen the Prime Minister commit to a further 18,500 people or a 30% increase in Defence numbers, that flows through to our FM business in terms of all the volumetric stuff we're doing.
It drives an increase in training, accommodation, cleaning and housekeeping, all the accommodation related stuff there. Then the fourth area really, around today's theme is Defence have been slow out of the blocks in terms of decarbonization, but they have arguably the biggest of the government estates in terms of buildings and assets there. There will be a significant spend in that area. I'll just finish on probably a good case study around Defence and its building efficiency improvements. Defence fundamentally have two drivers in terms of what they're looking to do in the space. The first driver at the moment is really around energy security and resilience.
You know, to be honest, there's a lot of bases where the lights from time to time will flicker, and Defence want to make sure that they have the resilience in terms of backup power so that they are not reliant on the grid, and so there will be a number of opportunities there. Obviously, the second driver will be around net zero and a decarbonization agenda, and they will be a major instrument of government policy in delivering that. Recently at Russell, which is in the ACT, a large complex that is effectively the home to all the Defence chiefs and all the senior Defence people, a good example there, we had chillers coming to end of life. By virtue of being the estate maintenance contractor, we can see that coming through the program.
It gets handed to us. It's not well scoped. We chose to go away and do some third-party engineering around what were the options, what should we replace it with, what should it look like. We're able to scope that up, put it back to defense, have them say, "Yes. No, that's a great idea. That's what we wanna do. We wanna move to a more modern solution and a more carbon friendly solution." Then on behalf of defense, we went out, procured that from the market, oversaw and supervised that work, and have delivered a great outcome in terms of decarbonization. I'll finish up just in closing by just reiterating we have three strong businesses in the defense sector. They are all businesses of scale.
Each of them in their own market segment are regarded by defense as being one of the top two or three providers and a leader in the market. The underlying defense market has very, very strong inherent growth as the government continues to invest in this space. We are not only well positioned by virtue of our heritage, our market positions to be the beneficiaries of that growth, but we've also been very thoughtful about the commercial models and the parts of the market that we're playing to ensure that we can do that in a low risk and repeatable, reliable manner. Thank you.
That's great, Jacob. You're an increasingly important part of our business. Look, we're gonna have a break now, I think for 10 or 15 minutes, and then we'll come back, and we're going to hear from Dante in Road Services, Steve in Rail and Transit Systems, and then across the Tasman to New Zealand and Steve Killeen is going to talk to us all about things down there in New Zealand. Back in 10. Thanks. Now we're going to hear from Dante Cremasco, who runs our road services business. It's one of our very great businesses. It's got a great market share.
What's interesting here is you've probably not heard of a green road, but Dante's gonna be able to take you through why our particular business is actually creating green roads and what that's going to do within road transport, at least, in the way that that's manufactured and why we can do it the way we do it. Dante.
Well, good morning all. Dante Cremasco. I've been with Downer now for 23 years. I run the National Roads business here within Australia. Wanna share a story first up around a bit of weekend activity that I've got to partake in, and I was fortunate enough to witness a partial rebirth of the entertainment industry and witness a live concert by Midnight Oil at Rutherglen. Now, for those that aren't aware, Midnight Oil started in 1972 as The Farm, soon renamed in 1976. Peter Garrett has been on the bandwagon for a long, long time, both politically and environmentally. Even on Sunday night, he was lamenting the fact that we're not doing enough.
Doesn't mean he's gonna stop, but I guess I was sitting there in the audience and thinking about what we've done, not just as a community, but as a business, to address some of the issues that have been on the forefront of our minds. I'm sure you've sat through this morning already very much experienced a lot of the change that Downer's going through. With my presentation, I wanna lead you down the path of not just the assets we maintain, but the assets that we have built, the positions that we keep, the positions that we are in to ensure that Peter Garrett won't be lamenting anymore. I'll start with a quick photo. Anyone recognize where we are on the screen? It's here in Sydney. You almost have city views in the distance. You're somewhere in the west.
If you're thinking Rosehill, fantastic infill opportunity at the old Viva refinery or Shell refinery. We're at Clyde. That's not a facility that we maintain. What you're looking at is a facility that we've just built. Now, that facility will soon come online in the next few weeks. What you're seeing in the middle is a big gray shed that houses virgin aggregates. We won't be requiring any loaders to load those aggregates into our plant. To the right, you see a wash plant, a repurposing plant that's capable of diverting all of the street sweepings off our roads around Sydney and putting them back into our products that we manufacture and make from a low-cost perspective. To the left, I've got the drone sitting at about 40 m now. You can see a rather large industrial-looking building. It's an asphalt plant.
It's capable of producing 100% recycled product, and I'll go into why that's important a little bit later. Just in front of you, it's not a fancy gazebo. It's not something that I've left the roof off. It's in construction. It's the first of its kind in Australia, and it's a place where we're plugged into the grid, and we'll be screening and manufacturing our own reclaimed asphalt pavement at our site, at our 8-hectare site at the center of Sydney that will service the generations of road users to come. I'm sure you've all, for those that are Sydney-based, experienced some pretty poor conditions on our networks at the moment with potholes and that maintenance burden isn't going away, and we're gonna be challenged to get better outputs from what we do to service our road users.
The business profile, I guess ultimately, we are a leading supplier of integrated sustainable road network solutions. We're a road network manager. We operate in the asset management space. We provide services so that when we are the network manager, we can recommend not just the lowest cost solution, but by virtue of the fact of our asset management and our R&D, the best possible long-term solution to get the most out of the road networks that we manage. As you can see down below, we are quite a substantial part of the manufacturing capability in Australia of, for example, asphalt, which the majority of our built-up urban and large collector and rural road networks operate and which our cars travel on. We manufacture in excess of 3 million tons per annum, which is a healthy proportion of the Australian market.
In doing so, we are very proud in how much we are able to divert, existing pavements into repurposed pavements and reduce that burden as we go forward. On the right-hand side, you'll see that we talk about sustainable road resources centers. Now, since I last spoke to you a year ago, we are now in the process of officially opening the one in Brisbane, where we sit on our own significant land parcel, very close to the Brisbane CBD to again service very similar to what you've seen with the Rosehill Devon Street development, and I'll talk about that in a case study in a moment. Our strategic footprint is one that leverages the proximity to the markets in which we operate, to the communities in which we are part of.
As mentioned, we are very heavily engaged now in the reuse of existing assets that belong to our customers, and AUD 135 million has been invested in this space in the type of technical and industrial equipment that we need, including purchasing land to be Johnny-on-the-spot when it comes to servicing those customers on a low carbon basis footprint. We've had opportunity to look at bolt-on acquisitions, but more importantly, we're in every major jurisdiction around Australia and stand ready to answer the call from a low-carbon perspective. We talk about relationships creating success, and you would have heard Michael mention that we have had a bolt-on acquisition by the name of Fowlers Asphalting several months ago now. What a lot of people don't probably recognize is that this was a buyback some years later.
In 2009, we had a very small, very poor condition needing to be replaced asphalt plant in the Gippsland area. We just had lots of work to do in other jurisdictions. We didn't have crews, we didn't have people. We weren't in that market. The owners of Fowlers approached us and wanted to know whether we would be keen to somehow strike up an accord going forward. We recognized pretty quickly that whenever you're not in those communities, then it's really going to be difficult. Rather than trying something together, we said, "Look, I think our asset will be better in your hands. I think you've got a better feel for what's happening in this community right now, but we wanna support you on that journey, and we wanna live our relationships creating success.
When you're ready to pass on the business to work a little bit differently, then we wanna make sure that we're the first people you talk to. That happened a few years ago, pre-COVID. Obviously, COVID put the brakes on a lot of that. Fowlers today represent a significant proportion of the eastern part of Victoria. It's a business that they've managed to rebuild very comprehensively. You're looking at a German Benninghoven plant in front of you that they've retooled. They have huge market share in that area. They've got lots of passionate people that live and service both the agricultural and the communities that exist out there from an energy perspective or tourism. It's a great place to be.
Importantly, our relationships with the people at Fowlers over the last 13 odd years in being their supply chain partner in supplying both R&D and materials has put us in the right spot to continue that journey. Hats off to the people at Fowlers that are continuing on that journey today. They're doing a great job and really making us very proud about that very relationship going forward. What's gonna keep us going? What's gonna make the difference? There are lots of people playing in that space. You've often heard the road side and what happens in that space is very highly commoditized. There are no differentiators, but we know there are boom markets, Western Melbourne, Western Sydney. You've heard about the Olympics in Brisbane going to a net carbon zero.
You've seen a little bit about opportunistic bolt-ons. Ultimately, what we will do then is turn those opportunities through our IP, through the smart people that we have driving those low carbon initiatives by increasing our utilization, reducing our waste, and turning them into ultimately game changers. Our roadmap to do that is pretty complex. There are lots of steps along that, but it all comes together when you move from left to right, underpinned by a bent towards recycling, a bent towards lower carbon, turning our customers into our supply chain. Our customers own massive networks of materials, and they're called roads. These roads are infinitely recyclable. They can be repurposed. They can be reused. They're even capable of being changed insofar as traditionally, you've seen this industry operate and manufacture asphalts at high temperatures, 170, 180 degrees.
