Fitch Ratings affirms Downer EDI’s Long-Term IDR at ‘BBB’ with a Negative Outlook

Fitch Ratings has affirmed Downer EDI's long-term Issuer Default Rating (IDR) at 'BBB', but assigned a negative outlook due to continuing margin pressure. The EBITDA margin has fallen to 3.3% in the first half of the financial year ending June 2023 (1HFY23) due to labour and weather-related issues, which are expected to persist for the remainder of FY23, and further expected project losses.

The negative outlook also reflects risks around governance and controls due to allegations of corruption, although there is limited information on these allegations. The rating agency noted that the company's ability to manage cost escalation is enhanced by its limited exposure to fixed-price contracts and its 96% of service work-in-hand, which makes up 91% of all work-in-hand, including some form of contracted price escalation mechanism at FYE22.

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