In response to the recent market speculation related to a potential management buyout of Downer EDI Limited’s (ASX: DOW) mining services business, Downer made an announcement on 14 November 2018, confirming that it has not received any such proposal. The share price of the company witnessed an intra-day decrease of 2.758 percent as on 14 November 2018.
Earlier, it was speculated that the company was progressing with the negotiations to sell its mining services division to an offshore party and it has hired Deutsche Bank to advise on this matter. The Mining division of the company generates its revenues primarily from open cut mining and blasting services, with contributions also from tyre management and underground mining. In FY 2018, the company reported that the EBITA from Mining operations decreased by $33.0 million to $50.4 million predominantly due to the completion of contracts at Christmas Creek and Boggabri. In the last few years, Downer lost two key mining contracts which includes its Christmas Creek iron ore contract with Fortescue Metals Group in Western Australia. The company also lost Boggabri coal mine contract with Japan's Idemitsu group in New South Wales, which went to BGC Contracting.
In FY 2018, the company delivered an underlying net profit after tax and before amortization of acquired intangibles (NPATA) of $296.5 million despite the sale of the freight rail business halfway through the year and a softer result from its Mining business. The total revenue of the company increased by 61.5 percent to $12.6 billion which includes the revenue from mining business which increased from 4.5% to $1.4 billion mainly due to increased activities at Roy Hill and Goonyella and contributions from JVs and new contracts.
The net finance costs of the company increased by $54.3 million to $81.1 million due to $43.4 million additional interest from Spotless (nil in PCP), incremental interest incurred following the acquisition of an additional 22% interest in Spotless and lower interest income contribution. At the end of FY 2018, the company was having a strong operating cash flow at $583.3 million, up 32.1 percent from last year due to strong contract performance, advance payments received and a full year contribution from Spotless. Further, the operating cash flow / EBITDA conversion continued to be strong at 90.6 percent. At the end of FY 2018, the company was having liquidity of $1.5 billion which was comprised of cash balances of $606.2 million and undrawn committed debt facilities of $925.0 million. The Board declared a final dividend of 14.0 cents per share, 50 percent franked which was paid on 27 September 2018 to the shareholders.
In the last six months, the share price of the company decreased by 5.75 percent as on 13 November 2018, traded at a PE level of 56.990x. DOW’s shares traded at $6.700 with a market capitalization of circa $4.1 billion as on 14 November 2018 (AEST 4:00 PM).
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