A reborn company in Downer EDI (DOW) yesterday with a strong rise in profit, but it faces more woes in the year ahead in its mining services business, and not the usual headaches usually found in its rail contract to supply Waratah passenger train sets to the Sydney suburban system.
In fact Downer EDI got the 2012-13 reporting season proper off to a strong start yesterday, posting a full year net profit of $203.98 million, up from a low $107.51 million for the 2011-12 year.
That was a touch short of the $210 million estimate at the time of the release of the interim result in February of this year.
But the market was mostly happy with that and the realistic, but tough outlook for the current year. The shares eased 2c to $3.89.
DOW 1Y – Downer EDI back on track after two rough years?
The strong rebound in earnings came on a modest rise in revenue to $8.4 billion, up from $7.9 billion.
The final dividend was raised to 11c (nil the previous year). With the 10c a share interim, the company is paying shareholders 21c a share, which will no doubt be a pleasing development after the rough times in 2010-12.
At year end, Downer said it had $19 billion of work in hand across its various businesses.
Directors said the results were a good outcome, despite difficult market conditions which have seen the company warn of up to $600 million in revenue losses in its mining services business over the next year.
The company told analysts the profit impact of the revenue loss in this division would be largely offset by cost cuts, contract variations and extensions (which effectively spread the same amount of money over a longer period of time).
Half of the revenue loss in the division came from the loss of two contracts with Peabody Energy, but Downer said there was "no profit impact".
Downer also announced yesterday that it won an NBN contract to roll out the broadband network in Brisbane and Melbourne with around 300,000 premises being serviced.
Under the NBN contracts, which could see up to 500 people employed, Downer will design and construct the local distribution network that runs fibre from a communications exchange through each street in a coverage area.
Downer already has contracts to roll out the network in northern NSW and to connect multi-dwelling units, such as blocks of flats to the NBN in Victoria and NSW.
In the statement yesterday Downer said that what it called underlying earnings before interest and tax (EBIT) increased by 6.9% to $370.3 million, higher that the statutory EBIT of $358.9 million.
Statutory net profit after tax (NPAT) was $204 million after the previously announced $11.5 million individually significant item "referable to the Singapore Tunnel dispute".
Total revenue rose by 7.1% to $9.1 billion, including $800 million of contributions from joint ventures.
"All businesses recorded revenue growth with Downer Infrastructure up 13.1% to $5.2 billion, Downer Mining up 3.7% to $2.6 billion and Downer Rail up 4.0% to $1.3 billion," directors said.
Operating cash flow was again very strong at $452.4 million, up 24.1% on last year. At 30 June 2013, Downer’s gearing was 12%, with liquidity of $1.1 billion.
The Chief Executive Officer of Downer Grant Fenn said in the statement that, "the results were very pleasing and a further demonstration of the robustness of the Downer business". He said the company had again delivered on its promises despite a difficult market.
"This result is a great outcome in the current environment. We are one of the few companies in the sector to deliver on guidance,” Mr Fenn said. “Our operating cash performance was particularly strong with due credit to the rigorous focus on cash and working capital management in the business.
"Our balance sheet strength has been rebuilt with gearing levels now below our historic target range and net debt around a third lower than this time last year," Mr Fenn said.
On the old trouble spot, the Waratah train contract, Mr Fenn was upbeat, saying, "There are now 47 trains available for passenger service and the 78th train remains due for delivery in the middle of the 2014 calendar year. The Waratah trains continue to perform well and the Through Life Support maintenance contract is ramping up successfully and as expected."
"It is expected that the 2014 financial year will be characterised by a reduction in new major capital works in the resources sector, a greater emphasis by mining customers on optimising their volumes and cost of production and budgetary pressure on the level of Government expenditure on road and rail maintenance.
"As a result, there is a higher level of uncertainty in revenue for the 2014 financial year than in the prior year. 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.For the 2014 financial year, Downer is targeting a flat NPAT of around $215 million," Downer said.
