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Downer slides on payment delay talk
ADELE FERGUSON
June 29, 2010 - 11:48AM

Downer EDI shares fell sharply in early trade, bringing this year's stock losses to about 60 per cent, after the company denied BusinessDay reports that an internal email indicated the construction firm was deferring payments to some suppliers until next financial year.

Downer shares lost as much as 6.8 per cent, or 27 cents, to $3.72. The company's current market value is about $1.3 billion, down from about $3 billion at the start of the year.

In a statement to the Australian Stock Exchange this morning, Downer made specific references to these BusinessDay articles in the Sydney Morning Herald and The Age. Unusually, the company subsequently issued a second statement to the ASX in a bid to clarify its initial one.

''Downer has ample liquidity with in excess of $600 million in available facilities and cash balances,'' the first statement said.

''The Works Australia division expects to pay all creditors as per agreed creditor terms whilst meeting its internal cash targets,'' it added.

The construction company said the $35 million referred to in the articles ''relates to identified collectable debtors not creditors as inferred and a significant portion of this amount is expected to be received by year end. Downer will continue to manage its debtors and creditors to ensure a strong and balanced focus on total management of working capital.

The email obtained by BusinessDay, however, refers to two $35 million amounts - one of them relating to debtors, as stated by Downer - but also another sum of $35 million owed to suppliers.

The statements and emails cap a bad month for the company. Downer's shares plunged almost 27 per cent on June 1 alone after the firm announced $260 million in writedowns.

Downer's second 'clarification'

Downer issued a second statement during the morning in a bid to clarify its initial statement:

''The $35 million referenced in the subject email relates to both identified collectable debtors and a proposal to manage creditor payments,'' the follow-up statement said.

''The relevant debtors are expected to be received before year end and Works Australia expects to pay all creditors as per agreed creditor terms.''

As the leaked email dated June 17 states, however, the Chief Financial Officer Chris Storey refers to a revised cash target for the Works business of $45 million.

''In order to meet the target we will be required to closely manage our working capital position through the deferral of a significant number of supplier payments expected to be made this month,'' the email states. ''At present we estimate this number to be upwards of $35 million.''

Importantly, the email indicates the management of funds is aimed at meeting the cash targets for the financial year ending tomorrow.

''This action is necessary as without it the Works business would likely record a net cash outflow for the year. This result is unacceptable,'' the email states. (Bold in the original email.)

Downer, of course, is hardly alone among companies looking to burnish their books ahead of the end of the financial year. Still, as this separate email shows from June 23, 2009, this year is not the first time Downer has prodded staff to defer payments to meet cashflow targets.

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