January 23, 2020 / 2:58 AM / a month ago

Australia's Downer EDI lowers annual profit outlook by 18% as costs surge

Jan 23 (Reuters) - Australia’s Downer EDI cut its annual profit forecast on Thursday amid a surge in costs at its loss-making construction contracts, sending the company’s shares sharply lower to mark their worst session in nearly a decade.

The revised outlook comes amid weak global business investment and as Australia’s economy stutters along with sluggish wage growth and high consumer debt.

The New South Wales-based company slashed its previous estimate of net profit after tax and amortisation by nearly 18% to A$300 million ($205.17 million), and said it will shift focus towards long-term contracts.

After significant cost overruns in December and January, the engineering contractor said a further A$43 million will be needed in order to complete its loss-making projects.

The engineering firm also flagged a A$300 million drop in full-year construction revenue and A$10 million restructuring charges related to staff reductions.

Downer shares slumped as much as 26.3% to A$6.45, their lowest in more than a year.

The bleak outlook comes on the heels of an announcement by larger rival CIMIC Group, which flagged a one-off charge of A$1.8 billion from the planned exit from the Middle East. CIMIC also scrapped its final dividend and expects profit toward the lower end of its outlook.

$1 = 1.4622 Australian dollars Reporting by Arundhati Dutta in Bengaluru, Editing by Sherry Jacob-Phillips

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