Downer EDI Limited has reported a strong financial turnaround in the first half of FY25, with significant earnings growth and improved cash flow despite a revenue decline influenced by divestments and softer market conditions.
- Pro forma EBITA up 37% to $204.4 million
- Statutory NPAT increased 4.7% to $75.5 million
- Revenue declined 5.2% due to divestments and market softness
- Cost reduction program on track with $180 million annualised savings
- Strong cash conversion at 94%, strengthening balance sheet
A Turnaround in Progress
Downer EDI Limited’s half-year results for the six months ended 31 December 2024 reveal a company firmly on the path to recovery and sustainable growth. Despite a 5.2% decline in pro forma revenue to $5.5 billion, largely driven by divestments and subdued infrastructure spending in Australia and New Zealand, the company delivered a robust 37% increase in pro forma EBITA to $204.4 million. This marks a significant improvement in profitability, underscoring the effectiveness of Downer’s ongoing transformation strategy.
The statutory net profit after tax (NPAT) rose 4.7% to $75.5 million, reflecting the positive momentum across all business segments. This earnings growth was supported by disciplined cost management, contract quality improvements, and a strategic exit from underperforming businesses.
Segment Performance and Strategic Moves
Downer’s diversified portfolio across Transport, Energy & Utilities, and Facilities segments continues to provide resilience amid varied market conditions. The Transport segment, which includes road services, rail, and airports, saw EBITA rise to $129.4 million, driven by improved project delivery and overhead cost reductions. Notably, the ramp-up of the Queensland Train Manufacturing Program (QTMP) and progress on the NZ$800 million Auckland Airport Domestic Jet Terminal project highlight Downer’s strong positioning in infrastructure development.
In Energy & Utilities, the merger of Utilities and Industrial & Energy businesses has enhanced capabilities, enabling Downer to capitalize on the energy transition and decarbonisation trends. Although revenue was impacted by softer New Zealand infrastructure markets and contract closures, EBITA improved to $52.6 million, reflecting better project governance and contract management.
The Facilities segment, encompassing government, health, education, and defence services, reported EBITA of $71.7 million. The business is benefiting from long-term contracts and operational efficiencies, despite workforce reductions following divestments such as the NZ Catering business. The upcoming Defence EMOS tender remains a key focus for 2H25, with significant implications for future earnings.
Cost Discipline and Cash Flow Strength
Downer’s transformation program has delivered $180 million in cumulative annualised gross cost savings, on track to meet an upsized target of $200 million by the end of FY25. This cost discipline, combined with a back-to-basics approach in contract management and risk governance, has driven margin expansion to a pro forma EBITA margin of 3.7%, up from 2.6% in 1H24.
Cash flow metrics further reinforce Downer’s financial health, with normalised cash conversion improving by 650 basis points to 94%. Free cash flow surged to $112.5 million, up from $19.9 million in the prior corresponding period, enabling a reduction in net debt to EBITDA ratio to 1.3x and providing greater flexibility for capital management and shareholder returns.
Governance, Leadership, and ESG Commitments
The company’s refreshed leadership team, with significant promotions and new appointments, is driving a culture reset focused on performance and accountability. Enhanced governance frameworks and risk guardrails are embedded to support sustainable growth and project delivery excellence.
Downer also continues to advance its environmental, social, and governance (ESG) agenda, reporting a 2.1% reduction in absolute Scope 1 and 2 greenhouse gas emissions and maintaining zero significant environmental incidents. The company’s inclusion in the S&P Global Sustainability Yearbook for the fifth consecutive year underscores its commitment to responsible business practices.
Outlook and Market Positioning
Looking ahead, Downer is cautiously optimistic. The company anticipates ongoing tender activity in defence, telecommunications, power, and road maintenance sectors through 2H25. While market conditions remain mixed, particularly with subdued Australian transport agency spending and softer New Zealand infrastructure markets, Downer’s diversified portfolio and disciplined approach position it well to navigate these challenges.
Management targets an underlying NPATA of $265 million to $280 million for FY25, with a focus on further margin improvement and capital discipline. The strategic review of capital and funding structures underway aims to simplify operations and enhance shareholder returns.
Bottom Line?
Downer’s disciplined turnaround and strategic focus set the stage for sustainable growth, but market softness and divestment impacts warrant close investor attention.
Questions in the middle?
- How will Downer’s divestment strategy impact long-term revenue stability?
- What are the risks and opportunities in the upcoming Defence EMOS tender?
- Can Downer sustain margin improvements amid softer infrastructure spending?