Downer EDI overstated up to $40m in earnings; shares plunge

Downer EDI says it has uncovered up to $40 million in “accounting irregularities” related to an Australian maintenance contract. Its shares plunged more than 20 per cent on the shock news.

A detailed investigation is ongoing and is being treated with the highest priority, the engineering and construction company told the ASX on Thursday.

Chief executive Grant Fenn told analysts on a conference call that the irregularities involved Downer’s systems erroneously recognising revenue for maintenance work that had not yet started.

That resulted in Downer overstating its pre-tax earnings by $30 million to $40 million over the course of four financial years, from 2020 to 2023.

Downer also said that it was unlikely to meet the full-year profit guidance issued in August given the difficult weather conditions and elevated costs in both Australia’s East Coast and New Zealand.

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“Although the business has a general skew to the second-half, we think the challenge for the last seven months of [financial year 2023] has become too large,” Mr Fenn said.

“Our Road Services and Utilities businesses have been heavily impacted by weather and all businesses have been battling with staff shortages and supply chain issues.

“These issues are dissipating but not in time for 2023 earnings.”