Downer EDI Renews Focus On Urban Services
- FY21 underlying net profit after tax and before amortisation of acquired intangible assets of $261.2 million, up 21.4 percent
- Underlying earnings per share based on the net profit after tax and before amortisation is equivalent to 36.6 cents
- Cash flow from operating activities $827.2 million, representing an EBITDA cash conversion ratio of 92 percent
- Gearing ratio of 19 percent at year-end, down from 35.7 percent at FY20.
- $110 billion future infrastructure spend implies earnings stability in the years ahead.
Downer EDI Limited is a contract service provider to the transport, technology, communications, energy, utilities, rail and defence sectors. It has moved away from the mining and high-risk construction services to focus on urban services. The nature of this urban-centred work is less capital intensive and less cyclical than mining services.
FY21 Financial Result
Downer delivered an underlying net profit after tax and before amortisation of acquired intangible assets of $261.2 million, up 21.4 percent from FY20. The statutory net profit after tax and before amortisation was $230 million. The underlying earnings per share based on the net profit after tax and before amortisation is equivalent to 36.6 cents. Total dividends for the financial year were 21 cents, unfranked, comprising a final dividend of 12 cents and an interim dividend of 9 cents per share. The higher dividend payout ratio in the second half-year implies that a slightly higher dividend payout ratio of 60 percent is the dividend policy going forward.
Total revenue including joint ventures was $12,234 million, a decrease of 8.8 percent, compared to the prior year.
Cash flow was strong with net cash from operating activities (adjusted for net interest and tax) was a strong $827.2 million, representing an EBITDA cash conversion ratio of 92 percent, up from 37 percent in the previous year.
The surplus cash was applied to debt reduction, leaving a gearing ratio of 19 percent at year-end, down from 35.7 percent at FY20.
Sale of Open Cut Mining East
The sale of Downer’s Open Cut Mining East business for $150 million cash is significant because it marks the final step in Downer’s divestment program of its capital-intensive mining services businesses.
Uncertainty around COVID-19 restrictions have precluded the Company from providing specific earnings guidance for FY21.
However, Downer has work-in-hand totalling $35.4 billion at 30 June 2021. Apart from the quantum, it is the quality of this work which is impressive. It comprises predominantly long-term contracts out to 2027 and beyond, servicing critical infrastructure of which 90 percent is government or government regulated. The work is split 80 percent Australia and 20 percent New Zealand, while 91 percent is services related and 9 percent construction activity.
This shift in focus to urban services, away from mining services, is a significant strategic initiative that lowers the risk profile of Downer. This shift, together with a favourable macro-outlook in terms of the Commonwealth’s $110 billion infrastructure spend over the coming 10 years, implies earnings stability in the years ahead.