Downer Edi Limited · ASX:DOW
Downer Edi — Investor Presentation (July 2020)
48 slides from Downer Edi's investor presentation, Jul 21, 2020
Slide 1: Creating a stronger Downer
Not for distribution or release in the United States Creating a stronger Downer 21 July 2020
Slide 2: Important Notices and Disclaimer
IMPORTANT NOTICES AND DISCLAIMER This presentation (Presentation) has been prepared by Downer EDI Limited (ABN 97 003 872 848) (DOW or Downer) in relation to Downer's pro-rata accelerated non-renounceable entitlement offer of new fully paid ordinary shares in Downer (New Shares) (Entitlement Offer).
Slide 3: Important Notices and Disclaimer
IMPORTANT NOTICES AND DISCLAIMER Future performance and forward looking statements This Presentation contains certain forward looking statements and comments about future events, including Downer’s expectations about the performance of its businesses, the effect of the funds raised under the Entitle
Slide 4: Agenda
AGENDA 1 Executive summary 2 FY20 result update 3 Initiatives to reshape Downer 4 Reshaped Downer 5 Equity raising and balance sheet 6 Appendices 4 Not for distribution or release in the United States
Slide 5: Executive Summary
JOSPITAL Downer Relationships creating success
Slide 6: Executive Summary
1 Executive Summary • Underlying FY20 EBITA1,2 expected to be in the range of $410m – $420m and underlying NPATA1,2 in the range of $210m – $220m • Underlying FY20 EBITA for core Urban Services businesses estimated to total $511m 2 (FY19: $525m) FY20 preliminary, • Considerable resilience in earning
Slide 7: Executive Summary
1 Executive Summary • After implementing the portfolio initiatives and the equity raising, Downer will be well placed to deliver growth and an improving return on capital • Core Urban Services1 businesses have demonstrated their strength and resilience and represent the future of Downer and enjoy le
Slide 8: FY20 result update
JOSPITAL Downer Relationships creating success
Slide 9: Core Urban Services' performance has been resilient
2 Core Urban Services' performance has been resilient Despite the near-term impacts associated with COVID-19, total FY20 underlying EBITA for Downer's core Urban Services businesses is comparable to FY19 levels Underlying EBITA A$m FY191 Estimated FY202 Variance (%) Segment Actual Preliminary, unaud
Slide 10: Summary of items outside of the underlying result
2 Summary of items outside of the underlying result Previously Estimated Items outside of underlying FY20 reported (subject to review and audit processes) Summary (Pre tax basis) A$m 1H20 impact 2H20 impact FY201 impact • Impact of COVID-19 on future earnings from Hospitality • Reduction in construc
Slide 11: Initiatives to reshape Downer
Initiatives to reshape Downer
Slide 12: Creating a stronger Downer
3 Creating a stronger Downer Downer is undertaking a range of initiatives focused on optimising its portfolio and creating a stronger platform for long-term, sustainable growth • Downer or its wholly-owned subsidiary, Downer EDI Services Pty Ltd, will make an unconditional offer to acquire all of th
Slide 13: Path to 100% ownership of Spotless
3 Path to 100% ownership of Spotless Spotless is integral to Downer's Urban Services strategy, supporting its position as a leading integrated services provider with resilient earnings and long term customer relationships ✓ Multi-billion dollar pipeline of new opportunities driven by macro-economic
Slide 14: Exiting non-core businesses
3 Exiting non-core businesses Mining and Laundries • Portfolio review announced in August 2019 − Review concluded Downer should exit both Mining and Laundries to increase returns to shareholders and release invested capital − In March 2020, Downer announced it was suspending the sale process for Min
Slide 15: Exiting non-core businesses (cont.)
