Project cancellations and delays, union activities in the sector, and continued unstable weather appear to have flustered traffic management company Avada Group (ASX: AVD), which was prompted to review its FY24 guidance. 

Its FY24 underlying EBITDA is forecast to be between $14.5m and $15.5m, down from FY23’s $16.1m and its previously issued FY24 guidance of $20m to $22m, excluding STA Traffic Management. 

CFO and Company Secretary Paul Fitton is leaving the Group with immediate effect. A recruitment process to appoint a new CFO will commence shortly with Michael Wilkes, Group Manager of Finance, assuming the role of Interim CFO and appointed as Company Secretary.

A comprehensive review is underway, building on current efficiency initiatives, to rebalance the revenue and operational base to respond to current market conditions. At the same time, Avada is ensuring sufficient capacity to deliver on the Group’s strategic growth objectives.

Avada is an integrated traffic management solutions provider with established operations throughout Queensland, New South Wales, Victoria and New Zealand. It serves major public and private sector clients. In October 2023, the Company acquired STA Traffic Management for $8.5 million to expand its Victoria presence. 

In Q3 FY24, a seasonal reduction in trading in January and an early Easter contributed to lower revenue. The quarter also witnessed a seasonally low cash flow, with negative operating cash flows anticipated. The Company recorded cash receipts of $46.6 million, against a cash burn of $5.3 million. It ended the quarter with $1.8 million in cash. 

In the fourth quarter, Avada expects improved operating cash flow as a result of improvement in customer receipts from a seasonally higher trading quarter and cost reduction initiatives. It aims to revert to maintaining over two quarters’ worth of funding available at the end of the quarter ending 30 June 2024. Currently, it has 1.8 quarters of funding available.

Avada continues to grapple with short-term market and business challenges. This is in keeping with broader industry trends, potentially resulting in increased performance volatility. 

It has refined the operating team to improve industry and client knowledge and deliver more effectively on key initiatives, such as tendering, client development, and workforce structure and management. Building relationships with existing customers and securing long-term partnerships with strategic clients remains a key focus for management

Avada is confident that favourable demand fundamentals within the industry will drive earnings growth in FY25. The Company’s visibility of a robust long-term pipeline of civil work projects underpins this expectation.

Moreover, its ongoing organisational restructure and cost reductions are forecasted to support efficiencies and gross margins.

Avada will review any impairment implications in due course, taking into account trading conditions for the remainder of FY24 and into the next financial year. The board’s current view is that a dividend is unlikely to be paid for FY24.