Monday 2nd August 2010
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Engineering company Downer EDI is replacing managing director Geoff Knox with chief financial officer Grant Fenn.
Fenn joined Downer in October last year and was appointed to the board last month.
"Geoff has been a driving force for Downer over the past two-and-a-half years," says chairman Peter Jollie in a statement wishing Knox well after his resignation last Friday.
Knox's tenure included the global financial crisis and "testing market circumstances" and he recruited "some excellent talent and has taken occupational health and safety and environment to be a defining feature of the Downer culture," Jollie says.
Knox shocked the market at the beginning of June when he announced A$260 million (NZ$324 million) in write-downs including A$190 million on its 49% joint-venture with the New South Wales government to build 78 commuter trains and maintain them over a 30-year period, known as the Waratah project.
Knox blamed the Warratah write-downs on his predecessor, Stephen Gillies, who presided over A$163 million of write-downs in 2006 and another A$152m in 2007 before his departure, but analysts wondered why it took Knox so long to discover the problems.
It was already well known the now 30%-completed project was behind schedule and the market was worried about funding issues after both Moody's and Standard & Poor's downgraded the highly-geared rail joint-venture back in March.
Its A$2.3 billion of bonds now just scrape in as investment grade with a "BBB-" S&P rating compared with "AAA" when they were issued in 2007.
But until the beginning June, Knox was still saying Downer was on track to meet earnings guidance. NZ Capital estimates Downer will have to write off a further A$50 million on the Waratah contract while Owen Evans at UBS is assuming a further cash loss of about A$150 million.
In late 2007 ahead of Knox joining Downer, he told The Australian he understood the company's problems. These included "a culture of cover-up," sub-standard internal risk-management controls, lack of transparency and profit downgrades, all at a time when its competitors were flourishing.
Fenn previously spent 10 years at Qantas in various executive roles, ending as strategy and investments general manager.
"We recruited Grant not only for the breadth of his financial, strategic, operational and leadership skills, but also as a potential future chief executive officer," Jollie says.
Fenn says Downer is "fully focused" on delivering the Waratah trains and is "working very hard" to deliver the first train set before the end of 2010.
Excluding the already announced write-downs, Downer's net profit for the year ended June will be about A$194 million, in line with market consensus, he says. Downer will announce full details of its results on August 19.
Fenn's deputy, Kevin Fletcher has been appointed acting chief financial officer.
Jollie says Downer has more than A$17 billion of work in hand with more than 75% of work in 2011 already contracted.
"There is also a strong pipeline of opportunities supporting continued demand for our services and I believe Downer has a bright future," he says.
While Downer shares are listed on the NZX, all trading is in Australia where they closed at A$4.97 on Friday. They have fallen from A$6.27 ahead of the announcement of the Waratah write-downs.
Downer also has two issues of Works Finance bonds listed on the NZX. The $200 million maturing in June 2012 last traded at 92.3 cents per $1 face value while the $150 million maturing September 2012 last traded at $105.5 per $1 face value.
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