3 Exiting non-core businesses (cont.) Construction and Hospitality • Identified areas of the business where restructuring is required and taking the necessary steps to exit from less profitable markets and contracts, and to right-size the cost structure of these businesses − The exit of high-risk co
Slide 16: Restructuring to right-size corporate structure
3 Restructuring to right-size corporate structure • As it moves to exit legacy construction and hospitality contracts, Downer is taking steps to restructure and right-size its corporate cost structure to deliver ongoing cost savings and efficiencies across the Group's operations • Included in portfo
Slide 17: Reshaped Downer
JOSPITAL Downer Relationships creating success
Slide 18: Reshaped Downer
4 Reshaped Downer After implementing these reshaping initiatives and the equity raising, Downer will be well positioned to deliver growth and improved returns post COVID-19 ✓ Downer’s future portfolio is weighted to services-oriented businesses that have demonstrated their resilience: ✓ Leading mark
Slide 19: Focus on lifecycle asset services
4 Focus on lifecycle asset services Downer is focused on winning and delivering secure, long-term contractual service revenue and leveraging its expertise to drive margin expansion over time1 Margin Revenue Operating Engineering Maintenance Procurement Servicing Construction Supply 2 years 5 years 1
Slide 20: Positive outlook for core businesses
4 Positive outlook for core businesses Downer expects earnings to continue to be resilient, supported by strong exposure to critical infrastructure and government-mandated public works • Due to the current economic environment Downer cannot provide earnings guidance for FY21 at this time • While the
Slide 21: Driving value for shareholders
4 Driving value for shareholders Aligned to growing Increased exposure to Business markets and serving low capital, service Strategic acquisitions growth quality customers oriented businesses Leveraged to economic and Growing exposure to high Path to 100% ownership of social infrastructure markets m
Slide 22: Equity raising and balance sheet
Equity raising and balance sheet
Slide 23: Entitlement Offer to support Spotless Offer and reshaping initiatives
5 Entitlement Offer to support Spotless Offer and reshaping initiatives, maintain flexibility and strengthen balance sheet Downer is undertaking a fully underwritten $400 million Entitlement Offer • Achieving 100% ownership of Spotless with upfront cash cost to Downer of $134.5m − Expected to achiev
Slide 24: Entitlement Offer Details
5 Entitlement Offer Details Fully underwritten c.$400 million accelerated non-renounceable entitlement offer • Fully underwritten c.$400 million accelerated non-renounceable entitlement offer ("Entitlement Offer") Structure • Under the Entitlement Offer, eligible shareholders are entitled to 1 New S
Slide 25: Entitlement Offer Timetable
5 Entitlement Offer Timetable Event Date Announcement of Entitlement Offer, Institutional Entitlement Offer opens Tuesday, 21 July Announcement of results of Institutional Entitlement Offer Trading Halt lifted Wednesday, 22 July Trading in ordinary shares resumes on an ex-entitlement basis Record Da
Slide 26: Strengthened balance sheet
5 Strengthened balance sheet The Entitlement Offer will strengthen Downer's balance sheet to support continued investment in its core businesses • Following the Entitlement Offer, Downer will be well capitalised to meet expected future funding needs • Reported gearing ratio2 post impairment of 35.5%
Slide 27: Funding and liquidity
5 Funding and liquidity Diversified funding sources and no near-term debt maturities • Total limit under all facilities of $3,339m ($1,270m currently undrawn) • New $500m syndicated bank facility established in April 2020 and extension to existing bilateral facilities • Diversified funding sources •
Slide 28: FY20 preliminary, unaudited result
FY20 preliminary, unaudited result Appendix A
Slide 29: Reconciliation to statutory result
Reconciliation to statutory result Expected FY201 result A$m FY19 reported (subject to review and audit processes) Underlying NPATA 340.1 210 – 220 Amortisation of acquired intangibles (post-tax) (49.3) (50) Underlying NPAT 290.8 160 – 170 Items outside of underlying NPAT (pre tax) (28.0) (386) Tax
Slide 30: Further detail on Spotless Offer
Further detail on Spotless Offer Appendix B
Slide 31: Spotless Offer details
Spotless Offer details ▪ Downer or its wholly-owned subsidiary, Downer EDI Services Pty Ltd will make an unconditional offer to acquire all of the issued share capital in Spotless not already owned by Downer Overview ▪ Downer has entered into a call option deed with Coltrane Master Fund, L.P.1 under
Slide 32: Key risks
JOSPITAL Downer Relationships creating success
Slide 33: Key Risks
