Engineering services group, Downer EDI Limited (Downer EDI), today announced a Net Profit after Tax (NPAT) for the half year ended 31 December 2007 of $82.2 million broadly in line with the same period last year. Turnover was $2,766.6 million (2006: $2,628.8 million), up 5.2%, while EBIT was $130.5 million (2006: $123.7 million), up 5.5%.

Operating cash flow for the period was $122 million representing 93% of EBIT, and is expected to remain strong. Gearing (net debt to equity) was at 39% (2006: 71%) which is at the lower end of the target range.

The directors have declared an unfranked dividend of 13 cents per share (2006: 13 cents), payable on 11 April to shareholders on the register at 7 March. The company’s Dividend Reinvestment Plan will continue to be applied for this dividend but with no discount.

Commenting on the release of the first half result, the recently appointed Chief Executive Officer of Downer EDI, Mr Geoff Knox, said: “This has been a sound start to the year with all divisions except our Mining division recording strong growth in both revenue and earnings.

“Having been in the role since the beginning of February I have had the opportunity to immerse myself in our operations and meet many of our outstanding people. This experience has confirmed my previously held views that Downer EDI has an excellent portfolio of businesses and operates in markets underpinned by strong macro economic drivers,” Mr Knox said.

“Our businesses are uniquely placed with strong market positions in all of our sectors throughout the Asia Pacific. Through a disciplined focus on expanding in our areas of core competence Downer EDI will be increasingly recognized for its differentiated market offerings across the Region.

“Safety will be a major focus of my leadership of Downer EDI. While the group’s safety record is sound with the group having maintained a steady record in recent years, we will be re-invigorating existing initiatives as a top priority moving forward with a ‘zero harm environment’ as our goal, as well as defining our objectives in the key area of sustainability,” he said.

Six months operating performance

All core businesses performed to expectations during the half year delivering increased revenue and improved financial performance with the exception of Downer EDI Mining. Particularly pleasing during the half was the performance of the Engineering and Rail divisions which grew revenues by 25% and 47% respectively. The Works division also recorded a strong performance achieving revenue growth of  approximately 13%.

While the performance of the Mining division was impacted by a range of factors previously foreshadowed, a number of important advances were made during the half including several large contract renewals and an improvement in the overall win rate.

The group’s total order book at 31 December 2007 was $10.1 billion, with the most notable new contracts being for new locomotives to meet the demands of the Australian resources sector and for mining/resource based services.

Downer EDI Works delivered a 12.8% increase in revenue to $815.1 million and a 24.2% increase in EBIT to $39.0 million. The period saw overall margin improvement with EBIT as a percentage of revenue increasing from 4.3% to 4.8%. The division has extended its reach and service offering in existing and new markets, in particular the local government and water services markets. It has also continued to grow the scale and capability of its rail services business with encouraging results in New South Wales. The outlook for the division is positive with revenue growth expected to continue.

Mr Knox said: “Downer EDI Works further consolidated its position as the leading private sector provider of road and rail maintenance and rehabilitation services in Australia and New Zealand delivering strong organic growth during the period.”

Downer EDI Rail increased revenue by 47.0% to $278.8 million, while EBIT increased 12.5% to $20.7 million. The PPP contract for the provision of 626 new railcars for the Sydney rail network continues to progress with the completion of several important milestones including the commencement of work on the Auburn Maintenance Facility and the release of the full scale model. During the period the division undertook an intensive recruitment program to meet the increased demands on its business. It is also upgrading the Cardiff and Maryborough manufacturing facilities to meet this demand. The outlook for the passenger, freight and spare parts businesses within Downer EDI Rail is positive.

Mr Knox said: “Downer EDI Rail delivered a sound result for the period, further cementing its position as the premium provider of rail rollingstock and maintenance services in Australia, illustrated by renewed passenger car and freight locomotive orders in Western Australia and Queensland.”

