The pandemic and lockdowns continue to buffet companies such as Downer, EDI, CIMIC and Mirvac, as their December half or full year reports showed on Thursday.
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Mirvac (ASX: MGR) can thank its real estate diversity for helping it make its way through what turned out to be six months of lockdowns and other restrictions as two waves of Covid hit the economy.
The company’s retail portfolio took a hit from the lockdowns and other measures but that was offset by the stronger residential and industrial and logistics sectors which responded to the pandemic in more positive ways.
That saw Mirvac report a 44% rise in statutory profit to $565 million (including one offs) and a more sedate 9% rise in operating profit to $297 million (which was equal to earnings of 7.5 cents for each stapled security.
That in turn saw an interim distribution of 5.1 cents a security for the half, up from 4.8 cents for the December, 2020 half.
Mirvac’s CEO, Susan Lloyd-Hurwitz, said in the ASX release that the result reflects the group the focus on navigating the ongoing disruption caused by the global pandemic, “while highlighting the strength of our diversified and integrated business model”.
“As we expected, the extended lockdowns in the first half of the financial year impacted the performance of our Integrated Investment Portfolio, concentrated in retail,” she said.
“However, this was offset by a strong performance in our development businesses. In Residential, for example, we continued to see strong sales momentum despite the roll-off of government stimulus, with 95 per cent of forecast EBIT for the full year already secured,” she said.
“While we had expected to see conditions normalise in the first half of 2022, the spread of Omicron has presented a number of challenges,” Ms Lloyd-Hurwitz said.
“This includes the impact of supply chain constraints and labour shortages on business activity, and the extension of the Commercial Code of Conduct for our retail tenants is also likely to put pressure on cash collection rates in the short term.”
Reflecting the continuing housing boom, Mirvac settled 1,303 residential lots in the half year, up 21% on the previous corresponding half, putting it on track to settle more than 2.500 lots by the end of the June financial year.
It exchanged on more than 1,800 residential lots, up 33% on December, 2020 half, with four major apartment projects released and a further three apartment projects expected to be released in the months to the end of June.
Mirvac securities fell 2.3% to $2.55.
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Shares in Spanish-controlled construction and infrastructure contractor CIMIC Group (ASX: CIM) fell more than 7% on Thursday after the company turned in a less than inspiring annual result for 2021.
CIMIC shares closed Thursday at $15.89 after it reported a 15.1% rise in statutory net profit after tax to $402 million, down 35% from 2020’s $620.1 million and a reason why investors were not impressed.
The lower result was struck though on a 7.6% rise in revenue for the year to $9.7 billion, indicating some loss of margins in what is a very competitive business and one that has been hit hard by Covid lockdowns for most of the 12 months to varying degrees in different states.
Total dividend for the year was set at 78 cents against a Covid-reduced single payment of 60 cents a share for 2020.
But what seems to have been a big concern was the weak outlook for 2022 with CIMIC expecting profits to be between $425 million and $460 million “subject to market conditions” (which is to be expected).
In effect that is not as good as 2020’s result and in reality represents a subdued outlook for a company operating in a still solidly performing sector of the economy (for all the problems caused by Covid).
And the company’s commentary on the outlook wasn’t buoyant when it said in the ASX release, “FY22 focus continues to be managing working capital, generating sustainable cash-backed profits and a rigorous approach to tendering, project delivery and risk management.”
CIMIC CEO Juan Santamaria though was upbeat about the year just past and the new contracts the company won. “We diversified our funding sources, completed our strategic unwind of factoring, and repaid and discontinued the supply chain finance program,” he said in the ASX statement.
The company said it was awarded $20.4 billion in new work last year, which it said was “well ahead” of pre-COVID levels, taking total work in hand to $33.2 billion.
Some major projects CIMIC won during 2021 include the Sydney Metro, NSW’s M6 Motorway, Western Sydney International Airport’s pavement works, NBN’s fibre roll-out in NSW, Victoria and Queensland, and more.
But clearly margins remain under some pressure.
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And a similar story for engineering and services group Downer EDI (ASX: DOW), which reported a rise in earnings but saw a fall in the share price on the day.
Downer saw its shares ease 2.5% to $5.45 despite the 20% rise in interim profit to $88.6 million and a lift in half year payout to shareholders to 12 cents a share from 9 cents.
That was after revenue fell 4.3% in the December half year to $5.57 billion thanks to previous asset divestments and some retained operations were affected by COVID lockdowns.
The company’s shares dropped as much as 8.5% to a low of $5.11 after it signalled that the outlook given at the group’s full year result last August may be in doubt due to COVID issues.
“In August 2021 we predicted that our core Urban Services revenue and earnings would grow in FY22. In the first half our core revenue was up 13.3 per cent and earnings were up 4.4 per cent,” the company said in its half year report.
“The impact of Omicron on the supply chain, work volumes and revenue mix is difficult to predict and presents risk for the second half,” it said in a very direct warning.
“We will do our best to manage that risk with our customers and we will provide an update at our Investor Day in April.”
The shares later rebounded, recovering much of the early loss and the $5.45 close was just under the day’s high of $5.52.
Downer said its transport services business was largely unaffected by COVID for the December half year, but “the Hospitality business within the Facilities service line continues to be significantly affected by COVID-19 regulations, some Asset Services customers continue to defer non-essential work and the Utilities service line in New Zealand has been impacted from level-4 lockdowns.”
Downer has solid its mining and the Spotless laundries businesses in the last year or so to refocus on urban services, especially infrastructure maintenance/upkeep.
