Total revenue was $3.9 billion, up 14.5%. This growth was driven by Downer Mining which reported a 79% increase in revenue to $1.1 billion and Downer Australia which increased revenue by 8% to $1.7 billion.
Operating cash flow was $107.1 million after $83.4 million of cash outflows relating to the Waratah train project.
The Chief Executive Officer of Downer, Grant Fenn, said Downer was making good progress addressing the issues that have affected the company’s past performance.
“We are clearing up the problems and transforming the business step by step,” Mr Fenn said.
“Downer Mining continues to perform well, with strong revenue and EBIT growth from major new and expanded open cut mining contracts. The services side of Downer Mining also continues to be a focus with our blasting and tyre management businesses reporting good revenue and earnings growth.
“Downer Rail’s performance has been solid, although delivery of new locomotives and passenger cars was lower than the prior corresponding period. We continue to win the majority of new passenger and locomotive contracts in Australia and we are implementing a range of efficiency and cost improvements to ensure we remain competitive.”
Mr Fenn said the establishment of Downer Australia was delivering a range of benefits.
“We now have a core business which is very focused on its key customers and markets and is leading the way in improving our project and risk management practices,” he said.
“Downer Australia is close to completing a limited number of legacy contracts which have had a negative impact on recent performance. Looking forward, with strong work in hand and our preferred status on a number of projects, we expect improved results.”
The review of Downer’s business portfolio, which led to the establishment of Downer Australia, also resulted in Downer signing a Share Sale Agreement to sell its CPG Asia business for $147 million. The agreement was announced on 14 December 2011 and is scheduled to be completed around the end of the first quarter of the 2012 calendar year.
Downer New Zealand’s performance during the half year was again affected by difficult economic conditions and reduced government expenditure, compounded by general uncertainty around ongoing seismic activity in the Christchurch region.
Mr Fenn said the Waratah train project had achieved several significant milestones.
“Seven Waratah trains have now received a certificate of Practical Completion,” Mr Fenn said. “The trains are performing well and under the current schedule there will be 26 Waratah trains available for passenger service by the end of the 2012 calendar year.”
On 6 February 2012, the New South Wales Government announced it had agreed to invest $175 million in 2018 in Reliance Rail in return for 100 per cent of the equity, subject to certain conditions precedent being achieved. Reliance Rail’s remaining debt funding of $357 million is subject to Reliance Rail lodging drawdown notices over the next 18 months and the banks providing funding in line with their commitment. The first drawdown notice was lodged by Reliance Rail on 21 February 2012 for $2.4 million and the first drawdown date is 27 February 2012.
As a result of the restructure of Reliance Rail, Downer will transfer the equity accounted Reliance Rail hedge reserve of $72.5 million via the income statement to retained earnings. This transfer will have no impact on cash, equity, net assets or underlying earnings but will negatively impact full year statutory earnings.
Further information on the Waratah train project is provided in the Appendix 4D lodged with the Australian Securities Exchange and available on the Downer website.
An extremely disappointing aspect of Downer’s performance over the past three months has been two workplace fatalities on road maintenance sites, one in Australia and one in New Zealand. Notwithstanding Downer’s strong commitment and focus on health and safety, these tragic accidents highlight the risks associated with many of the sectors in which Downer operates and the need to be totally focused on achieving Zero Harm.
Downer’s Lost Time Injury Frequency Rate (LTIFR) for the six month period was 0.93 per million hours worked. Industry leaders maintain a LTIFR below one per million hours worked. Downer’s Total Recordable Injury Frequency Rate reduced from 7.96 to 7.72 per million hours worked.
During the six month period, Downer financed $112 million in new debt and bonding facilities, refinanced the $260 million Waratah syndicated bonding facility and extended $602 million of existing bilateral facilities.
At 31 December 2011, Downer’s gearing was 26.9% (36.8% including operating leased plant and equipment) with liquidity of $820 million, comprising cash of $222 million and undrawn committed facilities of $598 million.
During the six months to 31 December, Downer also resolved a number of long term contractual disputes in line with expectations. A number of legacy disputes remain in litigation or negotiation. Further information is provided in the Appendix 4D.
The Downer Board has decided not to declare an interim dividend. Downer will pay the next dividend on its Redeemable Optionally Adjustable Distributing Securities (ROADS).
Downer’s operational outlook is strong and we confirm our previous full year guidance of underlying EBIT of around $340 million and NPAT of around $180 million.
As noted above, full year statutory earnings will be affected by the transfer of the equity accounted Reliance Rail hedge reserve of $72.5 million via the income statement to retained earnings.