Now, we can't continue to do that. Our R&D and our intellectual property around where we're working today will mean that we will trend towards ambient temperatures in what we do. We will reduce our Scope 1 emissions to ensure that as time goes on, where we invest will be more and more carbon neutral trending to negative. I mentioned Brendale. This is up in Brisbane. We have a 9-hectare site up there that we've purchased a few years ago now. The plant in front of you is a sister plant to what we're just finishing now here in Sydney. The color's a little bit different because EPA has views on what color should be in Sydney, so we're happy to toe the line there.
Ultimately, you can see stockpiles of recycled asphalt pavement in the background, large bituminous tank farms, a huge R&D facility that allows us to specify new materials. And also the wash plant, very similar to what we're doing here in Sydney, and also what I'll talk about in a few moments with respect to Melbourne as well. Closed-loop solutions, lower cost of production. Our customers are becoming our suppliers. Local government, state government, they're slowly but surely changing to ensuring that the products that get to the end of life on their networks, on their roads, will come back to places like you see in front of you to be repurposed at a lower cost and sent back out there to have another go under this harsh Australian climate. From an economic standpoint, the market's large.
We estimate there's somewhere between 10-12 million tonnes, depending on projects that are laid in the asphalt space per annum. Local government has been a very big friend of ours, pushing the recycled content very, very strongly. They seem to think they have a lower risk appetite for the type of networks and the types of vehicles that are on their networks. What we're seeing more and more is state governments are now responding and are also getting on and specifying high recycled content and different types of products in the road surfaces that we're out there maintaining. You can also see that it does lend itself very heavily to carbon reduction.
Recalling that the two plants that we've just finished in both Brisbane and Sydney are capable of doing 100% recycle at current temperatures. A lot of our plants will be able to do 100% recycle at lower temperatures. The key here is on R&D, but the graph shows you that as you increase recycle content, if you can minimize the logistics requirements of where that material comes back and gets repurposed and gets reused, sorted, graded, and remixed and sent back out there, that's where the real savings are. We're reducing our virgin materials. We're reducing our price exposure. We've all been at the bowser. We can see what's happening. Our bitumen, the glue that holds our roads together, is inextricably linked to hydrocarbons, to our fuel prices.
Every time a customer puts a new piece of road out there, they pay in today's dollars. When we go to recycle it in 15-20 years' time, we're getting the value of tomorrow's dollars to be repurposed and offsetting our costs of today. It's a cost driver, it's a carbon reducer, and you can just see what the capabilities of around, you know, the 30%, if industry can get to 30%. Now we're well and truly capable of doing that. We need good discussions with our clients around enabling those sorts of changes to specifications, but we're seeing the slow and steady march towards it. How do we market ourselves? I mentioned that state governments are changing.
This is a case study in Victoria, where the state government road authority has specified a high recycle content asphalt mix. We market our recycled content asphalt mixes as Reconophalt. There are lots of opportunities within Reconophalt to use a wide suite of 100% perpetually, infinitely recyclable products that can be taken back off the road network to our facilities that we own, operate, repurposed, and sent back out there. It makes huge differences to what we do from a community perspective. Repurpose It, our joint venture that you heard me mention last year, has also well and truly gone into the FOGO space, also recycling the green waste. That gives us opportunities with respect to different energy sources and how we play in built-up urban environments as well from a green space perspective as well.
Now along this whole process, you'll see Repurpose It, it very much acts like a quarry. But the 70 hectares or the 210 acres of land that it manages throughout three locations in Victoria become very much borrow pits, temporary storage, places for us to temporarily stockpile materials, to understand their value, to treat them, to wash them, to re-crush them, to send them back out to market. In doing so, we again reiterate the simple point that our customers are becoming our suppliers.
When your customers become your suppliers, you start moving away from carbon because it's their very nature of the materials that they no longer have a use for, that they need to replace, that they need to ensure that their traveling public are kept safe, that those very products that we can take and inset. You'll hear a lot about offsetting, you'll hear a lot about carbon reduction, but we think we've set up a business today that is ready to be starting the carbon insetting journey. One whereby we will have lower carbon-based inputs from our supply chain, which happens to also be our customers that require those very products. Looking forward to taking some questions a little bit later on, but there's a quick whip around what we do in the road space here in Australia.
Thank you for your attention.
Yeah, thanks, Dante. That's great. Just to bring that into perspective, by increasing the amount of recycled asphalt that goes into the mixes that are put down, you know, to the extent that we can take that up to 30% and 40% on the roads that are built, we've got literally tens of thousands of cars off the road. Now, this is quite a competitive advantage that we have because what our roads team have done is invest in plants that manufacture this high level. No one else does that. In fact, the philosophy around this is that we're not quarry owners. We don't care about aggregate throughput. Well, that's very different to our competitors. That's what they care about. We don't care about that.
In fact, if we can take the aggregate off the road, it's better aggregate anyway, and it's already coated in bitumen, right? A really important aspect of our business, and it's a large part of our business, and I think, you know, we will see specifications for roads change. At the moment, you've got low levels in the major highways, et cetera, low levels of recycled asphalt. Soon, given the green style of what we can produce, we will see much greater levels of recycled asphalt because there is no quality problem, all right? The quality is fine. Anyway, Dante, very good. Next up is Steve Kakavas, who runs our rail and transit systems business, and we've got some really interesting things going on there. We're a market leader in this particular part of the business in Australia.
Well, good afternoon, everybody. I guess given I expected to say good morning, I might try and move through this relatively quickly. If I characterize the business in a couple of ways, we're the largest passenger rolling stock maintainer in the country. You'll sort of see a few stats up there, but basically, 1,100 vehicles today when we see the balance of the HCMT fleet in revenue service completely so late in 2024. That'll put us at around about 1,600 units in revenue service. For context, that's bigger than Queensland Rail for passenger vehicles, that's bigger than Melbourne Metro for passenger vehicles. A business of significant scale. I think the second characteristic for our business which is important is our contracts are largely long-term asset management contracts.
They are whole of life, 25-35 year contracts. When we think about some of the changes that Ricky alluded to that we would expect to see through this carbon journey, we will still be maintaining this rolling stock through that journey. We have contracts that will finish in 2050. We will be part of that journey. We will be the incumbent provider in that space. I'll talk about some of those opportunities as we move forward. I think the third thing that's really important to characterize as the business is we sit within a broader transport ecosystem at Downer. If you think about Keolis Downer, Keolis Downer's capability, some of the capability of Mark Mackay's space, then if we combine those things, we don't have any competition that provides that breadth of service in the marketplace.
It is absolutely unique. If we couple that with the incumbency that we get from these long-term contracts, when customers are looking at change, they're looking to us to effect that change for them. If I talk a little bit about that capability more specifically, so those capabilities extend to rolling stock design, manufacture, test and commissioning and delivery. Extends to rail maintenance service, so infrastructure maintenance in that respect, rolling stock asset management, systems integration and signaling, again in Mark's business, public transport infrastructure upgrades, and then lastly, into the operational space with Keolis Downer. We are strategically well positioned in terms of our footprint. A quick outline there of where we have our facilities located.
I guess one of the things that sort of we find quite buoyant about the marketplace at the moment is the renewed interest in local manufacturing, sovereign capability. There's a number of sort of labels for it. Even in New South Wales, which up until fairly recently has been a staunch outsourcer of rolling stock procurement, we're starting to have conversations now about building locally, which is refreshing to us. If we look quickly at KD, in that respect, then KD is the largest operator of light rail vehicles in the country. They're the largest bus operator in the country, and they're the only multimodal operator in the country.
Again, if we think about a value chain that has incumbency as a function of asset management or operations at its key, having that position and looking at the augmentation opportunities that sit within that space is absolutely key and critical to us. When we look within a context that says we've got an addressable market within the rail space of around about AUD 40 billion, what we're really looking at here is the discrete targeted opportunities that we think are right for this business. There's a few things that I think are important to us. One, the underlying work in hand is consistent, and as I said, we've got sort of 25- to 35-year contracts in that space. We have a number of option sets within existing contracts that are not called off.
Across HCMT and the SGT contracts, we've got 900 cars that the government has yet to call off. We don't believe that there's a need for quite that amount of volume, but there is a need with increased patronage for additional rolling stock, and we expect the government to move on some of those in due course. We do see a continued demand for fleet replacement, and we know that networks are aging and fleets are continuing to age. All in all, the pipeline for us looks very healthy in that respect. If I focus on sort of the two key areas, if you like, the first is really our sort of horizon one work. This is areas where we're looking to extend and defend our existing service offering.
