Downer shares tumbled on weak 1H FY2023 results and guidance cut

Key Takeaways:

• Downer EDI announced weak 1H FY2023 results and reported a 20.6% fall in its net profit.
• The interim dividend declined from AU 12 cents in 1H FY2022 to AU 5 cents in 1H FY2023.
• DOW further downgraded its NPATA guidance for FY2023.

Downer EDI Limited (ASX: DOW), the leading provider of integrated services in Australia and New Zealand, reported a fall in its share price following the release of its 1H FY2023 results  (period ended 31 December 2022). 

During the period, the Company’s revenue improved. However, due to unprecedented wet weather, labour shortages, and productivity, including contract and project losses in Utilities, the Company experienced a fall in its EBITA.

A Quick Glance at DOW’s 1H FY2023 performance:

• Total revenue increased 2.9% to AU$6.1 billion.
• Statutory EBITA declined 21.3% to AU$142.9 million.
• Statutory earnings before interest and tax dropped from AU$167.4 million in 1H FY2022 to AU$129.8 million in 1H FY2023.
• Statutory net profit after tax decreased by 20.6% to AU$68.1 million.
• Cash conversion for the period was 8.5% primarily because of the timing of supplier payments on the completion of the Sydney Growth Trains project, settlement of prior period project claims, and timing of collections. Weak operating cash flow performance was the primary driver for the increase in gearing, up 7% to 24.8% since June 2022.
• Net finance costs decreased by 12%, to AU$40.3 million. The reduction in the cost was driven by lower line fees from facilities refinanced at lower margins in FY2022, lesser lease interest expense, partly counterbalanced by a surge in average debt drawn because of lower operating cash flows.
• Total investing cash outflow was AU$207.8 million. It was AU$207.8 million below the previous corresponding period.
• The Company’s balance sheet was strong, with net assets of AU$2.8 billion, down 0.9% from the previous corresponding period. The fall in the net asset was driven by a reduction in cash, counterbalanced by the increase in inventories and the decrease in trade payables and contract liabilities.
• Net debt increased by AU$315.7 million primarily because of AU$288.1 million lower cash position since 30 June 2022 due to lower operating cashflows in the period.
• Inventories increased by AU$62.5 million to AU$271.4 million, mainly due to a growth in Bitumen stock levels plus additional components and spares required for key projects.
• The Company announced to pay an interim dividend of 5.0 cents per share (unfranked) on 11 April 2023 to shareholders.

Outlook:

Downer’s outlook is weak. The Company has revised its guidance for FY2023 for the second time. On 09 December 2022, the Company revised its FY2023 guidance. At that time, the Company expected its NPATA guidance to be between AU$210 million to AU$230 million. However, following the release of the 1H FY2023, the Company further downgraded its FY2023 NPATA to be in the range of AU$170 million – AU$190 million, assuming no further material COVID-19, weather, labour shortages, or other disruptions, and excluding restructuring costs.

Stock Information:

At AEDT 1:14 PM, DOW shares are trading at AU$3.145, down 20.580% from the previous close. Downer is the top loser at this time on ASX 200. It has a market cap of AU2.65 billion.

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