Troubled industrial group, Downer EDI has had its shares suspended until Thursday after foreshadowing more delays and cost overruns for the Waratah Train contract tendered by the NSW government.
The engineering shares were placed in a trading halt yesterday (just after noon) ahead of announcement by the company about the contract.
The shares had eased 3c to $4.52 ahead of the request for the trading halt. That price is about where the shares were at the last profit warning and statement about the troubled train contract in June of last year.
The company said in the latest statement that the announcement (by Thursday) will be in relation to a delay to presenting the first train set to NSW for practical completion, production delays to subsequent trains sets due to asbestos contamination at a factory, and "manufacturing production schedule and project costs".
The company said it would outline its manufacturing production schedule and project costs and that it expects to make an announcement by Thursday morning.
"The trading halt is necessary as Downer expects to make an announcement to the market in connection with the impact to Downer of changed circumstances in relation to the Waratah Train contract as set out below:
"• Delay to presenting the first train set to RailCorp for practical completion; • Delays in production of subsequent trains as a result of asbestos in the Cardiff manufacturing facility; and • Manufacturing production schedule and project costs."
It was only on December 8, that Downer EDI reminded the market that CEO Grant Fenn had said on November 3 that
"Under the current schedule, the first Waratah train will be ready for acceptance by RailCorp by the end of December and, under the contract, the timing of the entry into service will be determined by RailCorp."
Mr Fenn also said on 3 November: "The timetable is tight, but it is achievable if testing continues to go well."
But on December 8 Mr Fenn said that testing of the trains was going very well, however there have been changes to the testing schedule primarily related to the availability of track access.
"Whilst discussions continue with RailCorp on track availability for December and the Christmas-New Year holiday period, it is now expected that a small number of tests will be completed in January and the first Waratah train will be presented to RailCorp for Practical Completion following the successful completion of those tests."
The asbestos problems at the Cardiff facility, near Newcastle were revealed on December 10 in a statement to the ASX, with an update five days later which said the site was returning to operations.
Clearly this problem and other delays have been too much for the timetable.
The question now is whether the first of the new trains will be delivered by the time the NSW people go to the polls in late March?
The answer is probably no and the trains could be nearly two years late when delivered, according to some timetables.