This is core business for us. We've got a few examples there, but things like the Queensland Train Manufacturing Program. This is a 65 six-car sets, a new manufacturing facility, a new depot south of Ormeau, and then up to 35 years' worth of contracts. Something quite similar to what we've seen in the HCMT context. We're currently bidding that. We're one of three in that space, and we think, given our extensive experience in Queensland, that we're well-placed to secure that work. Similarly, if we move down the coast and look at Melbourne, then we do see market soundings for MR5. This is into the light rail franchising space and the heavy rail franchising space that the government are starting to move and starting to make inquiry about how they'll approach the market there.
In our Horizon two space, this is where we're trying to think a little bit further ahead and a little bit out of the box. We're really dividing that area into two key focus areas. The first is really around energy efficiency. This is energy use reduction and energy storage. In that, things like zero emissions buses, which I'll talk about a little bit more in a moment, or energy reduction initiatives that we can deploy on fleets become very, very key. The second one of those initiatives is really around improved asset performance and asset efficiency. A lot of work's been done by the team in that space in two critical areas. One's around the deployment of robotics into maintenance activities to get higher reliability outcomes and lower cost to service provision.
Secondly, into the data and digital space around leveraging some of the extensive investments that we've made into particular products that we think can address broader needs within the market. If I just talk about a couple of case studies, now this is not work that's prospective, this is work we're actually doing today. The first of these in simple terms is in our double deck fleet in New South Wales. In this space, we have Transport for New South Wales as the second largest consumer of electricity in the state.
Within that, if we just look at modifying the air conditioning systems within our double deck fleet, then we're seeing an equivalent reduction of 10,000 cars per year by modifying the software control systems and some of the inverter technology on the fleet. This is something that our customers are very, very keen to, and are really reaching deeply into us to look for solutions. If I move into Melbourne and into the HCMT space, so brand new fleet, only halfway through the delivery here. We're in conversations with the customer at the moment, in fact, doing some advanced engineering work around deploying onboard energy storage systems onto the sets that do have, I guess, three sort of principal things.
First, by sort of putting batteries on the sets, then we're capturing regenerative braking energy, and we're not dispelling that as heat or trying to put it back into the overhead. That fundamentally lowers the cost of operations, is the first thing. Secondly, in areas of the network that have low power capabilities, we're able to deploy the fleet without having to have significant levels of infrastructure upgrade. The third is a little more esoteric, but because we're running through parts of the network, or can run through parts of the network on energy storage, then the electromagnetic interference that all electrical systems generates is greatly reduced.
In the Melbourne Metro Tunnel, where you've got rolling stock running through the tunnel, close to the university and hospital precinct, and obviously lots of very, very sensitive equipment, we're able to provide a solution to government, which we think is vastly more effective and sustainable than an infrastructure response, which would see some of that kit being moved. I thought it might be worthwhile just talking quickly around the Sydney Bus Region 8 contract. This is a contract that KD has secured. I guess this is a supply, operation and maintenance of 125 electric buses that are progressively decanted into the fleet as they take diesel buses out. What's interesting for me in this space is I think it's an excellent case study of where the collective business comes together.
This is not just the operations from KD. This is the broader business being able to design and construct, deploy and maintain these sorts of critical systems and fundamentally result in you know what is the best part of 250,000 tons of carbon reduction over the life of those buses. Look, the last one really is into our data and digital space. We have, as a consequence of having long contracts in availability-based PPPs often, invested very significantly over the last 10 years into developing a very comprehensive data and digital management system.
This is taking a fairly industry-standard piece of software and really building out the modules that I've shown on the page there to provide a full suite of tools that enable people to manage rolling stock assets very efficiently. When we look at this across the country, there is no comparable product, so we think it's readily deployable into other fleet management opportunities. When we look internationally, we only find one product, which scores it highly from a capability perspective. We do think it positions us and potentially is well-placed to take the business offshore. I guess that's the quick outline of where we are with RTS. Thanks for your time.
Yeah. Thanks, Steve. To the next Steve Killeen, tell us all about New Zealand.
Let's go.
Just that button, I guess. Yeah?
Yep.
Okay. Easy. Tēnā koutou. Ko Wai tōku awa, ko Pen y Fan tōku maunga, ko Gail tōku iwi, ko Killeen tōku hapū, ko Killeen tōku whānau, ko Stepane Killeen tōku ingoa. Tēnā koutou, tēnā koutou, tēnā koutou katoa. That was my pepeha or personal introduction. Pretty common to start a meeting with that or a mihi, a more general greeting in New Zealand these days. It's one of the more obvious ways that Te Ao Māori or the Māori world has influenced the way we go about our business. Probably less obvious is what we call our Māori tikanga or Māori values. There's a particular value I want to share with you today. It's called kaitiakitanga.
It talks to an expectation or a value that we are all guardians of the land, the sea, and the skies. It's relevant today because it talks not only about our corporate responsibility, but our personal obligation and expectation to look after the planet for future generations. At the end of the day, why wouldn't we? We work in some glorious places, whether it's Fiordland National Park, where we look after the roads and the avalanche program, whether it's Antarctica. One of our telco technicians, Daniel, recently went on his 13-month deployment, what we call fly out and forget about me. We won't forget you, Daniel. Glorious part of the world. We work in the Pacific Islands. The photo there is out in Samoa where we rebuilt the runway.
We're currently in the Solomons, Niue, and the lesser-known Pacific Island of the Chathams. We work all across New Zealand in our various roles. I guess the key factor a lot of these have in common is they're all under threat. We see less snow in Fiordland, but more rockfall. We see a receding ice shelf in Antarctica. We see floods in the Pacific Islands, and we see increasing storm intensity across New Zealand. The photo at the bottom right is our team in Gisborne. They are currently clearing up after recent storms in what we call the recovery phase. Then we'll go on to resilience, which is rebuilding it.
There will be in a very small space of time, if you like, a few days of weather, NZD 200 million of damage. So that's effectively what we're facing in these glorious places that we work. I'll come to our sustainability journey, but first, just so you understand the New Zealand business. We have three divisions. I'll wander around if that's okay. We have transport, utilities, and facilities, aligned very well to the divisions in Australia. We talk about New Zealand and Australia. We're actually not separate businesses. We work in a very aligned way, sharing resources, and increasingly developing strategies. We have a Downer Group strategy across these activities. I'm hoping this year we nudge 3 million of revenue, and we look after 10,000 people.
Our divisions are pretty well-balanced, and they're pretty well-placed for what New Zealand needs. In terms of our work in hand, we have AUD 6 billion of work in hand. That's secured work in hand. We also have contract extensions. Now, we would typically be 90% confident that we'll get our contract extensions. Effectively our work in hand expectation is about AUD 9 billion. We effectively have three years of work locked in ahead of us. In terms of who that's for, 80% plus is for government or government-related entities. The balance is private sector. The three private sector clients that we're most doing most work for at the moment is Vodafone, Microsoft Corporation, and Powerco. In terms of the balance of work in hand, it kind of reflects the balance of our business.
The key growth area, I believe, is utilities, because utilities will be benefiting from water reforms and also some climate change funding that is coming down the pipeline. Let's talk about that government policy. Post the Paris Agreement, the legislation of that was put into an act in 2019, sorry. And that committed us to net zero by 2050 and a 30% reduction by 2030. At this point, you're probably thinking Rick's slide saying 50% reduction is wrong. It's actually not. That was corrected post Glasgow, where New Zealand committed to a 50% reduction in emissions by 2030. Now, the slight challenge to that is the green box is the Ministry for the Environment's predictions under current policy settings.
Without boring you with too much detail, our emissions in 2005 were 83 million tons of carbon equivalents. Now, that gets reduced somewhat by our forestry, so we get about a 15-20 million ton offset, but it still leaves us with a big number. The targets there on our current trajectory mean in 2050, we will only just have achieved the goals that we're aspiring to achieve by 2030. That brings us to the next bullet points on this slide. We need a change to our emissions plan, and this is coming out next month. It will come out in May. It will focus on a number of sectors, but including from our perspective, transport, energy, and construction.
It will change the settings to get us on the right trajectory to honor our 2019 commitment. We're also seeing what's called a national adaptation plan. Last year, New Zealand went through a risk assessment around climate change risk. It identified 43 priority areas and 10 critical areas. This will address how we're tackling those. No particular surprises in that. The 10 risks really talk about the risk to the ecology, the risk to our personal safety, and ultimately the risk to the economy if climate change impacts remain unaddressed. As you'd expect, New Zealand has signed up to the UN sustainability goals. Today we're focusing more on climate change goal 13.
We have started to do some detail around our commitment as Downer to all the sustainability goals under those rather unusual UN definitions. That work's in progress. What are we doing? In New Zealand we talk about being very green, but actually 60%, give or take, of our energy requirements still come from fossil fuels. Largely related to transport and manufacturing. It would be incumbent on us as an organization to address our in-house activities first, which basically comes down to our carbon emissions from fleet and manufacturing facilities. What we've started to do is to revolutionize our light vehicle fleet more to EVs.
