Downer EDI issues profit warning as costs rise

Downer EDI has cut its annual earnings guidance after costs rose on some loss-making contracts.

A Downer EDI mining operation.

Engineering contractor Downer EDI has cut its annual earnings guidance after costs rose on some loss-making contracts in its engineering, construction and maintenance division.

Shares closed 18 per cent lower at $7.17 on Thursday after the news.

Downer EDI said it now expects a net profit before amortisation of $300m for the year through June. That represents an 18 per cent downgrade on an earlier forecast for net earnings of $365m.

Downer said it had become clear that costs incurred on several construction contracts in its EC&M division during December and January had materially exceeded management’s estimates. Also, a detailed review of customer claims and variations has reduced revenue recognised to date.

“As a result, we have increased the forecast net costs to complete these projects by $43m and these costs will be reflected in Downer’s results for the first half of the 2020 financial year,” said chief executive Grant Fenn.

Downer said it also expected lower revenue in EC&M construction for the remainder of the fiscal year because resources companies are likely to delay decisions on awarding contracts for new projects, reflecting the difficulties that renewable-energy operations have connecting with Australia’s power grid.

“As a result, forecast construction revenue has reduced by approximately $300m and forecast earnings by approximately $20m,” Downer said.

Also, Downer said it will absorb some restructuring costs in EC&M while the timing of two mining projects has been pushed back.

Still, the company said work-in-hand has risen to $46bn from $44.3bn at the end of June.

Dow Jones Newswires