Downer EDI Limited Analysis

Overview

Downer is a leading provider of services to customers in markets including transport services, technology and communications services, utilities services, engineering, construction and maintenance, mining and rail. Downer operates primarily in Australia and New Zealand but also in the Asia-Pacific region, South America and Southern Africa.

In March 2017 the company had signed an agreement to acquire the construction, infrastructure and project management businesses of Hawkins.

Performance

The following information was extracted from Downer EDI Limited's half yearly report, released 14 February, 2024:

The main features of the result for the 6 months ended 31 December 2023 were:

• Total revenue1 of $6.0 billion, down 1.9% on prior comparative period (pcp)
• Statutory EBITA2 of $139.2 million, down 2.6% on pcp
• Underlying3 EBITA of $150.5 million, up 12.6% on pcp
• Underlying EBITA margin of 2.5%, an increase from 2.2% in the pcp
• Statutory earnings before interest and tax (EBIT) of $127.6 million, down 1.7% on prior year
• Statutory profit after tax and before amortisation of acquired intangible assets (NPATA) of $80.2 million, up 3.8% on pcp
• Statutory profit after tax (NPAT) of $72.1 million, up 5.9% on pcp.

Total revenue of $6.0 billion decreased by 1.9% on the prior period. Growth in Rail and Transit Systems in the Transport

segment and the Utilities business was offset by the divestment of the Australian Transport Projects and Asset and

Development Services businesses in the Transport and Facilities segments respectively.

Underlying EBITA of $150.5 million increased 12.6% on the prior period. This was attributable primarily to a recovery

in earnings from the Utilities business compared to a loss in the prior year, in addition to improved performance in the

Projects business in New Zealand. This was offset by the divestment of the Australian Transport Projects and Asset

and Development Services businesses.

Cash conversion for the period was 73.4%. Cash conversion was impacted by payments associated with FY23 and

HY24 Individually Significant Items (together $20.7 million), as well as the Australian Transport Projects GST payment

of $23.5 million as disclosed in the Consolidated Statement of Cash Flows in the FY23 Annual Report. Normalising for

these cash outflows, underlying cash conversion equates to 87.7%.

Net finance costs increased by $7.1 million or, 17.6%, to $47.4 million driven by an increase in average cost of funds

on reduced net debt, partially offset by higher interest on cash.

The underlying effective tax rate of 25.7% is lower than the statutory corporate tax rate of 30.0% primarily due to the

impact of non-taxable distributions from joint ventures and lower tax rates in overseas jurisdictions (e.g. New Zealand).

Individually Significant Items (ISIs) totalled a $11.3 million loss before interest and tax for the year, ($4.1 million profit

after-tax). Additional information is provided on the following pages of the Review of Operations and in Note B4 to the

Financial Report.