In December last year, Downer EDI informed the market that it no longer expected to meet its financial year 2023 guidance given in August, after reaffirming in November that the company did, in fact, expect growth in underlying net profit after tax and before amortisation of acquired intangible assets (NPATA) of 10 per cent, compared to 20 per cent in FY22.

Moreover, Downer EDI also allegedly revealed misreporting of revenue and work in progress on a maintenance contract had resulted in a historical overstatement of pre-tax earnings in the order of $30 million — $40 million, according to a statement from Maurice Blackburn.  

Following those disclosures on 8 December, Downer EDI’s share price declined by approximately 20.4 per cent ($0.98) over the course of a single day of trading.

Downer EDI’s share price again fell 23.7 per cent a few months later in February, when the company disclosed to the market that further investigations into the aforementioned accounting irregularities had uncovered more overstated earnings.

Maurice Blackburn Lawyers principal Miranda Nagy said the company’s disclosures regarding the impact of a loss-making contract appeared to have shocked the market.

“It is vitally important that companies disclose to the market problems as soon as they arise and that investors can be confident that earnings forecasts are based on robust financial information, not accounting irregularities,” she said.

“The market can only operate properly if investors know what they are buying. In this case, Downer EDI investors have borne the brunt of what appears to be a significant accounting error, for which the company has given only limited explanation so far, notwithstanding that the chair, CEO and CFO have all recently departed the company.”

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Shareholders who purchased or acquired Downer EDI shares between 12 August 2020 and 26 February 2020 could be eligible for the class action.