Downer EDI Engineering and Consulting Services maintained its leading market position in power and electrical services. Revenue for the period increased by 25.0% to $930.1 million, and EBIT rose by 45.7% to $45.6 million, reflecting improved margins. During the period, the division increased business streaming to further align its operations with market opportunities. While the telecommunications market in Australia remains subdued, the division’s Technical Services business is developing new opportunities across its geographic spread of Australia, New Zealand and SE Asia. The outlook is positive based on a strengthening order book and strong market opportunities, combined with business improvement initiatives delivering year on year savings. Consulting Services (CPG Corporation, Duffill Watts, Coomes Consulting and Snowden Group) has experienced growth and margin improvements and is working on leveraging its knowledge and capability across the Downer EDI group.

Mr Knox said: “Our Engineering division maintained its leading market position in power and electrical while also further developing opportunities for technical services. We foresee continued margin growth in this business as we undertake further business improvement.”

Downer EDI Mining generated revenue of $752.1 million, a decrease of 21.2% and EBIT of $40.9 million a decline of 32.5% compared to the previous corresponding period on an underlying basis. As previously foreshadowed, a range of factors impacted the performance of the division including floods on the East Coast of Australia in the first quarter; new business opportunities which were missed; and infrastructure constraints. Despite these challenges the evidence of a turnaround in the Mining division is emerging reflected in increased demand for services and a record level of tendering opportunities of over $5.4 billion. The new management team, regional structural changes, and implementation of the ‘back to basics’ business improvement processes across the division are working well, with renewed focus on customers and risk management. There has been significant expansion of the division’s blasting services business into Western Australia and Tasmania. Strategies ahead include growth in service offerings, renewed customer focus and selectively exploring new opportunities.

“While the challenges faced by Downer EDI Mining have been well flagged it is pleasing to see evidence of the emergence of a turnaround in this business reflected in several important contract wins and an increase in the overall win rate. The increase in secured sales under the new management team is a testament to their competence and to their credibility in this market,” Mr Knox said.

Divestment of Century
On 27 October 2007, Downer EDI entered into an agreement with MB Holdings Company LLC (MB Holdings) for the sale of Century Resources in two tranches. The sale of the first tranche of 51% took place on 31 December 2007. The sale agreement grants an option to
MB Holdings to purchase the remaining 49% of the shares at any time prior to 1 July 2010. In the event that MB Holdings’ call option is not exercised, Downer EDI is able to exercise its put option any time between 1 July 2010 and 30 September 2010.

Outlook/Business Review
The business outlook for Downer EDI is positive underpinned by record levels of spending in our markets across all of the geographies in which we operate, especially in the areas of infrastructure, mining and energy. The company is well positioned to capitalise on these trends through the application of its core competencies in supply, service and maintenance.

The company sees no material change to the guidance provided at the company’s AGM in November 2007.

Commenting, the Chief Executive Officer of Downer EDI, Mr Geoff Knox said: “I am resolutely focused on unlocking the inherent value that is within our business through a focus on several basic fundamentals. In particular, I am eager to see that the fundamentals of zero harm, optimization of our portfolio and performance, client engagement and empowerment of our people are in place. These are the key ingredients in the “back to basics” theme which underpins our focus on shareholder value creation.

“It is on top of this platform that we are establishing the programs for the strategic development of the business. One component of this, a review of our businesses undertaken by UBS, has already been completed. This provides an important input into our Strategic Development process being facilitated by leading Strategy Consultants, 2nd Road, the result of which will be delivered to the market in June,” Mr Knox said.

Downer EDI Limited (www.downeredi.com) provides comprehensive engineering and infrastructure management services to the public and private transport, energy, communications and resources sectors across Australia, New Zealand, Asia Pacific and into the United Kingdom.

Media: Geoff Fowlstone, Principal, Fowlstone Communications (02) 99559899 or 0413746949
Investors: Ross Moffat, General Manager - Investor Relations, (02) 9240 9042 or 0412 256 224