We're well down the track of that, both in actual action, and you saw our blue MGs in the photo earlier, but also in planned action as capacity of vehicles comes online. We'll be trialing our first EV ute later this year. We're also looking at our heavy goods fleet. Again, we're seeing a lot of potential both in hybrids, but also improved engine emission capacity. We're moving next year to some hybrid trials, but also to Euro 6 engines. Euro 6 engines meet the Clean Air Act from a European point of view. They represent a 70% reduction on emissions versus normal heavy goods vehicles. We're also looking at our manufacturing areas. So the tank here is a refurbished fuel tank that now runs off electricity.
That was done in conjunction with the Energy Commission who we're working with to go through our manufacturing capability and to electrify it from other fuel sources. Now, that's significant because actually New Zealand has a very good story to tell in electricity production and the renewal capacity of that. 84% of our electricity is green, which also gives us the capacity to produce green hydrogen down the line. I'll talk to the photo first because I think in order to go on this sustainability journey, you need an ecosystem of suppliers, willing customers, but also people that challenge you, people that bring you thought leadership. This was an ESG panel that we ran last year. Michael was up on one of the screens there.
Michael was under fire, but did a great job in representing Downer. The other screen's a chap called Andrew Grant. Andrew Grant's the global partner of government and infrastructure development at McKinsey. We have Anne-Marie there from New Zealand Super, head of responsible investment, and Louise Francis from ICG. The final person in the picture is Mark England. Mark runs Genesis Energy, 51% owned by New Zealand government. Mark has the challenge of being renewable on one side of his business, being a key provider of hydropower, but also on the other side of the business, he runs the coal power plant that supplies the 5% of New Zealand energy that's still generated from fossil fuels.
Now, conversation with Mark led to the fact that he is driving a different agenda for Genesis Energy. Now he is working with us to ensure Downer from 2025 can buy fully endorsed renewable energy or renewable electricity. Now, if you think about what that means, currently our emissions are 118,000 tons in Downer New Zealand. Most of it is about manufacturing. In fact, 99% of it is manufacturing and fleet. If we can change our fleet to a power source that is clean, we can really make a dramatic change. It's actually taking what is an aspiration to a reality, but it requires an ecosystem of people. It's also good when you can do the odd project for those people.
The picture on the left there is actually one of Mark's hydro schemes. This is where we're putting some gates in to control earthquake surge on the water. But it's on a hydro project, 190 MW, feeds circa 124,000 houses. It supplies energy to 124,000 houses. If you prefer to think of that in EV mode, the other picture is a wind farm we're currently building in Turitea. That's for Mercury Energy. And that provides enough energy, 220 MW, which will power 375,000 electric vehicles per year. Phew. Moving on. This next project is a big one for our New Zealand business, and we've been involved from the very outset.
CRL is the City Rail Link. It's New Zealand's biggest transport project. It will enhance our public transport network in Auckland. The real sustainability story is it takes ISCA, the Infrastructure Sustainability Council framework, which basically allows you to take good practice to the ground, good practice to projects. It looks at ecology, it looks at stakeholders, it looks at social outcomes, and it's something we adopted on the early stages of this project, which was called C-one, but basically the works under Britomart Railway Station to start the tunneling work. On this project, we used our Green Vision capability, which is a recycling company we own, which basically takes materials out of the ground that would normally go to landfill, recycles them into engineering quality material. We convinced the project it was a good idea.
We convinced the customer it was a good idea. We convinced a partner in the concrete business that it was a good idea to use recycled aggregate. The outcome was a 55% reduction in emissions through not extracting virgin aggregate and also reducing transport. As a consequence of this and lots of other activities in terms of water reuse, not using diesel for power, using electricity in preference, resulted in an excellence award under the ISCA standard. We're now adapting this through the project, and this project in the whole will be somewhere between AUD 3 billion and AUD 5 billion. I'll keep the range wide. In terms of final outcome costs, we will be involved in 90% of the delivery of this project with our partners.
We are continuing to use recycled materials, and we're actually setting the benchmark for how projects can be delivered in a sustainable way. Another one, I think this is really exciting. This is New Zealand's first Green Star building. It's for Auckland University. We have a bit of a partnership with the university where they keep giving us projects to build. We built the engineering block, which is to the left of this picture. We're currently building the recreation center, and this is the social sciences block, affectionately known as Building 201. The really unique thing about this is we didn't knock down the old building. We stripped it back. We took it back to a concrete frame.
We used reinforcement textile and fabrics to reinforce the existing frame so it met seismic standards, and now we're building it out again. What you're seeing at the top picture is the facade has just been completed. This will look and feel like a new building. It will be on the old concrete frame. We haven't knocked it down. We haven't sent the materials to landfill. We haven't had the emissions coming back in terms of materials. And it will function. Actually, it will save 60% emissions in the build. In its running, it's actually designed to reduce, versus a normal building of similar ilk, sort of 70% reduction in operating emissions.
I actually think it's one of the best examples of a brave client and actually a very committed construction team to do these challenging projects, but with huge sustainability benefits and a positive outcome. There are a few case studies. We've got many. The New Zealand market is, as the Australian market, we're well-placed. The market as a whole, addressable market's always a tricky thing, but the market as a whole, about AUD 27 billion in terms of what we physically can do. We choose not to do a lot of it, either because of quality of client or because of quality of contract. Even though we only represent AUD 3 billion of that AUD 27 billion, we are the market leader in infrastructure delivery in New Zealand.
We are the biggest provider of integrated infrastructure. We also work through all elements of the cycle, we enable design. I say we enable, we do good design management. We have good temporary works design. We have some niche aspects of design like pavements. We also design manage in terms of taking BIM from the design office to integration. We're not bums on seats designers. We build, we maintain, and as we've demonstrated, we operate. For example, on CRL, we'll be maintaining the stations for their 25-year life once they're built. In terms of a forward trajectory, the market without climate change budget is due to grow at a CAGR of about 3%. We'll grow slightly ahead of that because of our market position.
We expect to grow at a CAGR of about 5%. We do have some choices to make on where to next for New Zealand. We've gone through quite a growth. We've effectively doubled our revenue in the last six years, largely on the back of acquisitions like Tenix, Hawkins, Spotless. We've got some choices to make. Key thing for us is actually to capture work in the right way. Most of our work is repeat business. Most of it is early contractor involvement or negotiated. Most of our service contracts are rolling over, in many ways, uncontested through the tender process, just put through a value for money lens. We are well-placed in many ways for growth and for certainty of a prosperous future business.
In terms of the work we do, we'll continue to have projects that are multimodal in shape. The one here with the tree you can actually see that's actually traditionally would have been a motorway build. It's now a cycle way and a waterfront area that adjoins a motorway and a railway line. Our work in its core will become more multimodal by nature. We do expect the water market to expand, particularly with water reforms. The complex-looking plant there you see is a thermal dryer. Sustainable at two levels. Firstly, it takes human waste that would have gone to landfill, turns it into pellets for fertilizers. But more critical on this plant is it's designed to run off hydrogen.
When our hydrogen capacity comes offline, this plant can run off it unencumbered. The other two—this is where I do some work with my friend here, Steve Kakavas. We're kind of joined at the hip at the moment. The first one is some, I guess, thought leadership work we've been doing with KiwiRail. We have an interesting topography in New Zealand, and Steve's team did some work, and they've designed this loco concept to move freight around the country. It will use a small backup diesel engine, battery storage and overhead electrification in small parts of the network. It will reduce our emissions by 90% and the fuel bill by NZD 6 million per year.
Massive impact on KiwiRail's sustainability goals, a massive impact for New Zealand in taking freight off the roads, putting it on rail, but servicing it on rail in a way that's sustainable for the future. Then the bottom one, I spoke to someone at the break about Auckland Light Rail. That's the next big transport project. Potentially hasn't got bipartisan support yet, so it's a bit of a watch and brief. Quite a complex project, but I think regardless of what shape, what form, whether it's light rail or just the future of transport corridors, we'll be in the mix. I guess in summary, New Zealand, business-wise, we're very aligned to my Australian colleagues. We share lots of good ideas.
We have some really good things in the water and rail space, particularly, that we can bring from Australia to New Zealand. We are well-placed for the future. I think we can run a financially successful business, but we can do it in a way that enables society to thrive. Thank you.
Yeah, that's great, Steve. A lot of fantastic things going on in New Zealand. Now, I think we're going to have questions, Adam. Is that right?
Yep. So what we'll be doing, we'll take a quick five-minute break. We just need to redesign the stage here with enough seats for all of our presenters. Stretch your legs. Think of some questions that you would like to ask. We'll just be five minutes redesigning the stage here. Thank you. All right. Thank you very much, everybody. We're now at the stage for a panel Q&A. We've got a lot of presenters from the day who are keen for any of your questions. We've got Leanne and Ash on microphones. I'll now ask if you'd like to ask a question, please put your hand up, introduce yourself and fire away.
