The Downer EDI Limited (ASX: DOW) share price was trading more than 20% lower today after releasing a trading update to the market. Here’s what you missed.

About Downer EDI Limited

Downer is a provider of integrated services in Australia and New Zealand. Its speciality is designing, building and sustaining assets, infrastructure and facilities.

Downer employs 53,000 people across 300 sites which are mostly in the Asia-Pacific region, but also South America and Southern Africa. It also owns 88% of Spotless Group.

What’s Happened?

This morning, Downer announced that its NPATA (net profit after tax and before amortisation of acquired intangibles) guidance for FY20 has been revised down to $300 million due a number of factors:

  • Project underperformance in Engineering, Construction and Maintenance (EC&M) — increased forecast net costs to complete these projects of $43 million pre-tax
  • Lower revenue in EC&M construction for the remainder of the financial year — resulting in lower forecast earnings by approximately $20 million pre-tax
  • Unbudgeted restructure costs in EC&M of $10 million pre-tax
  • Delayed project commencement in Mining — negatively impacting forecast earnings for the second half by $12 million pre-tax

What Happens Next?

At Downer’s AGM on 7 November 2019, the company reconfirmed its full-year guidance for NPATA of around $365 million — today’s revision marks a $65 million cut to FY20 profit guidance.

Also at the AGM, Downer stated that its cash performance for FY20 was not expected to be as strong as it has been in recent years.

Including the updated guidance, Downer now expects to report cash conversion of approximately 40-50% of EBITDA for FY20.

Downer shares were last trading 20.34% lower at $6.97.

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