Downer to stop bidding for coal, solar, iron ore projects

Downer Group CEO Grant Fenn said on Wednesday “we’re out” of solar, iron ore and coal projects.

Downer Group chief executive Grant Fenn. Picture: Stuart McEvoy

Downer Group will stop bidding for construction work in many of its traditional markets, with chief executive Grant Fenn declaring on Wednesday “we’re out” of solar, iron ore and coal projects.

Downer delivered a delivered a 35.7 per cent fall in after-tax profits for the first half of the financial year. Mr Fenn admitted the result was “disappointing”, and pointed to the risks in the company’s fixed-price bids on major projects.

“Despite Downer’s service businesses performing well, construction losses have driven a disappointing result for the group in the first half of the financial year,” he told analysts on an earnings call on Wednesday.

“Our engineering and construction business will no longer tender for hard dollar construction contracts in the solar, coal, iron ore and industrial sectors.”

Mr Fenn said Downer’s decision to pull out of solar construction projects was “disappointing but inevitable” given the dearth of new investment in the sector over the last year.

“Developers, contractors and bankers have all struggled to come to terms with the risk of large power loss factors, grid ­stability problems, connection problems, and equipment performance issues,” he said “These problems will no doubt be sorted out in time, but right now we don’t see a construction market in the short to medium term that will accept our terms and risk position on these matters. So we’re out.”

Mr Fenn said Downer intended to continue “strictly limiting” the risk it took on in its construction division, which had driven down the number of contracts it will bid on. Construction work is now worth only $5.7bn of the $47.4bn worth of work in hand at Downer, and the bulk of that is smaller, low risk contracts.

“To accelerate our shift to less volatile service markets we have decided to focus our major construction efforts on areas where we have competitive differentiation,” he said.

“That’s in transport, including road rail and systems, high voltage transmission and substations, telecommunications, water and aspects of wind farms.

Downer shares took a hit in late January when the company downgraded its full-year earnings outlook, shaving about $300m from its revenue forecasts and $20m from its annual profit.

It booked first-half revenue of $6.5bn, up 2.9 per cent from the same period in the previous financial year, but earnings before interest and tax fell 23.8 per cent to $180.4m. Downer shares closed down 20c to $7.27 on Wednesday.