ASX Drops Third Consecutive Day, Downer Reports Biggest Decline

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Last week was ASX’s third consecutive share market decline, following Wall Street. Energy and financial sectors were the significant contributors to the stop in share prices for this day.

S&P/ASX 200 index fell 53.9 points to 7175.5, and All Ordinaries dropped 0.7 per cent, closing at 7369.4. Gold stocks saw a one per cent increase overnight, with Evolution Mining rising 3.6 per cent to $2.90 and Silver Lake up 3.9 per cent to $1.34.

Downer EDI, an engineering and construction firm, saw its most significant decline on the ASX 200 as it launched its investigation into ‘historical misreporting of revenue and worked in progress’. Downer stocks closed at $3.82 and acknowledged that about $30 to $40 million of pre-tax earnings were overstated over the financial years 2020 to 2023.

In an official report, Downer EDI noted, “After analysis of the group’s trading for October and November, it has become clear that the guidance is now unlikely to be met. That means the company now expects underlying financial 2023 net profit after tax and amortisation of between $210 million to $230 million.”

According to Downer chief executive Grant Fenn, the investigation into the overstatement of pre-tax earnings is the company’s top priority, reassuring its investors in a conference call that the error was not systemic.

Though the company is still unsure if the irregularities discovered resulted from human error or fraud-related, Fenn noted, “Misrepresentation of the contract performance is something we take very seriously, and we are looking at very closely. Whether that meets the legal definition of fraud is something we will be investigating.”

Downer expects underlying profit for the year to be around $210 and $230 million, assuming no further impact such as COVID-19, weather, or labour shortages will impact its earnings. “Our Road Services and Utility 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,” as noted by Fenn.

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