Revenue, EBITA slide in 1HFY22 as Downer (ASX:DOW) share price plunges 7%

Investors were in for a mixed bag in Downer's results this morning.

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Key points

  • Downer reported its half year results today, giving a number of investment highlights 
  • Results were mixed with revenue down but profits up for the period, with COVID-19 playing an impact 
  • In the last 12 months, the Downer share price has climbed almost 5% 

Shares in Downer EDI Limited (ASX: DOW) are struggling today following the release of the company's half year results.

At the time of writing, the Downer share price is trading down hard from the open today, now 7% in the red at $5.22. Let's take a closer look.

Downer share price falls on mixed earnings

The company outlined several investment highlights for the half, including:

  • Total revenue of $6 billion, down 2.3%
  • Statutory earnings before interest and tax (EBIT) of $172 million, up 5.9% from $162.4 million
  • Core Urban Services business earnings before interest and tax and amortisation (EBITA) of $238 million, up 4.4%
  • Statutory EBITA of $186.2 million, down 4.9% from $195.8 million
  • EBITA margin of 3.1% down from 3.2% at 31 December 2020
  • Statutory net profit after tax and before amortisation of acquired intangible assets (NPATA) stable at $99
  • Statutory net profit after tax (NPAT) of $89 million, up 17.7% from $75.6 million

What else happened this half for Downer?

The company's earnings were marked by a decrease in total revenue and EBITA from the same period last year.

Downer specifically notes the loss was driven by "the loss of contribution from the Mining and Laundries divestments made in the current and prior periods, in addition to the COVID-19 impact on operations, particularly in non-core Hospitality".

Revenue of $6 billion was down over 2% year on year, whereas statutory reported EBITA came in 5% behind the same period to $195.8 million.

Although, when removing the amortisation component of Downer's earnings, statutory EBIT actually expanded by 6% to $172 million – up from $162.4 million the year prior.

The company has also decreased gearing from 19% to 16.5% since 30 June 2021, reflecting the "strong
operating cash flows and proceeds from the divestment program partially offset by the impact of the share buy-back program".

Cash conversion also gained this period from 84% to up over 85%. Downer notes that this figure is adjusted to 92.1% once $21.1 million in cash outflows relating to 'Individually Significant Items' is recognised from FY20.

On the cash flow statement, Downer realised a $10 million decrease in net financing costs after a lower average debt drawdown and lower interest expense.

Management commentary

Speaking on the announcement, Chief Executive Officer of Downer, Grant Fenn said:

With the arrival of Omicron it has been a tough six months to navigate. Despite the challenges, our core business has delivered solid earnings and strong cash conversion for the first half of 2022.

Our market positions and diversity give us strength that others do not have and confidence through to the other side of COVID-19. Our brand and our relationships are very strong. The divestments of non-core Mining and Laundries businesses has allowed us to reduce our gearing to 16.5% and focus on growth in our Urban Services portfolio. Our liquidity and balance sheet are strong, with Net Debt to EBITDA of 1.5x comfortably below the Group's target range of 2-2.5x

What's next for Downer?

The company notes that it gave guidance on group earnings back in August 2021. Back then it predicted that core Urban Services revenue and earnings "would grow in FY22".

In 1HFY22, core revenue had gained 13.3% on the previous period and earnings were up 4.4%. Downer reckons that the "impact of Omicron on the supply chain, work volumes and revenue mix is difficult to predict and presents risk for the second half".

"We will do our best to manage that risk with our customers and we will provide an update at our Investor
Day in April", the company concluded.

Downer share price snapshot

In the last 12 months, the Downer share price has climbed almost 5%. However this year to date it has pared gains and is now more than 6% in the red.

In the past week, investors have thrown support behind the company and shares have now climbed almost 2% in the green during that time.

Motley Fool contributor Zach Bristow 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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