Good afternoon, John Purtell from Macquarie. Thanks for your presentations this morning. Just had a couple of questions. There's a big panel in front of us, so I might just put it out there. But look, obviously, Grant, Michael, we heard from you earlier in terms of your commentary regarding, you know, revenues not being an issue for the business going forward. It's probably fair to say it hasn't been an issue sort of in the past so much either. But the focus is on sort of improving margins. My sort of general question is sort of what drives that? I mean, we've heard from various presenters about an opportunity to be more selective about the work you do, just given the opportunity set.
You know, is there a willingness to trade off some revenue growth for margin improvement? You know, what are the opportunities to increase margins? Notwithstanding, we're looking at obviously higher labor costs. Do you think you can get ahead of that?
Yeah. Thanks. Thanks, John. Look, I think just first of all, the last couple of years aren't ones that I'd look to for broader patterns. You know, it's been a difficult time for all businesses on cost to serve, right? So I think the last two years when you look at margin deterioration or whatever, in whatever business you're in, you have to look past that and certainly we are. Look, we've got a few areas that we'll be looking at in this. At the heart of it, better project performance, right? That's across the range, but certainly in our construction side. You know, typically everywhere in the world, construction being relatively low margin.
If we can improve our performance on just a handful of contracts, then that will be very positive for us. We're also looking at our overhead base, and we're also doing a lot of work, you know, when Peter was talking around the systems that we have, that's all designed really to get better performance at our margin, right? More consistency, better quality. We know what comes out of that. Over time, we're expecting that to make a significant difference to the business. You know, for right now, yes, you know, margin is all about making sure that your cost inputs are very well managed, right?
In a very short-term way, making sure that your procurement, the risk that you're taking on in that supply chain is managed very, very well. I think that's our focus right now is to make sure that that's the case. The two things are project performance, and we're putting a lot of time and effort into that. It's again not just construction, it's also our services contracts, making sure that we've got the best attention to optimizing those contracts and then also the cost inputs and managing that.
Thank you. I've just got one follow-up. Just on the theme of costs, obviously we're seeing it across the economy and in your space as well, whether it's labor, fuel, energy, supply chain. I'd just be interested in maybe one or two comments from the divisions, if anyone wants to accept it, just around how you're managing that cost inflation in your business.
Yeah, I'm happy to kick off. I think the costs increasing are a reality for us. Materials, a lot coming from overseas. If you look at the bulk shipping or containerized shipping costs, you're 500%-600% increase. Iron ore up some 180%, which obviously translates into steel, which comes back to us on shipping. You can see where the costs are coming from. Labor scarcity globally across the type of activities we do, but particularly exacerbated in New Zealand's case by border controls. We are protected, and I think going back to the last comment, one of the ways of protecting your business is to be very selective on the contracts you do.
Most of our contracts allow for full CPI or better adjustments, so we are generally well covered in New Zealand for cost increases. It also doesn't take away our obligation to manage it through hard work in getting the best prices we can and controlling the labor cost. I think it's always easy under pressure to pay whatever you think is required, but I think management discipline around that is a key focus. I think good controls to look after our money and our customers' money. Likewise, most of our contracts and selection of those contracts being risk insured through the clauses that are inherent in them.
There might be some others that, Pat, on your long-term contracts?
Yeah. I mean, it was a pretty good coverage by Steve, you know, and I'd apply that across our business, our broader business as well. A lot of our long-term contracts have a large cost-free component. Sometimes we get some misalignment in labor costs, like it's misalignment in terms of your EBA versus your ability to recover, but it tends to be a fairly short-term issue. The other kind of thing is just an example, actually, recently with one of our contracts in WA, where we had scheduled rates. It's basically a subcontract management contract where we had scheduled rates for subbies. We were actually able to, rather than just accepting increased costs, we actually had the ability to actually not do the work.
Rather than just paying anything for subcontractors, we paused, and then we went back to our customer, and our customer then agreed to increase the rates they paid us, and then we recommenced the offering of the service. We've got some flexibility and we do tend to spend a lot of time obviously building those relationships with our customers and making sure they're aware of the issues that we're facing. I mean, these guys wanna get the work done, and they wanna get it done by the A team, not by third-rate contractors, if you like. We've been pretty successful at managing, I think so far.
All right. Thanks, thanks for the question, John. Next up, Andrew.
Thank you.
Andrew Hodge from Credit Suisse. I guess it sort of follows on from John's question, Grant, just in terms of the position. Like I guess most of the presentations really demonstrated a very strong position that they have within their respective businesses and how that translates to pricing and I guess margin. You mentioned the margin idea around contract execution, but do you think that leadership eventually leads to pricing at a bid level?
Well, certainly in some markets, there's no doubt that that's the case. You know, if we look at just in the construction side of things, you know, pricing on transmission is much easier than pricing a road. Right? You'll get better margins from that. It's all down to competition, right? As Mark was saying, you know, there's any number of people that have the capability and machinery and people, et cetera, to build a road. There's very few that have it for transmission lines. Right? It does come down to really the competitive position that you have. Pricing right now is a very, very key aspect of our business and, you know, trying to get those prices up.
I think that, you know, the current inflationary environment is certainly in the discussions that everyone is having with their customers. There's an acceptance, you know, that prices are rising, right? It's how well we are going to get the outcomes there that will be all important. Right? It's not just the stuff that's hardwired into our contracts that are long term, it's the new work that we're bringing on and where can we get those price increases. You know, it's a very key focus of ours.
Can I follow up with one question for Peter? Just expanding on the answer that Grant gave previously on John's question. Just with relationship to TDS, if you took, you know, like businesses, like geography, doing the same work, how much variation do you typically see between the, you know, the best set of contracts performance and the worst set of contracts performance? Not in percentage terms per se, or maybe just in relativities, not in sort of absolute terms, if that makes sense? I think, does that make sense?
Yeah. Do you mean, internally, within the business or with competitors?
No, internally within the business. When you go through the TDS process-
Yeah
-you get to the end and you're evaluating a contract. If you've got a number of different contracts that share enough similarity between-
Mm-hmm
-geography and the type of work to go, "Well, we made X percent on this-
Yep
- but this one, we only made 0.7x, you know, where's the variation come from? What is that variation typically between best and worst sets of contracts?
Yeah, it's a good question. I think the first comment is
When you apply the TDS and you have a central governance process, you do get the benefit of benchmarks, prior performance, and, you know, maybe leave WA out as a little bit of an outlier for the time being. I think East Coast pricing and performance, you can see a fairly close alignment. If you were to take, you know, a theoretical like for like, or even, you know, in some cases where we've got, say, a big facilities footprint, you'll see that as well. I think there's a pretty good alignment with that. I think coming back to the key point, the libraries and the benchmarking is probably one of the things that sets us apart. I hope that answers the question.
Thanks, Andrew. Nathan?
Thanks. Yeah, Nathan Reilly from UBS. Just in relation to the utilities business, you know, a lot of folks there on the transition and the amount of work that's gonna be potentially out there to be executed on. But I guess relative to also, you know, some of the more recent projects we've seen where there's been some more unfavorable sort of risks taken on by contractors, can I get a sense of I guess how you're seeing the commercial terms on this whole growth phase in terms of what projects and risk you'd be willing to accept? And also whether there's any shift in commercial terms or client relationships we just need to be aware of?
Yeah, Nathan, I'll probably, you know, I'd probably hand that over to Mark Mackay on the construction side because that's where the markets had the issues. So, Mark, do you wanna take that one?
Oh, look, there's definitely been a shift, and it's consistently moving in the right direction for us. I mean, what we're finding now is large TNSPs are starting to be very cognizant of the fact that resources are gonna be scarce, and they, you know, they're actively reaching out to Downer to, you know, talk about what's our forward commitments look like and pipeline. It's getting to a point in the market where, you know, that they want their projects built. They have to be built under this increasingly shortened timescale. Therefore, it puts us in a position where we can drive those commercial terms more actively than we could have in the past. You know, picking up on the question before about price rises.
You know, where we can, we'll go to clients supply items around high risk, volatile commodities. So if there's a substation component, we would ask that the client supplied if we don't think we can adequately deal with it, and more often they're taking that suggestion on board in their contracts. We're excluding risk areas that we just can't control. So if it's a particular geotech situation, it'll either be a shared risk or a risk that we'll put back to our customer. Again, you know, they need us to play, so it gives us a lot more latitude to change the dial there. In terms of transport, though, you know, this is an industry shift.
If you look across the Australian contracting fraternity, you know, you'd all be well aware that a lot of tier ones have taken some pretty big losses there. That's more of a consolidated movement, that's, you know, we're pushing back with our customers, and we're seeing change. You know, we're seeing alliance delivery frameworks right around the country, managing contractor various cost recoverable components. Only going back four or five years, you know, that wouldn't have been the case. Now, within our portfolios, you know, I've still got some contracts that were formed, you know, three and four years ago. They're, you know, if not wound out, getting very close to it. What's ahead of us is substantially better than what's behind us. Hope that answers the question, Nathan.
