Downer EDI has been blasted by one of its biggest investors for not rolling more heads after the services group issued another profit warning and its stock plummeted 24 per cent.
Downer EDI has been blasted by Allan Gray, one of its biggest investors, for being “inept” and not rolling more heads after the services group issued another profit warning that caused its stock to plummet 24 per cent on Monday.
“This is evident from their wafer-thin margins and their inability to generate any cashflow,” Mr Mawhinney said. “It’s always about the externalities they can blame, like the weather or absenteeism. It’s never about them.“Until that changes, until they become accountable, Downer risks destroying even more shareholder value than the eye-wateringly high amount of the past 10 years.
“The focus is on simplifying the business, resetting the cost and making sure that we have that operational excellence and risk management approach,” he said. It said earnings from providing a range of services, including maintenance and new connections to a power utilities customer, had been misreported since the contract’s inception. The contract was signed in mid-2019 and started in April 2020.The company’s revenue recognition policy had not been correctly applied, and revenue from the contract was recorded “prematurely”, including on work orders on which little work had actually been done, the company said.
Downer said it was confident that misreporting of earnings was specific to the contract and not replicated elsewhere in the group. A few people in charge of the contract, including two people in senior roles, have left Downer. When it first revealed the accounting irregularities, Downer lowered guidance for annual underlying net profit after tax and amortisation to between $210 million and $230 million.
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