In FY24, Aveng managed market expectations and guided for a weaker FY25 due to the slowing infrastructure landscape in Australia and New Zealand, as well as working through the remaining Covid-era projects, many of which offer zero margin. What was not expected was the significant setbacks at two projects, which resulted in project losses of A$76.7m, with the cash outflows to be incurred over the remainder of FY25 and FY26. These losses will put a strain on AEG’s balance sheet and the operating loss is unlikely to be recovered in FY25.
We expect the company’s troubles to continue into FY26, as the order book declined to A$2.6bn and should continue to fall as the ANZ transport infrastructure market remains weak and state and federal elections slow the award of new contracts. The Building and Mining segments recorded improvements as Built Environs target sectors gained traction and Moolmans renewed its Gamsberg contract, suggesting major improvements in revenue and profitability.
Renewal of the Gamsberg contract is a positive step towards completing the sale of Moolmans. While it has only been around six months since AEG announced its intention to dispose of the business, its options have changed due to McConnell Dowell’s weak results. It is now unlikely that it will be listed on the ASX and it looks more probable that the group will be taken private.
Apart from the two lossmaking projects, the remaining projects are profitable with many performing above tendered margins. We believe that the next 18-24 months could be tough for AEG, as cash flow will be constrained and ANZ government spending will be reduced over the next six months. We expect a recovery towards the end of FY26 if further project losses can be prevented and the sale of Moolmans is completed, relieving the strain on McConnell Dowell’s balance sheet.