Yeah, no, it's helpful. I guess bringing it back to the growth opportunity and how this sort of fits into the M&A strategy, I guess I'm curious around whether the group needs some technology or other sort of, you know, services or capability enhancements to go and target some of those growth prospects.
The short answer is yes, and we've identified where that is, and we're actively looking. More bolt-on size, but no, we're very clear in what that needs to be.
Across the group at the moment, where are you seeing, I guess, the most prospects in terms of M&A? If we're looking, where should we be expecting to see some of those M&A opportunities coming to support earnings across your business?
Well, we continue to build out our geographical, and in some cases, product, suite within roads. Right? We're looking specifically within facilities. We've also got an active program in defense.
Okay. Thanks, Nat.
Sorry, Scott. Sorry, Leanne.
Thank you. Scott Ryall from Rimor Equity Research. Grant, if I interpret the theme of today's presentation, you know, going to a couple other questions around margin, you've got a lot of capability, particularly in where the world's going in transition and things like that, which should result in margin growth. I just want to check that I'm not putting words in your mouth on that. And assuming I'm not, can you just comment on when you think it makes a difference for the group, please?
Yeah, sure. Look, the general question there, demand for our services will be strong. We think.
The way that the world is going, and in particular around decarbonization, adds to that pressure. You know, a sort of throwaway line, revenue is not the issue. We still have to work hard for our revenue, of course, and we don't get it our own way. You know, there's no doubt about that. We are in a position, and I think it's being accentuated in sort of each period that we are getting stronger in comparison to our competitors, in my view, and that will allow better pricing power. We're getting better at what we do, right? If you like our cost to serve eventually after we've sort of got through the COVID and the supply chain issues, comparatively that should be better.
That will result in margin improvement. Now, you know, in some of the things, as you build these things, there are more costs as you're getting your IT systems right, as you're getting the TDS right, et cetera. We're in the middle of building some of these things out. They will undoubtedly provide the competitive edge that we need both in winning business and in driving margin.
In terms of talking to customers about some of these areas, if I go to last year's sustainability report, your waste diversion is at about 21%, which is well and truly lower than the national average. Scope 3 emissions are around about 95% of your total, and they actually went up last year even though your Scope 1 and 2 went down, mostly, as you've said, because of divestments. How much do your customers look at your own footprint and say, "If you can't solve your own problems, how are you gonna be able to solve ours?
Yes, just on the detail of what you're recounting there. I'll hand over to the experts in a moment. Every response to our customers now requires a very extensive discussion around all of the ESG parameters. It's our carbon, it's our attention to modern slavery, it's moving into cybersecurity, environmental requirements, et cetera. You know, I spoke a little earlier around some of the barriers to entry. You know, this is one of them. You've got to be across, and you've got to have systems to deal with those issues. Because increasingly, as we all look through our own supply chain, our customers are looking through their supply chain for those that are good in these areas. You're right.
Like our own carbon footprint and how we're going to be pushing those reduction in that area, you know, is a key element. Yes. So does it Ricky, Julie, would you like to comment on the specifics of the
I guess, do you believe you're good enough, though? I mean, your Scope 3 is pretty big, and it went up. I'm just wondering-
Right
-what, you know, if you can go and solve that for yourself, can't you then take that to a customer and say, "Look at it, what a great job we did?
Oh, totally. We're taking a lot of stuff to customers. If you just look at on the road space, right? How much we can save in the state government's emissions just through using recycled asphalt, right? We're the only ones that we can do it. I might hand over. Ricky, if you wanna...
Just on the Scope 3, last year was our first year of doing a comprehensive assessment on Scope 3, which was, you know, industry-leading in terms of the, you know, our competitors. We will look to, you know, we're doing a lot of work. We've signed up to the CDP Supply Chain program. Now, as you could appreciate, you know, the Scope 3 emissions, it's very hard to get actual data, right? To make those accounting. A lot of the Greenhouse Gas Protocol has been set up around estimations. We've used those proxies and we've used those estimations, and we've invested in the CDP Supply Chain program to get better actual data.
Now, a business like ours, it's quite common to have your Scope 3 emissions to be 9-10 times your Scope 1 and 2. That is normal. We're actively working, as you know, Dante was saying, and everyone here on this panel is actively working with their customers to look at how they can reduce those Scope 3 emissions. We'll start to track that. Now, you know, we've got last year as our benchmark, we'll start to track that moving forward. We'll also start to refine those proxies and get more actual data into that data set. You know, we're early adopters at that and presenting that information to the market. Yeah, look, we're fairly well advanced in that space, and we are doing a lot of work there.
You're still gonna give a target for Scope 3 for at the FY 2022 year end?
Look, it's we're going through the science. As part of the Science Based Targets initiative, it's a requirement to have a Scope 3 target for an organization with a makeup like Downer. We're working through that at the moment. Yeah, we'll. Yeah, you'll see.
Okay. Thank you. Next up, any questions? Unique opportunity for any head of business to ask a question.
All right. Winston Chong from Antares Equities. Thanks for the presentations today. I guess when we think about the broader decarbonization opportunity, you've spoken to a lot. You've spoken about your capabilities in, I guess, both the engineering side and then at the tail end, your desire to do that recurring, operations and maintenance work. When you think about the broad life cycle, of opportunities and where the market is at now, how critical is it to have, I guess, you've got the desire at the start, but then the construct element where if you kind of read the tea leaves that Dan has been putting out, you've been stepping away from that area, particularly in some of these larger projects.
I guess what I'm asking is there a need to rethink that or partner with other people to share that risk where those opportunities, like, to get the rest of the opportunity, if that makes sense?
Yeah, sure. Yes, we've made lots of comments over the last and in fact enacted strategy around extracting ourselves from certain parts of the construction market that we thought was high risk and low margin, very low margin. We've done that. Typically, that's been the mechanical, electrical hard dollar work, essentially for mining-based customers. Right? We've stepped out of that market. The work that we do in the transport sector within Mark's business is very heavily risk managed around project selection. It's benefiting as, you know, we just touched on before, a change in the market in the way that risk is allocated and our ability to participate in larger parts of that market because of the alliance style contracting that's coming in.
That's all a very good thing. A part of the market. We've never walked away from for transport-related construction, although it's heavily risk managed. We could be five times the size in this area if we wanted to be, right? But we choose not to because we reselect. We've never walked away also from transmission and power construction. Right? It's always been very much a hallmark of Downer. You know, right now, you know, our intention is to double down on that. Now, this is not a, you know, an area where typically we've lost money and it's a higher margin area. It's highly skilled. You need the right people, you need the right engineering, and we've got all of that, and we do a very good job on it.
If you think about the transmission lines that have got to be built here, the substations that have got to be built, the battery storage, et cetera, that's right in our sweet spot. No, we won't be walking away from that. Our skill base, our control systems, et cetera, are very much aligned to making that business very successful. It is very successful for us at the moment.
Can I just add to that, too, if I may? I mean, in my business it does a range of projects, and this picks up Scott's question a little bit, specifically on margin. I mean, we've got a you know a set of capabilities that delivers projects and you know we've brought power into that. We're about a AUD 1.5 billion business and you know what we wanna do is we're trying to shift that portfolio mix a bit more to power and a little bit less to transport. The reason we're doing that is because we can get better margins out of the work.
Typically, from what we've seen to date, and it's pretty early days, you know, we're 1.5%-2% better off at the EBIT line around power, and there's less risk around the execution. We've got this very buoyant power market. We've got this very buoyant transport market. You know, I'm not foolish enough to tell you that we're just gonna go and get heaps more revenue and we're gonna make more margin because it'd be lovely if companies can do that, but it's very hard to do. What we're gonna do is say, you know, we've got this really active revenue pot that we can choose from. We're gonna pick projects, probably more in power, that will allow us to execute. That caters to the question specifically on margin, but also about where we play.
I hope that sort of helps.
Yeah, thanks. If I can indulge with one more maybe. On the capability in this area, there's obviously a lot of activity, a lot of work in that area, and I'm sure even some of your clients are looking at some of your people going, "Hey, they're pretty good. They've been trained pretty well." How do you think about your ability to retain people and avoid those hidden costs? We know that, you know, there are things in place to manage the inflation in costs that are coming through, but things like turnover and yeah, how do you hold on to your people with this, you know, big wave of work coming through?
Sure. Before everyone here sort of jumps and says, "Yes, that's what's happening," it's always been the case. It's more acute now, but it's always been the case that our customers in particular, but also our competitors, look to us. You know, we are market leaders across many of the things that we do, most of the things that we do. You know, we've always been fending that off over the years. We are an employer of choice. Right? There's lots of good things about working for Downer. But there's pressure right now, undoubtedly. Right? It's as much from our customers as it is from competitors.
