The Downer (ASX:DOW) share price on watch after FY21 earnings

Downer is in focus after swinging from a loss to a profit on its latest full year figures…

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Investors will be watching the Downer Ltd (ASX: DOW) share price upon market open on Thursday.

This is on the back of the integrated services provider reporting its full-year results to the ASX this morning.

Downer share price on watch after swinging to net profit

  • Underlying net profit after tax and amortisation up 21.4% year on year to $261.2 million
  • Revenue down 8.8% to $12,234.2 million
  • Statutory earnings before interest, tax, and amortisation increased by $371 million to $401 million
  • Statutory net profit after tax of $230 million, up from a loss of $105.8 million
  • Earnings per share (EPS) of 25.4 cents per share, up from a loss of 26.1 cents per share
  • Unfranked final dividend of 12 cents per share, taking full year dividend to 21 cents per share unfranked

What happened in FY21 for Downer

The Downer share price will be in focus this morning after the $3.89 billion company reported its anticipated FY21 results.

On the top line, the company generated $12,234.2 million in group revenue during the 12-month period. This was 8.8% lower year on year and driven by the completion of projects and continued wind-down of nbn contracts. For instance, rollingstock services revenue were lower due to the completion of the Waratah bogie overhaul. Likewise, utilities revenue decreased 21.6% to $581.7 million with nbn contracts drying up.

Additionally, the bottom line benefitted by a 10% decrease to $1,241.7 million in total expenses when excluding one-offs. The lower costs were primarily driven by a reduction in employee benefits following the disposal of businesses, contract completions, and benefits following FY20 restructuring.

Notably, the profitable result was helped along by $447.8 million in cash proceeds from business disposals. This included the divestment of its laundry business, along with the sale of its open-cut mining business, underground mining services, and tyre management business. This refocusing of the company was met with optimism, as the Downer share price moved higher.

On the injury front, Downers' lost time injury frequency rate (LTIFR) decreased to 0.99 from 1.08. Similarly, the total recordable frequency rate fell to 2.60 from 3.10 per million hours worked.

What did management say?

Commenting on the result, Downer chief executive officer Grant Fenn said:

Our focus on critical urban services has meant that demand has remained strong throughout the
year, resulting in a very resilient performance. I want to acknowledge the effort of
our people as we have continued delivering for our customers.

Underlying earnings were up 21.4% and our cash performance was excellent. If we adjust for
cash outflows from individually significant items recognised as expenses last year, our cash
conversion was 101%. Without that adjustment, it was 92%. Either way, it is a terrific result.

What's next for Downer and its share price?

Positively, Downer outlined that it has $35.4 billion worth of work-in-hand. Additionally, 90% of that work is in the form of government contracts in Australia and New Zealand. This compares to only 56% of work-in-hand being government-backed contracts five years ago.

Furthermore, the company noted it expects its core urban services business to grow in FY22 on the top and bottom lines. However, Downer failed to given any more granular detail, citing COVID-19 as the reason.

The Downer share price has performed slightly better than the S&P/ASX 200 Index (ASX: XJO) over the past 12 months. Specifically, the contractor has delivered a 28.8% return while the benchmark gained 23.7%.

Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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