Downer EDI interim chairman to meet investors following board purge
Downer EDI’s interim chairman Mark Menhinnitt will meet with major investors this week as the embattled engineering group attempts to mend relations with the market following the exit of its chairman and finance chief after a shock profit warning that sent its stock plunging.
Menhinnitt was forced into the role after Downer’s long-serving chairman Mark Chellew resigned on Friday with immediate effect.
“The board thanks Mr Chellew for his leadership of the company during a challenging period and wishes him the very best for the future,” Downer’s board said on Friday.
It capped off a week of tumult that saw Downer nearly half its market valuation since last August to just $2.2 billion, leaving it vulnerable to opportunistic bids for the company.
Michael Ferguson resigned as chief financial officer on Wednesday, two days after Downer reported a 21 per cent drop in profit for the December half-year to $68.1 million, cut its full-year profit guidance for the second time in two months and its dividend.
The stock dropped 24 per cent to a multi-year low of $3.02 following the announcement on Monday.
It drew a scathing response from Downer’s largest investor, fund manager Allan Gray, with its managing director Simon Mawhinney demanding a meeting with Chellew and telling The Australian Financial Review that heads needed to roll.
He criticised the company’s “inability to recognise how inept they have been in running a profitable and sustainable business”. Mawhinney declined to comment further.
Morningstar analyst Mark Taylor said the silver lining from last week’s results is that he sees limited long-term implications from it.
“We expect the storm to ultimately be weathered and for things to improve,” Taylor said.
Morningstar later said the steep share price drop was overdone and warned that it could make the company vulnerable to an opportunistic bid from private equity, which would be followed by a clean-out of its management.
Another potential issue that surfaced last week was news that the NSW corruption watchdog will investigate allegations bureaucrats from the state’s transport agency and an inner Sydney council used their positions dishonestly in awarding contracts to various companies for their own advantage, including Downer.
The only survivor from last week’s interim results is chief executive Peter Tompkins – a Downer veteran who served as chief operating officer before last week’s promotion. He replaced Grant Fenn.
In December last year, Downer took another hit after telling the ASX it was investigating whether fraud is behind the “accounting irregularities” that caused it to overstate profits by up to $40 million.
The share price dropped more than 20 per cent to $3.82 – the stock’s lowest level in two years – after Downer revealed it had been accounting for revenue on a power maintenance contract that was never paid, for work that wasn’t delivered, over a three-year period.
The accounting shock was accompanied by Downer saying it was unlikely to meet the full-year profit guidance it issued in August because of difficult weather conditions and elevated costs in both Australia’s east coast and New Zealand.
Last week, Downer said the revenue was recognised prematurely and expressed confidence that the issue was specific to this contract and is not replicated elsewhere in the company.
Tompkins, praised the work of its departing CFO, Ferguson, when he resigned last week. “I would like to thank Michael for his many contributions to Downer over the last nine years. I consider Michael to be one of the best commercial and financial professionals I have worked with.”
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