KEY RISKS There are a number of risks, of a general and specific nature, which may affect the future operating and financial performance of Downer, its investment returns and the value of its shares. Many of the circumstances giving rise to these risks are beyond the control of Downer. This section
Slide 34: Key Risks
KEY RISKS In addition, there is a risk of a COVID-19 related infection occurring at a location in which Downer operates, which could have a negative impact on Downer's ability to operate at that location. This may also create a risk of broader infection of Downer's workforce which could negatively i
Slide 35: Key Risks
KEY RISKS Equity raising and Underwriting Risk Downer has entered into an underwriting agreement under which the Underwriters have agreed to fully underwrite the Entitlement Offer, subject to the terms and conditions of the underwriting agreement. If certain events occur, the underwriter may termina
Slide 36: Key Risks
KEY RISKS Project Management and bid governance for large projects Downer has sought to implement robust project risk management processes and systems across its business (including a Project Management Office), as well as additional bid governance relating to tenders for large projects. Because of
Slide 37: Key Risks
KEY RISKS Payroll Remediation (a) Employee Pay Remediation In 2019, following the identification of historical under and overpayments to some employees, the Group commenced a review of the main Enterprise Agreements (EA) and Modern Awards (MA) under which permanent and casual Spotless employees have
Slide 38: Key Risks
KEY RISKS IT and Cyber risk Downer relies on IT infrastructure and systems and the efficient and uninterrupted operation of core technologies. Downer's core technologies and other systems and operations could be exposed to damage or interruption from system failures, computer viruses, cyber-attacks,
Slide 39: Key Risks
KEY RISKS Partnerships and joint ventures Controlled entities have entered into various partnerships and joint ventures under which the controlled entity could ultimately be jointly and severally liable for the obligations of the partnership or joint venture. The participation of third parties in pa
Slide 40: Key Risks
KEY RISKS Guarantees and indemnities Downer and certain of its controlled entities are called upon to give guarantees and indemnities in respect of the performance by counterparties, including controlled entities and related parties, of their contractual and financial obligations. These guarantees a
Slide 41: Key Risks
KEY RISKS Credit ratings As at the date of this presentation Downer was rated BBB (Stable) by Fitch Ratings. Changes to Downer’s credit rating by Fitch Ratings may impact the ability of Downer to win new work as well as the cost of funding. Where the credit rating is reduced, or placed on negative w
Slide 42: Key Risks
KEY RISKS Completion risk The acquisition of the outstanding shares in Spotless is subject to an unconditional takeover bid which Downer has committed to make in respect of the shares it does not currently own in Spotless. Downer has entered into a call option deed with Coltrane Master Fund, L.P. ov
Slide 43: International offering jurisdictions
International offering jurisdictions Appendix D
Slide 44: International Offering Jurisdictions
INTERNATIONAL OFFERING JURISDICTIONS International Offer Restrictions This document does not constitute an offer of new ordinary shares ("New Shares") of Downer in any jurisdiction in which it would be unlawful. In particular, this document may not be distributed to any person, and the New Shares ma
Slide 45: International Offering Jurisdictions
INTERNATIONAL OFFERING JURISDICTIONS The following is a summary of the statutory rights of rescission or to damages, or both, available to purchasers in Ontario. In Ontario, every purchaser of the New Shares purchased pursuant to this document (other than (a) a "Canadian financial institution" or a
Slide 46: International Offering Jurisdictions
INTERNATIONAL OFFERING JURISDICTIONS Hong Kong WARNING: This document has not been, and will not be, registered as a prospectus under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong, nor has it been authorised by the Securities and Futures Commission in Hong
Slide 47: International Offering Jurisdictions
INTERNATIONAL OFFERING JURISDICTIONS Norway This document has not been approved by, or registered with, any Norwegian securities regulator under the Norwegian Securities Trading Act of 29 June 2007 no. 75. Accordingly, this document shall not be deemed to constitute an offer to the public in Norway
Slide 48: International Offering Jurisdictions
INTERNATIONAL OFFERING JURISDICTIONS United Arab Emirates This document does not constitute a public offer of securities in the United Arab Emirates and the New Shares may not be offered or sold, directly or indirectly, to the public in the UAE. Neither this document nor the New Shares have been app