| Cause of Action: | Downer told the market on 8 August 2006 that it would report a net loss after tax for the year to 30 June 2006 of $25 million. The market had been expecting a net profit after tax of around $125 million.
The loss was largely caused by a reversal of revenue previously recognised by a Downer subsidiary, Roche Mining, relating to claims made against Iluka Resources over a disputed contract for the Douglas Mineral Sands project. Roche had applied for extensions of time and additional payments of around $105 million under a contract it had with Iluka in around December 2005. These claims were included as revenue. On 30 January 2006, Iluka told the market it had rejected the claims as being without factual basis.
Between February 2006, when Downer told the market an increase in sales “should translate directly to at least a 20% uplift in net profit after tax”, and August 2006, Downer never corrected the market’s expectation that it would deliver a 20% increase in profit for the full year.
Shareholders alleged that Downer knew, or ought to have known, at a time earlier than August 2006 that amounts previously recognised as revenue in respect of the Roche contract would need to be expensed as at FY06 and net profit after tax for FY06 was not going to increase by 20% from the previous year. As a result, it was alleged that Downer failed to adhere to its obligations under Listing Rule 3.1 and breached section 674 of the Corporations Act 2001. |