We've got, we've also got lots of young people coming through the ranks who are very well trained, and they're just itching to get an opportunity. You know, where there's an issue in some cases, we bring someone through and we say, "Well, gee, why didn't we do that a long time ago?" Right? It is front and center of everybody sitting up here. It's a very difficult time, but you've got to manage through it, right? That's just what you've got to do. You know, in some cases, you know, as best we can in limited cases, it means having to match or give more money.
For the most part, it's about driving the benefits of working for Downer, you know, your progression, your lifestyle, and just a good place to work.
Just as a broad comment, would it be fair to say, like, Downer hasn't been immune, you know, like, the experience has been the same?
We've certainly not been.
Yeah.
We've certainly not been. All of us up here are going through the situation of having our-
Okay
- our people pinched.
Yeah. Okay.
All right? We're trying to stop it and we're dealing to it.
Yeah. Thank you.
Thank you. Thank you very much. My name is Diane Belliveau. I'm from Export Development Canada, Chief Representative here. Thank you very much for the presentation. This is my first year attending, and I had heard very good things about it, so happy to be here with everyone. Downer's in the first year, finishing up the first year of a significant restructuring. I'm curious to hear about your challenges for the next year with this new restructuring and I'm sad to tell you that we're close to year-end already, two months left. The challenges for next year and also the balancing. I like the comment about more power, maybe a little less there.
What are you looking for to set the stage for next year for Downer, and what we should expect to maybe discuss in a year's time? Thanks.
Well, you know, perhaps I start off and others will follow here. You know, wouldn't it be great to see the end of COVID for a start, COVID impacts, and see perhaps supply chain issues reduce. You know, some of what I'd call the fog and the haze, particularly around restructures, right? We've restructured, we've sold businesses within the year. Working through our results is quite difficult. Working through you know, exactly where you would like to be as opposed to where you thought you would be and where you are is difficult. I'm very hopeful that 2023 will be a much clearer year and we think it will be. And if we can.
You know, it looks like in COVID that we're through the worst. Now we get back to really concentrating on making sure that the service to our customer is very good. You know, it's not dropped off, but let's see if we can get the cost to serve at the right levels and making money out of what we do. We do a very good job for our customers. We do think we should get more for it. Right? Both at the pricing level, but also at the cost level. You know, we've got a big program of trying to reduce costs at both the business unit level with everyone here working very hard on that and also at head office.
You know, one of the difficult things in a business these days, particularly a public business, you know, that competitive position that you have to have around systems and process and the rest all costs a lot. You know, insurance costs now, cyber costs, et cetera, are very high, which just means that you've gotta find, you know, more efficiency, you know, better performance in other parts of the business to compensate. You just can't drop your ball anywhere and, you know. 2023, let's hope, we'll see all that coming together. It's sort of in the last couple of years it's come together in the negative. Let's see if it can come together in the positive for 2023. That'd be great.
I think, there's a question. A lot of the questions I think follow a very similar theme. I was out on site and spoke to one of our young women graduates, and I said, "Why do you work for Downer?" And she said, "Because we get shit done." Not the answer I was expecting, but perfectly relevant. I think the first thing we have to do is value ourselves. Looking forward. To be honest, a lot of the challenges you saw in the data today is not going to be solved without engineers and scientists. We are well endowed with engineers and scientists that get shit done. So we should value ourselves. I think the second one is maturity of conversation.
So our clients, bearing in mind 80% are government, aren't really getting what they want in terms of intergenerational change. They're delivering business as usual. The minute you look at intergenerational change, they can't get it through the politics, or they can't do the technology piece of the solution. We can help with that. So maturity of conversation, that requires a contract form that isn't about screwing the price down. It requires a contract form that is about us doing a good job, us getting rewarded appropriately. I think the final piece for us is us threading the capability of Downer, because we have huge capability. It's only through the recent restructure that we get to see what we do and we get to align it, and that's starting to happen. You've seen it with working from a New Zealand perspective.
I worked with Steve, I've worked with Jacob, we're working with Pat, we're working with Mark, we work with Dante on materials. We're all talking more than we ever did. I think value ourselves, maturity of client conversation, and aligning and explaining our capability. They're the keys to solving Scott's point about how do we improve our emissions targets, but it also solves the how do we get our margins up so we're truly rewarded for what we bring to the table.
Back to Andrew.
I'm gonna steal it first. I was closer.
All right, Scott.
I think it's for Mark. Could you just talk us through your what you think are the sustainable competitive advantages for you guys doing transmission/power, the other power investments that are required to decarbonize, please? I stress the word sustainable as in long-term, not you know due to staff turnover or anything like that.
Yeah. Look, I mean, I think it stems from the depth that we've already got and the position we have. I mean, we've got an engineering team internal of around 130 engineers. We've got, you know, long-term transmission tower designers that have been with the business 35 years. They sit on worldwide industry bodies. You know, we're availing ourselves of technology around tower design. Last week, I went out and saw a presentation of a partner we're working with on drone stringing, which has a cost imperative. It takes away the safety concern of helicopters, and companies like TransGrid have banned helicopters due to crashes and stringing. Those sorts of things. Because we've got scale and momentum, we're continuing to invest in that space.
As far as the battery technology goes, you know, we have and we're looking at further enhancing, you know, our understanding of battery chemistry and battery management systems, energy management systems. That's a risk mitigation as much as anything else. Because no matter where you play, if you wanna be an EPC or an installer, you need to understand that technology. You need to understand the risk that you're taking on as an organization. It's building, you know, a lot more capability and depth in that space. I think when you're already at the front of the pack, if you're not cognizant of others sort of wanting to come in there and how do you protect your position, you're gonna be in a bit of trouble.
To that end, in terms of labor and bringing in the right people, for example, on the Eyre Peninsula job at the moment, we bid that job with extra dollars in the bid to allow for double ups of key staff to train, to make sure that we're bringing in more high voltage linesmen, as an example. We're continuing to do that. That's about retraining, upskilling from adjacent industry, upskilling from industries that were in decline. Unfortunately for us, in power, you know, the airline industry was at a bit of a downturn at that time, so we've taken on logistics people. I've got one of my senior executives, general manager for New South Wales, who's gonna be working out of the U.K. from July 1 for six months.
That's purely to put a key resource there to be able to take advantage of the, you know, opened immigration channels. We wanna bring in more people from, you know, from countries like Canada. Diane, I don't know if it's good or bad for you, but we're gonna target that area. You know, that's what we're gonna do to make sure we stay ahead of the pack because it's not a very easy industry to come into and gain that foothold, but also understand the technology.
Okay. Just while we're on turnover, so you've started to disclose staff turnover, 28% in fiscal 2020 down to 24% in fiscal 2021. Where's good, Grant? And would you expect in this year it would be higher than the 24 because of all the pressures that you've been talking about?
Simple answer, yes. Look, good, it varies on the type of business, but if you're sitting somewhere between 10%-15%, that's pretty good.
Okay. Thank you.
I will jump back to Andrew, and there's probably time for one more question after Andrew. Jump back to John.
Thank you. Maybe just for each of the business heads very quickly, if we use 5% as sort of maybe the 5%-7% CAGR for the group as the revenue that's available, what the limiting factor for each of your divisions is to do revenue growth above that? Is it a shortage of people? Is it a shortage of work? Is it can't get the risk budget from the TCC? Maybe just 10 or 15 seconds on what your limits are over and above the sort of the group level of revenue expectation in the next couple of years is for your respective division.
Yeah, this will be good.
Well, I guess I lost my mic. I guess for us, a lot of our new work is characterized by big bids, and they have very binary outcomes. You can often do a very good job and put a very good offer in front of the customer, but not necessarily get the outcome you're looking for. For us, there's a little bit of happenstance in terms of getting the right sort of outcomes in terms of those opportunities. In terms of the accretive stuff, so the augmentation stuff, the work that sits in hand, we don't really see barriers around that side of things.
Sorry, I thought you were not growing in the cover. Yeah. On the biz, a mixed bag, with the various businesses. When you look across the Health and Education business, for example, you know, it's those PPPs are similar to Steve's business where they're chunky. They have like a three-year cycle time to get going, and they don't come up every day of the week. For us in Health and Education, it's looking at not only the future PPPs that are coming through, but also adjacent sectors. We're just sort of playing around with our strategy a little bit in that space at the moment, having a look at what else we could do to grow outside of PPPs.
You go across to government, and I don't really think there's any real barriers to growth in that space. I think we'll see continued outsourcing. It's a big market. We've already got a big part of the pie, but the pie is bloody big. I do think that we'll see increased outsourcing in that market in the future. If you go across to power and energy, there's gonna be some pluses and minuses in that space. That transitional piece, as I said before, it creates an opportunity for us. We are gonna see some parts of our business reduce revenue over time as the big power stations perhaps start to close down.
We're working pretty hard to replace that revenue by going to the renewable space or the alternative energy space. I think we'll see some ups and downs in that business over time. There's a lot of work being done in LNG and CSG at the moment, and we are really well positioned in that market. We've got a big slice in coal and gas in particular, and in terms of market share, and that's growing. We've got a small market share on LNG, but we've got a very strong capability in that space. I think we can grow our market share in P&E. If I go to industrial and marine, that's where we're most resource constrained, right? And hopefully that'll change once the borders start to open again.
