Downer (ASX:DOW) reveals FY20 details, initiates a capital raising

Downer (ASX: DOW), the $2.1 billion engineering business, it has released some of its FY20 numbers and announced a capital raising.

What is 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.

Downer’s FY20 update

The company said it expects to report FY20 underlying EBITA (click here to learn what EBITDA and EBIT means) of between $410 million to $420 million. Underlying FY20 net profit is expected to be $210 million to be $220 million.

Despite the impact of COVID-19, cash generation has improved in the second of the year with an operating cash conversion of 74% of underlying EBITDA, taking the full year conversion to 40%.

However, Downer said it expects to recognise $386 million of charges outside of its underlying result relating to goodwill impairments, restructuring, portfolio review costs, payroll remediation, legal settlements and historical contract claims adjustments.

Including these charges, the statutory FY20 net loss is expected to be in the range of $150 million to $160 million.

However, the company has a plan to re-focus its business to be an ‘urban services’ business which will hopefully deliver a stronger platform for long term, sustainable growth. It will be looking to achieve 100% ownership of Spotless, exit non-core business and lower costs.

Capital raising

It’s looking to raise $400 million to acquire the rest of Spotless and strengthen the business. It will be done at a share price of $3.75, a 12% discount to the last closing price of $4.26.

After the raise and Spotless offer, it will have liquidity of $2.1 billion.

Summary

Downer expects $10 million to $15 million of synergies by owning 100% of Spotless. It won’t pay a final dividend. There is still “strong demand” for its services, so shareholders may do well to buy shares at the cheaper capital raising price. But it’s not the type of business I’d buy for my own portfolio.

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At the time of publishing, Jaz does not have a financial or commercial interest in any of the companies mentioned.

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