Downer share price drops on 17% profit slide

The Downer EDI Limited (ASX: DOW) share price is falling after the integrated services company reported its FY22 full-year earnings. 

The Downer share price closed yesterday at $5.61. Downer shares opened at $5.25 this morning, down 6.4% on yesterday's close and are currently sitting at $5.20, a 7.31% decline.

Downer provides integrated services to customers in Australia and New Zealand to design, build, and maintain infrastructure, facilities, and other assets.

Let's examine the company's results.

Downer share price in the red as profit falls

• Underlying net profit after tax and amortisation (NPATA) of $225.3 million, down 13.7% on the prior corresponding period (pcp)
• Underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) of $399.2 million, down 14.6% pcp
• Profit from ordinary activities after tax of $151.6 million, down 16.5% pcp
• Total group revenue of $12 billion, down 2% pcp
• Underlying cash conversion of 88.9%
• Final dividend of 12 cents per share (unfranked) payable on 28 September
• The dividend reinvestment plan (DRP) remains suspended (since 2014)

What else happened in FY22?

Downer completed the divestment of its non-core businesses in mining and hospitality in FY22. This means the company can now focus solely on its core urban services business comprising transport, utilities, and facilities.

In its statement, Downer said "demand remained strong" in this segment and revenue constituted $11.5 billion of the company's total group revenue of $12 billion in FY22.

It noted that revenue in the core urban services business segment increased by 10.8% on the pcp.

A highlight for Downer in FY22 was the announcement of a $200 million contract win on 8 October.

ASX investors pushed the Downer share price to a 52-week high of $6.87 on the day.

What did management say?

Downer said its operations were negatively impacted by COVID-19 and severe wet weather in FY22.

Downer CEO Grant Fenn said the company's performance demonstrated "resilience":

Despite the challenging conditions, particularly relating to COVID-19 and severe wet weather, our
Urban Services businesses have continued to deliver solid earnings and strong cash conversion.

Completing the divestment of the non-core businesses is a major milestone for Downer, enabling the
delivery of a transformed business and a strong balance sheet.

Gearing has reduced to 17.7% and Net Debt to EBITDA of 1.6x remains well below our 2-2.5x target with available liquidity of $1.9 billion.

What's next?

Fenn said Downer had a strong end to FY22 with a number of contract wins providing "solid
momentum into FY23".

Fenn said:

We have announced material contract wins across each of our Transport, Utilities and Facilities
segments in Q4. We are winning work in our key markets, our brand and relationships are very strong, and we are seeing a growing pipeline of work ahead of us.

Demand for decarbonisation solutions across the Group's customer base has accelerated dramatically
in the past 12 months, which will create a strong pipeline of work. Our customers know they need to start acting on their decarbonisation targets and that it will require enormous effort.

Downer's suite of technical skills means we are in a prime position to grow our business in what will be a significant economy-wide transformation journey to net zero.

For FY23, Downer expects 10% to 20% underlying NPATA growth. This assumes no material disruptions caused by COVID-19, poor weather, or labour shortages.

Downer share price snapshot

The Downer share price is down 13.9% in the year to date.

This compares to a dip of 6.3% for the benchmark S&P/ASX 200 Index (ASX: XJO).