Environmental Group Limited Adjusts FY25 Profit Forecast Amid Project Challenges
EGL (EGL) Share Update November 2024 Tuesday 12th
Environmental Group Revises FY25 Profit Forecast Due to Project Overrun
The Environmental Group Limited (ASX: EGL) has announced a revision to its FY25 profit forecast following unexpected cost overruns on a key project, affecting its anticipated EBITDA growth.
Instant Summary:
- FY25 Normalised EBITDA growth revised to 10-15%, down from 25%.
- Cost overruns on Baltec IES project in Singapore.
- Design variations led to increased fabrication costs.
- CEO emphasizes underlying business strength despite setback.
Financial Update
The Environmental Group Limited (EGL) has provided an updated trading forecast for the financial year ending 30 June 2025. Initially, the company had projected a 25% increase in Normalised EBITDA compared to FY24. However, due to unforeseen cost overruns in one of its projects, this growth estimate has been revised down to a range of 10-15%.
The project in question, undertaken by the Baltec IES division, involves the engineering and supply of gas turbine silencer and exhaust systems in Singapore. During the project's execution, several design variations were required to meet specific transport size requirements, leading to increased weights and, consequently, higher fabrication costs.
Project Challenges
The design changes were not accurately reflected in the Project Management System, resulting in a significant reduction in job profitability. This oversight has necessitated a full review process to prevent future occurrences and maintain the company's strong track record.
Despite this setback, EGL's CEO, Jason Dixon, highlighted the company's robust underlying performance and expressed disappointment over the impact of this isolated incident on the overall profitability for FY25.
This announcement is likely to have a moderate negative impact on EGL's stock price in the short term. Investors may react to the reduced profit forecast, but the company's strong underlying performance could mitigate longer-term concerns. The market may view this as a one-off issue, especially with the CEO's assurance of corrective measures.
Investor Reaction:
Analysts might view the cost overrun as a temporary setback rather than a systemic issue. The company's proactive response and underlying business strength could help maintain investor confidence, although some caution is expected in the immediate aftermath.
Conclusion:
Investors should keep an eye on EGL's future updates and management's efforts to rectify project management processes. While the revised forecast is a setback, the company's commitment to addressing the issue and its overall business health remain positive indicators.