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THE drawn-out process of acquiring a majority stake in building services provider Spotless (ASX: SPO) has proved worthwhile for Downer EDI (ASX: DOW) which upgraded its full-year profit guidance today.
Downer EDI upgraded its full-year profit guidance after identifying larger-than-expected cost savings following its purchase of a 87.8 per cent stake in Spotless.
The engineering group upgraded its net profit guidance to $195 million, from April's $190 million, after a review identified $25 million of cost savings.
Opportunities to generate even more revenue from Spotless are also significant and will continue to increase according to Downer.
Downer CEO Grant Fenn says the integration of Spotless into Downer has been successful.
"It is clear to me that Downer's management processes, systems and capability will be of significant value to Spotless in the future," says Fenn.
Despite mammoth savings discovered, Spotless' FY18 profit is expected to be at the bottom end of its previously issued $85 million to $100 million forecast after deciding to record almost $80 million in costs and impairments at the cleaning and catering firm.
The impairments include redundancy and transaction costs, a goodwill impairment against Spotless' laundries business and a write-off of the new Royal Adelaide Hospital.
Since the group began servicing the new Royal Adelaide Hospital in September the 30-year contract has been underperforming.
"It is expected there will be no earnings from this project recognised in the 2018 financial year," says Downer in a statement on Monday.
Downer EDI closed its unconditional takeover offer for Spotless group in August 2017, bringing to a close a lengthy and delayed process resisted fiercely by the board of Spotless.
Downer valued the takeover target at $1.3 billion when its takeover offer closed on 29 August 2017.
Shares in Downer EDI Limited are trading up 2.83 per cent to $6.92 and shares in Spotless Group are down 2.70 per cent to $1.08 at 10.43 am AEDT.
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