Downer Posts Accounting Issues Overlooked by Senior Staff

Construction and engineering asset manager Downer EDI [ASX:DOW] has highlighted ‘irregularities’ found in its accounts, which have spanned the last few years.

DOW also said it has had to cut its profit guidance for 2023.

This was reported as an ‘oversight’ by the Board and senior management, encouraging the group to launch a detailed investigation.

The DOW share price flopped 20% on the shocking news, to then be brought down 26% in the last week and more than 35% year to date.

Chart of ASX Downer stock prices


Downer identifies accounting irregularities and launches investigation

The engineering firm stunned shareholders with its accounting revelation earlier today, admitting its own Board and senior management had not spotted these irregularities, which had occurred within its Australian Utilities business over several years.

This recurring misreporting incident has — so far in the company’s ongoing detailed investigations — shown an estimated history of overreported pre-tax earnings amounting to $30–40 million (as at the end of November this year).

This figure consists of an accumulation of errors that have transpired from September 2019 through November 2022.

Downer identified these irregularities within the company’s work in progress in its maintenance contracts.

DOW’s CEO and Managing Director — Grant Fenn — has reassured shareholders that the company is moving rapidly to address the issues and that both the financial and management capabilities of the business will be strengthened in the process.

The exact impact of these accounting issues on the company’s earnings is not yet known.

Downgraded profit guidance

If the blundered accounts were not enough to ruffle investors, then a profit downgrade to the company’s financial 2023 guidance may have salted the wound.

Back in August, the engineering corporation declared its expectation of 10–20% growth in underlying NPATA — if it did not have to deal with any disruptions caused by COVID-19, weather, labour shortages, and any other unforeseeable disruptions that might arise.

This may have been jinxed forecasting, as challenging weather conditions, labour, supplies, and rising costs have all hindered progress in the first quarter.

Upon closer trading analysis, the group noted, ‘it has become clear that the guidance is now unlikely to be met.’

Aside from costs accrued in today’s accounting revelation, Downer now expects underlying FY23 NPATA to be $210–230 million — that is, again, if no further disruptions arise.

Mr Fenn said:

Although the business has a general skew to the second-half, we think that the challenge for the last seven months of FY23 has become too large.

Our Road Services and Utilities businesses have been heavily impacted by weather and all businesses have been battling with staff shortages and supply chain issues. These issues are dissipating but not in time for 2023 earnings.’

The company plans to provide another update at its half-year results presentation in February.

Fenn will be retiring in February, and his successor has been named Peter Tompkins, the company’s current COO, as announced earlier this month.

Resources boom — an insider’s attack plan and Q&A

You’ve probably already heard about the next big mining boom that’s been predicted to happen in the next few years.

It’s a topic that’s fast heating up in the media.

Similar patterns that occurred 20 years ago are happening again.

Rich and powerful execs were capitalising on the signs last time, reaping big gains.

But this time, you can get insider intel from an on-the-ground veteran geologist, our commodities expert James Cooper.

James is ‘convinced the gears are in motion for another multi-year boom’ — and Australia is in line to benefit greatly.

You can access James’s plan of attack and get his unique and exclusive insight into the industry by attending his webinar for ausbiz TODAY.

Additionally, James and Fat Tail’s Editorial Director, Greg Canavan, are hosting an open and live Q&A where you can get all your questions about Australia’s next mining boom answered.

Register your interest here, so you don’t miss out!


Mahlia Stewart,
For The Daily Reckoning Australia

The post Downer Posts Accounting Issues Overlooked by Senior Staff appeared first on Daily Reckoning Australia.