Downer EDI’s stock slid almost 10 percent after the contractor warned 2016 profits would be lower than expected due to the “high degree of uncertainty” in construction and mining.
Downer’s shares slid 44¢, or 9.6 percent, to $4.14 – its lowest levels since February – in early trading on Thursday after it said it was targeting net profit after tax of about $190 million for the year ending June 2016.
While Downer’s 2015 net profit after tax of $210.2 million, down 2.7 percent on the previous year, was in line with guidance, analysts were not expecting such a weak 2016 outlook.
“Providing guidance for the 2016 financial year has proven more difficult than in the past five years,” Downer said. “There is weakness and a high degree of uncertainty in a number of our end markets, particularly resources-based construction and mining.
“We expect the current low levels of mining-related capital expenditure to continue through 2016 and customers across the board to focus on cost and efficiency as the broader economy feels the impact of low commodity prices.
“In this environment, it is difficult to predict the flow of uncontracted revenue which is slightly higher than at this time last year.”
Downer chief executive Grant Fenn argued the contractor had delivered “a very strong result” for 2015 given the tough operating environment. “We’ve delivered on guidance, it’s a very consistent performance and we’re delivering on what we’ve promised,” Mr Fenn said.
Earnings before interest and taxation (EBIT) in the contractor’s engineering, construction and maintenance business slid 28 percent to $51.5 million due to losses in its resources-based consultancy businesses and the underperformance of projects in Western Australia.
Mining EBIT dropped 23 percent to $132.6 million as contracts were completed but rail EBIT rose 24 percent to $27.5 million due to productivity improvements and income from the company’s Keolis Downer joint venture, which operates Melbourne’s Yarra Trams and the Gold Coast Light Rail.
Transport services’ EBIT rose 5 percent to $96.2 million due to income from road maintenance businesses in NSW and Victoria.
Downer is part of a consortium that has been short-listed to build, operate and maintain Canberra’s light rail and is also shortlisted for NSW’s intercity fleet program.
The company expects to spend between $30 million and $45 million on bid costs for three projects over the next two years, and warned that if it is unsuccessful on some bids, it will have to write off bid costs in 2016 or 2017.
The company will pay a fully franked final dividend of 12¢ per share, flat compared with a year earlier.
Group revenue fell 4.8 percent to $7.02 billion.
Downer has become the first company listed solely on the Australian Securities Exchange to start using an “enhanced” audit report from auditors KPMG in its annual report ahead of expected changes to Australian accounting standards.
KPMG said the enhanced report provided more transparency.
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