New Mining Contract Commences but Tough Conditions Continue for Downer EDI

In early February, Downer management reaffirmed the company was on track to achieve fiscal 2015 net profit after tax, or NPAT, of "about AUD 210 million". However, in the past two months, Downer has been awarded a major contract by Fortescue Metals Group, and announced the Kelois Downer joint venture will acquire Australian Transit Enterprises, or ATE, for AUD 163 million. Downer's new mining service contract with Fortescue commences in April, runs until the end of September 2016, and is valued at AUD 720 million. The acquisition of ATE, which is a bus charter business, with a fleet of more than 900 vehicles and long-term state government contracts, is scheduled to be completed in April. Despite the recent contract win and acquisition, we remain slightly less optimistic than Downer on fiscal 2015 earnings and are forecasting NPAT of AUD 206 million, on lower demand from the resource sector and pricing pressure from infrastructure customers.