Downer flags profit growth slowdown as result tops expectations

Downer has flagged a slowdown in profit growth but still expects contract wins to underpin momentum.

Downer EDI chief executive Grant Fenn.

Downer Group is forecasting the pace of profit growth to slow in the year ahead after reporting a double digit lift in earnings but expects further contract wins and operational improvements to continue to underpin momentum in its businesses.

Downer (DOW) posted a better than expected 14.7 per cent increase in annual net profit to $340.1 million today, underpinned by a 6.6 per cent rise in revenue to $13.45 billion.

Operating cash flow rose 8 per cent to $630.2m, helping the company maintain its final dividend at 14 cents per share, taking the total year payout to 28 cents per share.

Downer is now forecasting net profit after tax and before amortisation of acquired intangible assets and before minority interest of around $365m in 2019-20.

“Our Urban Services businesses — Transport, Utilities and Facilities — are continuing to grow and there is a strong pipeline of opportunities across all the markets in which we operate,” said chief executive Grant Fenn.

“There has been a recovery in the mining and resources sector over the past 12 months and this drove revenue growth for our Mining, Energy and Industrials businesses.”

Downer confirmed it was undertaking a strategic review of its mining business, which reported a 52 per cent rise in EBITDA to $76.7m in 2019.

Its mining, energy and industrial services operations now make up just 11 per cent of earnings and analysts have been concerned that the mining business consumes almost 50 per cent of Downer’s capital expenditure.

Downer failed to strike a deal with giant Oaktree Capital Management to sell the business last year after the private equity group made an unsolicited approach to acquire it.

Mr Fenn has been refocusing the company on urban-related services including road maintenance, utilities and health projects. It purchased the Spotless facilities management business in mid-2017.

Facilities EBITDA (which includes Spotless) rose 2.3 per cent to $170.5m over the past year.

Downer confirmed today it had finally reached an agreement with the South Australian government over Spotless’s troubled services contract for the new Royal Adelaide Hospital.

Downer shares were up 13 cents, or 1.7 per cent, at $7.68 in late trade.

The shares were trading at $8 in May, their highest level for a decade, before they fell $1 after the company revealed that its German partner in the Murra Wurra wind farm had gone into voluntary administration.

However Downer revealed earlier this month that it only incurred a $45m pre-tax loss on the project. Since then the shares have been steadily rising.