Not copacetic, dude!
Downer EDI shares slumped almost 24% on Monday after it released the expected weak December half year result, cut its dividend and warned of a very poor outlook – with much of this pain due to an “accounting irregularity” that has hopefully been made a one-off.
But judging by the huge fall in the share price, the market remains to be convinced that Downer has put its problems behind it.
The shares closed at $3.02, down 23.7% after touching $2.97 – the lowest the shares have been since the great pandemic selloff in late March, 2020.
The weak report had been expected after Downer cut its full-year profits guidance on December 8 after finding problems in a major contract.
Yesterday it revealed an additional loss from the contract (smaller than the first, though), downgraded profit, announced a corporate restructure and revealed details of an investigation into accounting errors.
The company, which delivered a 21% drop in interim net profits to $68.1 million, down more than 20% from the $85 million reported for the December, 2021 half year.
Revenue rose nearly 3% to $6.1 billion for the latest half year.
An interim dividend will still be paid, but it has been cut by more than 50% to 6 cents per share from 12 cents a year ago.
The company said it has completed a confidential investigation into the previously announced accounting irregularity in a utilities maintenance contract.
Downer said on Monday the contract was for the supply and maintenance, new connections, faults and capital works services. The company has revamped this area.
Monday’s plunge came after the first one in early December, when Downer first shocked investors with news it had overstated its profits by $40 million as a result of accounting irregularities on a major Australian utilities contract
That wiped half a billion dollars off the market value of the company. Yesterday’s fall was smaller in value but just as dramatic.
It came after investors saw that Downer had restated its full-year guidance to between $170 million and $190 million. It previously had dropped its forecasted profit after tax and before amortisation of acquired intangible assets (NPATA) to between $210 million and $230 million
Monday saw a small loss on news that the review of the “accounting irregularities” had revealed it would book further losses of $12 million in the second half of the financial year while the utilities contract was being reset. The management team responsible have been replaced, Downer said.
Downer said that it had checked the accounting of all other contracts in Australia and NZ, “with a material work in progress balance” and was “confident that the misreporting was specific to the contract and not replicated elsewhere.”
Beside that unwanted factor, Downer also blamed the impact of storms and flooding on its water projects in Australia, a slowdown in small government capital works projects, and the recent floods in New Zealand impacting on its operations.
