While Downer’s FY15 performance was relatively consistent versus FY14 on an overall basis, there were varying results across each of the different business units. Strong performance within Downer’s Transport Services and Technology and Communications Services divisions has offset the weaker performance of the Mining division
Despite the consistent FY15 performance, Downer is targeting a $20m reduction in NPAT for FY16 to $190m. The company has indicated that providing forward guidance was more difficult than it had been over the previous five years, because of uncertainty over demand for Downer's services following the mining slump.
A summary of Downer’s FY15 results is outlined below:
- Total revenue of $7.4bn was down 3.9% on the prior year. Within this, the company’s Mining division experienced a 20% drop in revenue to $1.6bn while Transport Services revenue was up 7.9% to $2.0bn and Technology and Communications Services revenue increased 7.8% to $495.5m
- FY15 net profit after tax of $210.2m, down 2.7% on the previous year but in line with guidance. Earnings before interest and tax (EBIT) was $309.7m, down 9.2%
- Downer’s FY15 gearing ratio was at a conservative 8.1%. Interest coverage improved from 7.9 times EBITDAR* in FY14 to 10.4 times in FY15
- Available liquidity of $982.2m comprises a cash balance of $372.2m and undrawn committed facilities of $610.0m
While the Downer share price took an 11% hit following the results, the bonds were relatively unaffected with yields on the 2018 and 2022 bonds up about 5 basis post the results announcement.
Over time, Downer’s earnings are exposed to a continued weakness in the mining sector and reductions in capital expenditure. However, with a diversified business profile, strong cash flow generation and a conservative gearing level, we remain comfortable with the credit profile.
*EBITDAR equals underlying earnings before interest, tax, depreciation, amortisation and operating lease rental expense.
Please contact your FIIG Representative for more information on the Downer bonds.
Director – Infrastructure and Fixed Income Research.
Alen joined FIIG Securities in May 2014 and is responsible for covering the infrastructure/PPP, resources, airlines and property sectors.