Downer EDI restructures to cut costs

Feb. 22 (BusinessDesk) - Downer EDI Ltd., the Australian engineering company, is restructuring a number of operations into a single division, Downer Australia, to cut costs.

Combining its Australian works, engineering and emerging sectors businesses into the new division will leave the company with four divisions, the other three being Downer New Zealand, Downer Mining and Downer Rail.

New chief executive Grant Fenn said the restructuring follows an extensive review and will remove "costly duplication of systems and support structures." He didn't say how much money the company expects to save.

Last month, Downer announced an additional A$250 million write-off on its Waratah train project on top of the A$190 million write-off in June last year.

Downer has 49% of a 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.

The latest write-downs were the latest in a string of impairments over a number of years and led to the departure of managing director Geoff Knox in August last year.

Delays to the project led international ratings agency Fitch to put Downer's “BBB-” credit rating on negative watch after the company announced further production delays with the Waratah train project and the discovery of asbestos at its rail production facility in Cardiff, Australia.

Fitch's major concern is the company's ability to execute complex contracts such as the Waratah one.

While Downer shares are listed on the NZX, all trading is in Australia where they closed yesterday at A$3.89. They were trading at A$6.27 ahead of the announcement of the June Waratah write-downs and $A4.52 ahead of the latest writedowns.

Downer also has two issues of Works Finance securities listed on the NZX. The $200 million of subordinated perpetual preference shares due to be reset in June 2012, which have a 9.8% coupon, last traded at $88.47 per $100 face value while the $150 million of senior bonds maturing September 2012 which have a 9.65% coupon last traded at $104.16 per $100 face value.

(BusinessDesk)