Downer EDI announces $166.4 million profit
Downer EDI Limited (Downer) has announced underlying earnings before interest and tax (EBIT) of $292.2 million for the year ended 30 June 2011, 8.1% lower than the previous year. Underlying net profit after tax (NPAT) was 15.7% lower at $166.4 million.
Total revenue was $7.0 billion, up 15.2%, with revenue growth driven by the Mining, Rail and Engineering businesses.
On 27 January 2011, Downer announced an additional pre-tax provision of $250.0 million in respect of the Waratah train project. As a result of this provision and impairments of $7.8 million relating to CPG New Zealand and $8.8 million relating to the UK Works business, Downer reported a net EBIT of $25.7 million and a net loss after tax of $27.7 million.
Underlying operating cash flow was $324.9 million, which is 111% of underlying EBIT. After $139.3 million of cash outflows relating to the Waratah train project, operating cash flow was $185.6 million.
The Chief Executive Officer of Downer, Grant Fenn, said the additional provision in respect of the Waratah train project was extremely disappointing, however Downer had made substantial progress over the past year in turning the business around and addressing various challenges within the business.
“The 2011 financial year has been one of rebuilding and transformation for Downer,” Mr Fenn said.
“We made very good progress on the Waratah train project and other underperforming contracts, overhauled our tender and project risk management processes and strengthened our management capability. We also changed our organisation structure and increased our focus on customer engagement and business development.
“Our underlying business achieved EBIT of $292.2 million despite severe wet weather, particularly in Eastern Australia, intense competition for the Engineering and Works divisions and the cost of maintaining capacity in relation to a number of delayed projects.
“In addition, there was lower government expenditure on road and rail infrastructure maintenance in both Australia and New Zealand and ongoing tough economic conditions in New Zealand, compounded by the major earthquakes that struck the Canterbury region in September 2010 and February 2011.
“Despite these difficult conditions, all our businesses continued to win new contracts and secure contract renewals. We won about $7 billion of new work during the year and the Group has work-in-hand of about $20 billion. This strong performance highlights the fact that Downer continues to deliver for its customers.”
Mr Fenn said the establishment of Downer Australia in February 2011 was an important change for the company.
“We combined the Australian Works, Engineering, Emerging Sectors and CPG Resources businesses into one division, Downer Australia, in order to organise our business around key customers and markets,” Mr Fenn said. “More broadly, we have increased our focus on customer engagement and business development right across Downer.”
Downer achieved over $55 million in cost savings during the year by driving a range of Fit 4 Business initiatives. Fit 4 Business is a five year program, launched in August 2010, which is targeting $250 million in savings across the Group.
“Importantly, Downer maintained its industry leading safety performance, with continuing improvement in both Lost Time Injury Frequency Rate and Total Recordable Injury Frequency Rate,” Mr Fenn said.
“The health and safety of our people is paramount at Downer and incidents and injuries continue to decline as a percentage of hours worked. Zero Harm, which includes minimising the impact Downer’s business has on the environment, is embedded in our culture and fundamental to our future success.”
Downer successfully completed the refinancing of an Australian dollar syndicated loan facility in November 2011, replacing a three year $390 million facility with a $420 million facility split 70:30 into three and four year tranches. In March 2011, Downer successfully completed an equity raising of $279.3 million which was undertaken to strengthen Downer’s balance sheet, support Downer maintaining investment grade credit rating metrics and provide financial flexibility to pursue attractive growth opportunities.
At 30 June 2011, Downer had gearing of 25.5% and liquidity of $915.7 million, comprising cash of $288.6 million and undrawn committed facilities of $627.1 million.
The Downer Board has decided not to declare a final dividend for the year. Downer will continue to pay dividends on its Redeemable Optionally Adjustable Distributing Securities (ROADS).
Waratah Train Project
The first Waratah train received a certificate of Practical Completion from RailCorp on 30 June 2011, entered passenger service on 1 July 2011 and is performing well. The second Waratah train was presented to RailCorp for Practical Completion on 28 July 2011. Train sets three to six are scheduled for delivery to RailCorp by the end of the 2011 calendar year.
Further information on the Waratah train project is provided in the Full Year Report and the Annual Report (Appendix 4E), both lodged with the Australian Securities Exchange.
Downer has work-in-hand of around $20 billion, is strongly aligned to the resources and energy sectors and is well placed to capitalise on the pipeline of opportunities driven by those markets. Tendering activity has been very high over the past six months particularly in Downer Australia and Downer Rail.
There is short term risk relating to the timing of projects. It is also unclear at this point whether the broader financial market volatility will have a negative impact on the project pipeline.
Subject to the risks highlighted and general market conditions, Downer expects to deliver EBIT of around $340 million for the 2012 financial year and NPAT of around $180 million.