Downer EDI withholds earnings guidance after annual loss

Downer EDI has urged the federal government to accelerate its infrastructure pipeline, after slumping to an annual loss.

Downer Edi is withholding earnings guidance for 2021.

Contractor Downer EDI has urged the federal government to accelerate an infrastructure pipeline to help stimulate the economy after it slumped to an annual loss of $150.3m and withheld earnings guidance for the 2021 financial year.

The Morrison government has flagged plans to fast-track 15 ­road and infrastructure projects and pour an extra $1.5bn into smaller developments to help kickstart the economy.

Downer has backed the move to help boost the sector but cautioned it had seen little momentum on the ground so far.

“Governments are working hard on doing what they can to speed things up and we can see that in a lot of the discussions we’re having,” Downer chief executive Grant Fenn said after reporting its 2020 results

“But it would be wrong to say we’re seeing a huge increase of work happening at the moment. Certainly it’s in train and they’re doing what they can to bring it forward. That sector is an area they must use as job stimulus so we’re looking forward to getting on with it as are the rest of the sector.”

Downer’s statutory loss had been expected after the company had guided to a range of $150m to $160m, compared to a net profit of $276.3m the prior year, due to tough operating conditions.

The company recorded underlying EBITDA – which strips out one-off items such as impairments – of $416m for the year through June 30 and within a $410m and $420m range forecast by the company.

Downer said it was seeing some easing of business activity in Victoria due to its six-week lockdown.

“We’ve seen in some of the facilities that we maintain a pullback of non-essential maintenance just to make sure we comply with the requirements of government there,” Mr Fenn said. “But most of what we do there is seen as very essential. We’re not vertical builders so we don’t have the issues impacting on that so virtually anything we are doing there is in the horizontal space and the business continues to roll on.”

Utilities were the biggest drag on the result, with earnings falling by 15.8 per cent to $136.1m and its larger transport unit slipping 2.8 per cent to $235.6m. Earnings from its facilities division were steady at $133.9m.

Downer had already announced it would axe its final dividend due to the current economic environment and in light of a $400m capital raising carried out in July. While it won’t issue any earnings guidance for the 2021 financial year, it expects to resume dividends this year depending on its business performance.

A deferred interim dividend of 14c per share will be paid on September 25.

It has also entered into a call option deed with Coltrane to acquire 2.99 per cent of Spotless shares, taking it over the 90 per cent threshold needed to proceed to compulsory acquisition.

The engineering contractor plans to pivot towards a capital light service-based business model, focusing on its transport, utilities and facilities businesses, with the company confirming the potential sale of its mining and hospitality portfolios.

Downer suspended plans in March to sell its mining business due to volatility caused by the coronavirus pandemic.

The resources contractor has been hoping to land a potential $700m deal with Perenti Global but has frozen the process.

Downer took a number of charges during the 12-month period including $35.6m in restructuring costs from job cuts, deal costs of $10m from its mining and laundries division reviews and a $26.1m impairment on IT systems being wound down.

A sale of the laundries business has been paused and may restart when investment market conditions improve.

Downer shares rose 2.9 per cent to $4.30.