The result was in line with Macquarie Wealth Management expectations of a $93 million after-tax profit for the first half of 2014-15, and still sufficient to maintain full year guidance of $210 million.
Downer chief executive Grant Fenn confirmed the company remained on track to meet its full year guidance, but largely by improving productivity and cutting costs.
The most pain was in the company’s mining division, with revenue down 30% to $63.4 million.
Downer Mining was hammered by the end of the contract at BHP Billiton’s Daunia coal mine, the early termination of BHP’s Goonyella coal contract and overall reduced volumes. There were also fewer opportunities for the blasting business and discounted pricing of ammonium nitrate supply placed further pressure on earnings.
A new $2 billion contract win with Indian coal concern Adani Mining’s proposed Carmichael coal mine in Queensland’s Galilee Basin hinges on that project going ahead, which is by no means certain.
The infrastructure division’s income was down 17% to $72.8 million as demand for mining-related capital works dropped, projects were completed, and the outlook is not good with fewer opportunities in the resources sector and pressure on bid margins in a competitive tendering environment.
Downer’s mining related consultancy businesses – Snowden, Mineral Technologies and QCC – were hit particularly hard and experienced financial losses.
Earnings before interest and taxation in the company's struggling rail division improved by 279% to $17.5 million.
Downer Rail’s total revenue was down 28% to $424.4 million due primarily to the completion of the Waratah train project rolling stock manufacture contract, partially offset by higher revenue from the WTP Through Life Support contract and the Keolis Downer and Downer Bombardier joint ventures.
The firm has also just signed a 10 year, $1 billion agreement with Pacific National to provide a full suite of asset management services for over 300 Pacific National locomotives.
The agreement is an important development in Downer Rail’s transformation to providing total rail asset solutions to its customers.
Group EBIT fell 11.5 % to $141.7 million.
Little wonder the company is restructuring, having reduced corporate costs by $4.1 million or 13.8% to $25.9 million while finance costs have reduced by 41.9% to $13.8 million reflecting Downer’s lower average net debt position.
Downer’s work-in-hand was $18 billion at December 31, 2014.
Macquarie described Downer as the “best of a bad bunch” in the mix of listed services companies on the ASX.
