Downer EDI Anticipates Hard Times on Mining Downturn

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Wednesday, August 7th, 2013
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Engineering giant Downer EDI foresee rough waters ahead due to a sharp decline in key resource projects as well as potential budget cuts.

While Downer EDI’s full year accounts indicate that it was one of few firms in the sector to meet guidance, in the 2013 fiscal year, with a 10.3 per cent increase in underlying net profit after tax to $215.4 million and an increase in EBIT of 6.9 per cent to $370.3 million, the company anticipates a much tougher market environment in the immediate future as a result of the mining boom’s conclusion.

CEO Grant Fenn told analysts that the company expects to log flat net profit in the 2014 fiscal year of around $215 million, causing shares to edge lower by 0.51 per cent  on the day of the release of its 2013 fiscal results, despite salutary data on Downer’s performance in the year just ended.

Dwindling capital expenditures in the mining and potential cuts to government spending on road and rail maintenance threaten to erode the company’s revenues in future.

“As a result, there is a higher level of uncertainty in revenue for the 2014 financial year than in the prior year,” said the company in its full year results.

“The company’s short-term focus is on securing our revenue base for the 2014 financial year and continuing to drive down costs through improved project execution and our Fit 4 Business program.”

Downer hopes its robust performance in the 2013 fiscal year will be put it in good stead to weather the adverse conditions ahead.

In the 2013 fiscal year all of Downer’s operations saw revenue growth, with Downer Infrastructure up 13.1 per cent to hit $5.2 billion, Downer Mining up 3.7 per cent to hit $2.6 billion and Downer Rail up 4 per cent to hit $1.3 billion.

Downer CEO Grant Fenn said the company’s performance was outstanding given worsening economic conditions.

“This result is a great outcome in the current environment,” Mr. Fenn said. “We are one of the few companies in the sector to deliver on guidance.”

“Our operating cash performance was particularly strong with due credit to the rigorous focus on the cash and working capital management in the business. Our balance sheet strength has been rebuilt with gearing levels now below our historic target and net debt around a third lower than this time last year.”

Downer should also receive a boost from winning contracts with NBN Co for the roll out of the national broadband network (NBN) to properties in Brisbane and Melbourne, which will entail the delivery of fibre optic broadband to 300,000 premises.

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