By Darren Gray
Downer boss Grant Fenn says the stable earnings delivered by its core urban services businesses in the midst of the COVID-19 crisis have highlighted the value of the company’s refreshed strategy.
ASX-listed Downer on Wednesday posted a full-year statutory loss of $105.8 million for fiscal 2020, down from a $325.6 million net profit in the prior year. However, Mr Fenn highlighted that Downer’s core urban services, which include its transport, utilities and facilities businesses, recorded EBITA (earnings before interest, tax and amortisation) of $511 million, only marginally below last year’s $525 million result.
“So despite all the issues of the COVID-19 environment our core urban services have demonstrated amazing resilience and strength, and that is why they represent the future of Downer,” he said.
“They have leading market positions in essential services, provided to government and industry,” Mr Fenn said.”They’re predominantly government and government-related contracts, and if not, then they’re blue chip industrials. It’s a capital light, service-based business model, generating lower risk and long-term predictable revenues and cash flows.”
Downer is a diversified company that manufactures and maintains trains and trams, maintains more than 58,000 kilometres of road lanes and builds transport infrastructure projects including bridges. It also provides crucial services to the mining industry, and via Spotless runs a major cleaning and laundry business.
Mr Fenn said Downer’s transport division had delivered a strong result with EBITA of $236 million, virtually in line with last year’s $242 million outcome.
“We expect demand for transport services to stay strong as governments look to stimulate the economy and job creation, through road and rail infrastructure spending, potential local manufacturing of rolling stock, and shovel-ready road maintenance,” he said.
Last month Downer announced a plan for a major overhaul, including a $400 million equity raising and plans to take 100 per cent ownership of Spotless, of which it currently owns about 88 per cent. It also said it planned to cut costs and exit capital-intensive businesses such as mining and laundries.
Downer, which will not pay a final dividend, told the market it expects to resume paying dividends next financial year, depending on its performance. The company has yet to pay its first-half dividend, which was announced at its interim results in February, but was subsequently delayed until September 25.
Downer’s full-year revenue was down only 0.2 per cent on the prior year at $13.4 billion. Underlying NPATA (net profit after tax and before amortisation of acquired intangible assets) fell 36.8 per cent to $215.1 million.
Downer said that because of the COVID economic crisis it would not provide earnings guidance for 2020-21.
John Ayoub, portfolio manager at Downer investor Wilson Asset Management, said the changes being instituted by Downer would create a higher margin, less capital-intensive business.
“The hard decisions they took at the capital raising and earlier this year to wind down some of the other business units, and as they sell the laundry business in time and the mining services business … will reward shareholders over the next two to three years,” he said.
Downer shares closed 2.87 per cent stronger at $4.30.