Downer shares spike as Spotless drives net gains

SHARES in Downer EDI have surged after the engineering group upgraded its full- year profit forecast, saying it had found more savings than expected after buying Spotless earlier this year.

Downer, which owns 87.8 per cent of the contract catering and cleaning company, yesterday upgraded its net profit forecast for the year to next June to $ 195 million.

That compares with a forecast issued in April for a $ 190 million profit.

The group said it was upgrading its forecast after a review identified $ 25 million worth of cost savings and “significant” revenue opportunities.

But the company expects Spotless’s profit to be at the bottom end of its previously issued forecast of $ 85 million to $ 100 million forecast.

That comes after it decided to record almost $ 80 million in costs and impairments at the cleaning and catering group best known for its role as MCG caterer.

The cost hit includes redundancy and transaction costs, a goodwill impairment against Spotless’s laundries business and a write- off against its longtime contract at the new Royal Adelaide Hospital.

Downer said Spotless, in the first year of a 30- year contract at the hospital, had been underperforming there since operations started in September.

It was working to address the issues and expected the work to take several months, the engineering group said in a statement yesterday.

“It is expected that there will be no earnings from this project recognised in the 2018 financial year,” it said.

The company said the first four months of Spotless’s “consistent and predictable” trading was broadly in line with its expectations.