Big write-downs but strong underlying results: Downer

THE Australian market has taken a relaxed attitude to a well-flagged $190 million write-down by engineering and infrastructure group Downer EDI that led to a 98% profit drop for the year.
Big write-downs but strong underlying results: Downer Big write-downs but strong underlying results: Downer Big write-downs but strong underlying results: Downer Big write-downs but strong underlying results: Downer Big write-downs but strong underlying results: Downer

 

Nick Evans

Downer shares dropped slightly when the market opened this morning, to as low as $4.53 from an overnight close of $4.73.

The stock recovered quickly, however, and was trading only 2.5% down shortly before midday.

The $190 million write-down reflects issues the company is having with the provision of railcars to the New South Wales government under its Waratah contract.

Downer included a total of $260 million of write-downs in its figures for the year, including $42 million worth of goodwill write-downs in its UK and New Zealand businesses, and $28 million worth of provisions for legacy contract and investment decisions.

Leaving those issues aside, however, Downer said the remainder of its business fundamentals remained strong, with the company reporting underlying earnings before interest and tax of $317.8 million, a 4.3% improvement on the previous year, and underlying net profit after tax of $197.3 million, up 4.2%.

Underlying earnings at Downer’s contract mining division improved substantially, with EBIT up 46.5% to $68.2 million despite revenue in the division dropping 5.3% to $973.5 million over the year.

Both revenue and underlying earnings dropped in Downer’s engineering division, with EBIT down 3.5% to $112.5 million and revenue down 5.3% to $1.9 billion.

New Downer chief executive Grant Fenn said in a statement this morning the company had delivered a solid underlying result in difficult trading conditions.

He said the company continued to win new work and secure contract renewals, with work in hand at record levels of around $20 billion.

The company has cash in hand of around $385 million and undrawn committed facilities of $433 million.

Despite ongoing rumours the company may be forced to raise capital to cover its position for upcoming contract spending, Fenn denied Downer intended to return to the equity markets in the near future, pointing to the strong balance sheet, high available liquidity and the 29.9% gearing levels at the company.

Downer has declared an unfranked dividend of 16c per share, bringing the total dividend payout for the year to 29.1c.

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