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 year report, released on 13 February 2025:

Downer EDI Limited (Downer) (ASX:DOW) today released its financial results for the six months to 31 December 2024 (1H25), delivering earnings improvement across all segments. The result demonstrates Downer’s turnaround is on track, delivering a 4.7% increase in statutory NPAT of $75.5 million, a 37.1% increase in pro forma EBITA of $204.4 million, and pro forma EBITA margin growth of 1.1 percentage points to 3.7% against the prior corresponding period. Other highlights include a 70.0% uplift in pro forma NPATA, cumulative annualised gross cost out of $180 million exceeding our transformation targets, the delivery of cash-backed earnings with a normalised cash conversion of 94.2%, and improvement in gearing with net debt to EBITDA reducing to 1.3 times.

Group and segment performance

During the period, Group pro forma EBITA of $204.4 million increased 37.1%, and pro forma EBITA margin increased to 3.7%, a 1.1 percentage point uplift from 2.6% in 1H24.

The transformation program has now delivered $180 million in cumulative annualised gross cost out, with $50 million achieved in 1H25. This exceeds our $175 million target, and Downer is on-track to achieve $200 million cumulative annualised gross cost out by 30 June 2025.

The Transport segment pro forma EBITA was up 31.9% on 1H24 to $129.4 million, driven by growth in profitability in New Zealand Transport & Infrastructure and Rail & Transit Systems, and supported by overhead cost reductions.

The Energy & Utilities segment pro forma EBITA of $52.6 million represents a 38.8% increase on 1H24, driven by the Telecommunications business, the stabilisation and completion of low margin water and power maintenance contracts, and overhead efficiencies related to the merger of the Utilities and Industrial & Energy businesses.

The Facilities segment delivered another positive result, with pro forma EBITA increase of 5.6% to $71.7 million. Operating leverage improvements were driven by a focus on strengthened contract management and overhead reductions achieved through operating model enhancements.