Thursday 04 February 2016 by Alen Golubovic Company updates

Downer 1H16 profit down 24% but balance sheet remains strong

Downer has reported its results for 1H16. Net profit after tax is down 24% to $72m reflecting the intense and challenging conditions in the mining and energy markets but the company is guiding an improvement in earnings in the second half. The company’s balance sheet is in a healthy position with gearing at 8.4% and available liquidity of $1.0bn. We remain comfortable with the credit

Downer EDI Limited (Downer) today announced net profit after tax (NPAT) of $72.1m for the six months to 31 December 2015, 23.9% lower than the prior corresponding period. Total revenue of $3.5bn was down $42.6m, or 1.2%. EBIT was down $28.5m, or 20.1%, to $113.2m. Operating cash flow was $178.1m for the six month period.

The result reflects a write off of $13m in pre-tax bid costs and softness in the resources related businesses, particularly Engineering, Construction & Maintenance (EC&M) and Rail. Competition remained intense and the mining and energy markets continue to be very challenging. Commodity prices remain very low with a significant flow on effect on business investment and operating expenditure.

Downer’s work-in-hand remains healthy at $18.0bn as at 31 December 2015, down from $18.5bn as at 30 June 2015.

Downer has maintained a strong balance sheet, with gearing of 8.4% at 31 December 2015 (13.8% including off balance sheet debt) and available liquidity of $1bn comprising cash of $489.5m and undrawn committed facilities of $528.0m.

In terms of full year outlook, Downer is expecting an improvement in the second half of the year, targeting NPAT of around $180m for the 2016 financial year.

While the weakness in earnings reflects more challenging market conditions for the company, we remain comfortable with Downer as a credit given its strong balance sheet and liquidity position. We also note the company’s full year guidance highlighting improved performance in the second half.

A link to the company’s ASX announcement is available hereExternal link - opens in a new window.

Please contact your FIIG representative for further information and current pricing levels on the Downer bond.