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Downer's NZ revenue jumps 59% as Hawkins makes full contribution

Thursday 16th August 2018

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Sales at Downer EDI's New Zealand division rose 59 percent, benefitting from last year's purchase of parts of the Hawkins Group.

Sydney-based Downer's revenue from New Zealand and the Pacific Islands climbed to A$2.44 billion in the 12 months ended June 30, from A$1.54 billion, as Hawkins made a full-year contribution to the Australian firm. New Zealand's second-biggest construction company was also singled out for supporting a 19 percent rise in earnings at Downer's engineering, construction and maintenance division to A$2.4 billion. 

Downer bought the Hawkins assets for A$55.4 million in March last year, expanding its presence in New Zealand and gaining capability in 'vertical' construction, a segment where a number of firms have struggled to maintain profitability after agreeing to fixed-price building contracts at a time of escalating costs. Notably, Fletcher Building withdrew from chasing new work in that segment after writing down the value of projects including the Christchurch justice precinct and SkyCity Entertainment Gropu's Auckland convention centre. Ebert Construction was recently tipped into receivership. 

The Australian company sees "good growth prospects in the non-residential building and commercial sector" on both sides of the Tasman. Downer projects New Zealand's non-residential construction market to shrink at a 0.4 percent annual rate in the five years to 2022. At $8.17 billion it remains the largest local market for the infrastructure firm and will "remain strong with significant demand for Hawkins' services," the company said. 

Downer's acquisition excluded a number of Hawkins projects, some of which had exposure to leaky building claims. The Orange H Group of companies that retained those projects has since been tipped into receivership after the High Court ordered one of the units to pay $13.4 million to fix nine leaky school buildings. 

The Australian company hasn't avoided New Zealand's 'leaky building' syndrome, acknowledging five claims among its contingent liabilities. 

Downer's New Zealand business also builds and maintains roads, water infrastructure and telecommunications networks. It also provides outsourced catering and laundry services through its Spotless arm. 

It expects New Zealand road construction to shrink at an annual pace of 3.3 percent to $1.5 billion by 2022, while road maintenance spending will contract 0.7 percent a year to $1.06 billion. However, rail construction is seen expanding at a 23 percent annual pace to $670 million "with the government shift to public transport schemes". Downer has already won work on Auckland's City Rail Link. 

Government ministers have said they're willing to use public-private partnerships to help build major infrastructure but won't sign up to PPPs to build hospitals, schools or run prisons. Several ministers are speaking at a major infrastructure conference in Auckland today and tomorrow. 

At a group level, Downer's revenue climbed 13 percent to A$12.6 billion after last year's takeover of Spotless. Net profit dropped 61 percent to A$71.4 million, reflecting write-downs on the value of some mining and rail investments and the cost of integrating Spotless. 

The shares last traded at A$7.51 on the ASX, having gained 8.4 percent so far this year. 


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