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Downer EDI flags revenue uncertainty

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Downer EDI says a reduction in major capital works by miners will affect the company’s bottom line, with uncertainty surrounding revenue for the 2014 financial year.

Speaking at the company’s annual general meeting in Sydney yesterday, chief executive Grant Fenn said the resource sector was reducing contracts as operational reviews within the industry continue.

Fenn reaffirmed the company forecasts a flat net profit of about $215 million for fiscal 2014, The Australian reported.

"The 2014 financial year will be characterised by a reduction in major capital works in the resources sector, a greater emphasis by mining customers on optimising their volumes and cost of production and budgetary pressure on the level of government expenditure on road and rail maintenance," Fenn said.

"As a result, there is a higher level of uncertainty in revenue for the 2014 financial year."

Fenn said the company’s locomotive arm had been affected by a lack of demand in mining, highlighting the changes to its rail business.

"While the Waratah train project was a real highlight of the year, our locomotive business has been affected significantly by the drop-off in mining demand," Fenn said.

"The rail division is going through substantial change, with a strong focus on productivity. The transformation of our rail business will take some time; however we believe there is a significant market for the rail services that we provide, particularly as state governments and private operators look to improve the efficiency of their operations and networks."

The company has previously announced it will prevent a significant fall in revenue through cost cuts within the company, contract extensions and contract variations.

Downer recently cut 100 jobs at Fortescue Metals Groups’ Christmas Creek iron ore mine in the Pilbara.

It also cut 185 jobs from BMA’s Goonyella Riverside coal mine in Moranbah and another 106 jobs at the Boggabri coal mine in April.

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