Downer EDI shares went into a trading halt yesterday to allow the company to start a $400 million capital raising as part of a revamp of the company.
Downer said that the revamp includes plans to acquire 100% ownership of Spotless group and plans to sell off capital-intensive businesses like mining contracting and laundry.
As well, the company will write off around $386 million in charges in a goodwill impairment, restructuring and portfolio review costs, payroll remediation, legal settlements, and historical contract claims adjustments.
That will see a loss for the year to June of around $156 million, down from a profit of $276 for 2018-19.
The issue will be a one new share for every 5.58 existing shares (fully underwritten) at $3.75 a share, a 12% discount to the last price on Monday of $4.26.
When that is completed the company will offer $1 a share for the remaining 12% or so of Spotless it doesn’t own. Downer will also offer a Downer contingent share option — exercisable over one Downer share — for every 17.92741 Spotless shares accepted. Most of the shares are held by a US hedge fund which refused to accept the original offer in 2017 of $1.15 a share.
The changes would allow Downer to focus on its core urban services businesses including transport services and utilities services (such as the 13 year $400 million-plus contract announced last week with the South Australian government to maintain roads and associated services in parts of the state).
“We have identified areas of our business where restructuring is required and are taking the necessary steps to exit less profitable markets and contracts and to right-size the cost structure of these businesses,” CEO Grant Fenn said yesterday.
“We are confident that the actions we are taking will make our business more competitive and allow us to drive improved returns going forward,” he added
“We are very happy with the strong performance of Downer’s core Urban Services businesses in the current operating environment. We are focused on continuing to grow our services businesses which require relatively low levels of capital and deliver more predictable revenue in the long term,” he said.
The company also updated the market on its 2020 full-year financial results, forecasting underlying EBITA (earnings before interest, tax, and amortisation) of $410 million to $420 million, and underlying NPATA (net profit after tax and amortisation) of $210 million to $220 million.
That’s down around 40% from previous forecasts and are misleading anyway because of the $386 million in contingent and other costs will produce a loss after tax.
But the actual net result will be a loss of $156 million for the year to June.