That's probably a bit of a problem for us in the medium term. Hopefully when international borders, state borders open up, FIFO resumes, we might see a change. It just varies across the businesses, but I'm very bullish on being able to grow beyond that 5%-6%.
Like Pat, our business is very sub business specific. If you look at the professional services business, the major constraint there is operating in a Canberra bubble. How can you find very highly skilled people in that market? We're doing a lot of work, both politically and at the top end of CASG and CIOG to convince them you're probably overpaying for what you get. If you can actually do this stuff out of Brisbane, Melbourne or Sydney, we can get more resources onto the assignments, and we can get them at a better rate. We are starting to see a slow relaxing there. But in terms of winning our fair share on the panels, I think there's headroom there for us. We're not kinda growth constrained there.
If you look at the FM space, that stuff is very lumpy. We're a big fish in a small pond in terms of the estates. You've got a binary point around those contract renewals where you take a large leap in those. We'll target opportunities as they come up. In general, you know, we think we'll win our fair share. Then if you look at the project side, the virtue of our positions gives us a lot of pull through sole source, non-competitively bid by virtue of the relationship. The nature of that work, because we're acting as an agent for the Commonwealth, we're not actually doing the construction, means we're less exposed to having to come up with the blue-collar resources. That's not kind of a cap on us.
We're more doing programmatic management and project management. At the sort of larger end of the major redevelopments, it's a massive leverage model there, where you might have a team of 15 or 20 people, but they might be managing AUD 1 billion worth of work. You get a lot of bang for your buck there. We don't see a kinda constraint on that.
Yeah. From a utilities perspective, not too dissimilar to a lot of the points. Utilities doesn't tend to grow overnight rapidly. As I said, there's a lot of work that's undertaken with clients, those relationships, the journey, the existing contracts that we have are generally long term. We go through a process around that. For the L&M sorta sector and space, the resource is basically what's available in the country. Unless we can bring in resources from overseas to fast track, look, we're undertaking traineeships, apprenticeships. There's many things that we can possibly do. Making sure that we have that availability, as these existing clients actually generate a lot more CapEx activity in their space, and they're chasing non-regulated activity, we pursue those elements. We're actively participating right across the space.
In the project sectors, as you can see, there's shifts going on. There's a lot of potential going in. We don't wanna go in with teams that aren't capable of delivering. We're being selective around to the TDS point, where we're looking at our risk profile, understanding our capability, not biting off more than we can chew. We wanna deliver great outcomes for our clients, right? We don't wanna put anything at risk just by jumping at too many opportunities too quickly. We are being selective. The risk profile is important. The relationship is important. Do we understand the clients and investing that time and effort to work collectively for win-win outcomes? It's a myriad of things that we're looking at. We will grab opportunities where there is great potential and we have existing capability.
The other element is leveraging the capability right across the organization to support us for some of those opportunities where we can. External partnerships are really important to us. We don't just self-deliver everything. We have a number of valued external suppliers and partners that we work with closely. It's getting that balance right as well without undermining our safety and quality and expectations right through that chain.
Look, for us, you know, we're a low capital business, so that's a start. You've heard from me on the you know this gold major transport huge power market. People considerations we've talked about. That is an issue. We have strategies in place for it. You know, for us, so it's about what we do is relatively you know complex. So we've gotta make sure that our revenue sort of aspirations don't outweigh our sort of engineering capability and talent. You know, we manage that. It's certainly buoyant. We'll be getting uplift in revenue. For us, it is very much a focus on the bottom line. It's about delivery and getting more out of what we do.
That's really the big push for my business in the next sort of, you know, one to three years.
Thanks, Mark. I guess for me, obviously, we've emerged as a high capital business within Downer, given where we've invested.
It's not just what we do today, but what we're gonna be doing in the future. There's no question that costs are rising. Revenue will rise probably quicker than margins because of the fact that all of our inputs to the work that we produce, whether it's raw materials, labor, logistics, are all going up. For me, it's we have finite resources in what we can call upon to go and deliver that work. Weather's a big impact. Our ability to do that, we will always improve incrementally on what we do from a productivity base perspective. We've got more production capability, so we can call on more subcontractors. I think we also need to recognize we're a fair old chunk of the market.
We don't want to go and create huge issues from a delivery standpoint and let our customers down. We need to slowly inch up on the advantages through our investment and ensure that they understand that they can get lower cost inputs into their network needs by working more closely with companies like Downer.
Yeah. Finally, for me, the limit would be people and teams. Two different topics. I think the people one's opening up slightly. Since our border's open, probably only three weeks ago now, we've recruited circa 68 people from overseas, all in the process, a mix of trade and engineering skills. That's good. People still want to come to New Zealand, and they have appropriate skills. The second thing is integrating them in at the right pace into the right environment so they work effectively as teams. People opening up, teams still to work on, and that's by far our most limiting factor.
Andrew, it's worth, you know, if we just take all that together, I think you look at the answers there that the reality of the situation is that demand is not the problem. Right? There's plenty of it. We look to regulate ourselves to make sure that we get the right service quality to the customer, and that we do it so that we get the right answer at the bottom line, right? We'll continue to do that. We've always done it. As I said, some of these businesses could be a lot larger. The growth in the level of spend of the customers, you know, will exceed our growth, right? That's because we'll be very selective as to what we're choosing.
As I said a little earlier, you know, it's in these times often that companies go broke, right? We will see a number go broke, right, over those periods. You know, Downer will comparatively do very well.
All right. Thanks everyone.
I think John's got one as well.
L ast question coming from John. Thank you.
Just a question for Michael Ferguson in terms of the financials and gearing balance sheet. Obviously, you're under-geared at 1.5x versus your target of 2x to 2.5x. You've identified obviously the use of cash flow and balance sheet in terms of a mix of acquisitions and growth capital, buybacks, dividends, et cetera. Really two questions. Is there any point of emphasis within those, Michael? And just in terms of your growth capital projects, we've obviously seen a bit of an emphasis in Dante's area in terms of asphalt plants and projects. Should we expect that to continue, or you see a good sprinkling across the businesses?
Roads is a very good returning business for us, John, so we'll continue to focus on that. It's also been very successful for us for the bolt-ons, particularly as we look across the sort of sustainability credentials. We're looking across a broader net than just roads, across, as Grant said, facilities, defense. Then as far as sort of use of the dollar, you know, yeah, we think there's plenty of M&A opportunities that can outperform the accretion of the buyback. Yeah, we're committed. We've extended the buyback. As I said, we'll always like to use it as a capital management tool. The size of the business, you know, we'd like to invest.
All right. Thank you very much for all the questions and to the presenters for answering them. I'll now hand to Grant for some closing comments before we grab some lunch. Thanks, Grant.
Thanks, Adam. Just very quick on the close here. You know, we're really looking through the noise of 2022 into 2023 now. You know, we've been working very hard over the last number of months on what 2023 to 2025 looks like. We think it looks good. You know, you've heard a lot of that today. You know, the businesses are in good shape. But just to leave you with a few things that have already come up. We've got a weighted average sector spend growth of 7%-8% CAGR. Right? That's what we expect our customers to spend, an increase in spend, right? And that's weighted to where we make our money. We are in the right sectors and at the right time. Right?
If you look at what we do, where the money is being spent, we're in the right spot. Because of all of the amount of money that's being spent, the decarbonization effort that's gotta go on, you know, we're here at the right time, right? This will be, I think, a buoyant area, transport, utilities, facilities, certainly over minimum the next decade. We're heavily leveraged, as I say, to new energy economy, right? The whole economy will change, right? We'll go back to say the amount of change that's gotta happen, over the course of the next two decades is monumental. Right? Ricky was pointing that out, a little earlier to us, right? There is so much change, and we're seeing an acceleration of all of our customers in how they think about this, right?
You know, if you're listening to the television around Glasgow and the COP meetings, you know, it was always all seen as, you know, didn't really come up with much. They didn't really commit to much. Well, from an Australian perspective, just the government saying that they're now going to commit to it, irrespective of whether it's legislated or not, is having a massive change to everyone in the economy that we can see. Right? That's at both government level and in private sector. Right? Everyone's head has turned, right, very much to, "We've now gotta get on with this." Right? It's a massive change. You will see it within your own businesses. It's gonna be a very different place in five years. Right?
This will be massively mainstream. Now, we're already making money in this market, but every one of our customers, and we've got a lot of them, right around that wheel, we're now talking to around these issues, right? We're trying to help them with their targets. From the work that we've done so far, we do expect, you know, a very good bounce back in 2023. Obviously, we think COVID will be behind us. We won't have the wet weather that we've seen over the last couple of years as well. I think Downer's in for a, you know, a good period ahead. Thanks very much for coming. Thanks, thank you for everyone that's on the web. We'll see you again soon.
Thank you.