Finding yourself irritated at having to change outfits constantly due to unpredictable weather conditions? You’re not alone. Traffic management services provider Avada Group (ASX: AVD) has had to weather some frustrating climatic conditions, and it has impacted the Company’s financials.
However, as per its latest projections, Avada is poised for a strong finish in H2 FY23.
Avada expects its underlying EBITDA for H2 FY23 to be in the range of $7.5 million to $8.5 million, surpassing the $7.1 million achieved in H1 FY23. The projected underlying EBITDA for FY23 is estimated to be between $14.6 million and $15.6 million, indicating a positive trend for Avada.
Avada Chief Executive Officer and Managing Director, Mr Daniel Crowley said, “Operating conditions have improved since the first half of the year, we continue to improve our processes, and are delivering a strong finish for the year.”
The Company attributes the favorable outlook to the return of operating conditions, particularly weather patterns, to long-term averages. Avada has historically met trading expectations during periods of normal weather, underscoring the strong demand for its services. However, uncertain weather conditions pose challenges in maintaining fleet, project, and staff levels.
To boost efficiency and streamline operations, Avada implemented centralisation and consolidation measures across various functions, including operating models, finance, IT, and human resources. These initiatives have not only resulted in cost savings but also improved resource allocation. Plus, the Company has successfully completed two strategic acquisitions thus far.
On May 5, Avada locked in a New Zealand contract with the acquisition of Wilsons Traffic Management Limited, the largest traffic management company in New Zealand’s South Island for a cash payment of $8.8 million. Secondly, in August 2022, it completed the acquisition of the business and assets of Construct Traffic, a leading traffic management company in Victoria.
Crowley added, “Continuing the focus on ‘The Avada Way’ culture and implementing the operating model positions the Group for next financial year.”
Looking ahead, Avada has outlined its strategic plans for 2023 and 2024. These include expanding into the New Zealand market (ticked off already), leveraging shared services models to enhance operational efficiencies, developing turn-key integration strategies, and fostering organic growth through existing brands. Additionally, the Company aims to expand its geographic footprint through further acquisitions.
In H1 FY23, Avada’s revenue surged dramatically, rising by 2778% to $84.5 million. Despite this growth, it had a net current liability of $22.6 million as of December 31, 2022, and generated negative cash flows from operating activities amounting to $3.5 million. Factors contributing to these results were adverse weather conditions and underperformance of subsidiaries, including The Traffic Marshal CGU.
Going forth, the Company feels that successful rate negotiations will be crucial in mitigating potential cost escalations due to inflationary pressures. Avada knows that the nature of its outdoor services, combined with weather impacts and the deferral of government infrastructure work, may impact its cash flow forecast, and it can offer little predictability on that front.
Alinda is a Business Reporter for The Sentiment
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