Result at Downer has some red flags as HY profits slump by 14pc
Downer saw profits slump 14.4 per cent for the half year as the pandemic cut into its hospitality and facilities business.
Downer saw profits slump 14.4 per cent for the half year as the pandemic cut into its hospitality and facilities business, with the company reinstating dividend payments, albeit reduced to a 9c a share interim payout on the back of a tough year.
Downer paid a 14c a share interim dividend after the first half of last financial year, but cancelled its full year payout on the back of pandemic uncertainty. Its reinstatement was welcomed by shareholders, however, who sent Downer shares up 7c on Monday to close at $5.41.
The conglomerate booked half-year net profits of $73.9m, down from $86.3m in the first half of the previous financial year, on revenue of $6.11bn, down 10.6 per cent.
Downer said earnings before tax and interest fell 10 per cent to $162.4m, with underlying earnings before interest, tax, depreciation and amortisation up 2.9 per cent to $221m.
Revenue from Downers utilities business slumped 28 per cent to $1bn as its contracts with NBN wound down, with revenue from its facilities business – which includes its Spotless hospitality services – down 20.9 per cent due to the impacts of the pandemic in Australia and New Zealand, the company said.
Downer said it expects to close the sale of its Downer Blasting Services (DBS), Open Cut Mining West and Spotless Laundries businesses within the next 12 months, which are collectively expected to yield $581.5m.
Its east coast mining services businesses is still up for sale, along with its Otraco tyre management business, with Downer having previously said it is fielding interest in both operations.
The company finished December with net debt of $1.19bn.
While Downer’s results were better than most analyst expectations, Ord Minnett analysts noted that its best recovering divisions were those it had said it was looking to sell.
Its “core” businesses – in transport, utilities, facilities and asset management – recovered more slowly in the second half of 2020 than those it was planning to offload.
“A headline EBITA beat from Downer, but looking deeper, all outperformance appears to have come from a recovery in businesses Downer previously classified as non-core. Non-core EBITA rose 5 times half-on-half while core earnings fell,” Ord Minnett analysts said in a client note on Thursday.
“Equally concerning for us is the fact that core earnings fell 14.5 per cent on the prior corresponding period with every division recording declines.
“Overall, we view the quality of the result as low and are concerned that the underwhelming result in the core will be a setback to Downer’s urban services strategy narrative.”
