Engineering, Freight Rail, Passenger Rail, Rail Supply, Rolling stock & Rail Vehicle Design

Rail bolsters double-digit growth forecast for Downer

Solid results for Downer’s transport and rail divisions have driven a 7% growth in underlying net profit in FY18, and the company is forecasting significant growth over the next 12 months.

Downer told shareholders on August 16 a strong underlying net profit gain in FY18 had come off the back of revenue improvements across all six of its divisions.

Transport revenue increased by 31%, Rail by 38%, Utilities by 18%, EC&M by 20%, Mining by 4.5% and Spotless by 3%.

Underlying net profit after tax was $296.5 million, up 6.7%.

The one-off cost of Spotless, which Downer acquired during the period, meant Downer’s statutory (i.e. actual) net profit after tax was $117.9 million.

But with that now squared away, the company is forecasting net profit of $335 million in FY19.

Chief executive Grant Fenn said the FY18 result marked the seventh consecutive year Downer had met its guidance, and noted the FY19 forecast would represent a double-digit gain.

“We have leading or strong market positions in all sectors in which we operate and there are significant opportunity pipelines in every one of them,” Fenn said.

Downer’s Transport division’s total revenue was up 31% to $2.82 billion. EBITDA was up 14% to $142.9 million, and Transport has $7.4 billion in work-in-hand.

Rail buoys future growth

Revenue rose 38% for the Rail division, to $1.17 billion. EBITDA rose 29% to $39.2 million, and Rail work-in-hand sits at $8.2 billion.

Downer’s presentation to shareholders noted it would “continue to benefit from significant state government investment in public transport and in particular light and heavy rail”.

Speaking with the AFR, Fenn said the company was encouraged by the NSW Government’s vow to approach major infrastructure contracts from a more cooperative position.

Fenn said Downer had backed out of bidding for the Sydney CBD & South East Light Rail project because of the amount of risk being put on the private contractor. The project has since been plagued with conflict between the delivery consortium and the State Government.

“We wouldn’t have taken the risks on the utilities on that particular project,” Fenn was quoted as saying.

Fenn found the NSW Government’s recent 10-point action plan promising, however.

“I’m pretty buoyed by that particular document and hopefully that will be the way it works on Parramatta [Light Rail] and other large infrastructure projects,” he was quoted. “What those 10 points are really talking about is an appropriate allocation of risk to the people that are best organised to manage that risk and price it.”

Downer’s Annual Report noted its Rail revenue and EBITDA rose despite the company selling its freight rail business to Progress Rail in January.

Major contracts for Downer Rail include the Sydney Growth Trains project in NSW, the High Capacity Metro Trains contract in Victoria, and ongoing work with Sydney Trains, Transport for NSW, WA’s Public Transport Authority, Metro Trains Melbourne, Transport Victoria and Queensland Rail.

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