Aveng (JSE: AEG) returns to operating profit as headline loss narrows 95%

Aveng Limited (JSE: AEG) returned to operating earnings in FY26 and reduced its headline loss by more than 95%, marking a significant recovery despite lower revenue and continuing losses on legacy infrastructure projects. Revenue fell 12.4% to A$2.3 billion, or R26.4 billion, while operating earnings before capital items improved to positive A$19.3 million from a A$60.4 million loss and the headline loss narrowed to A$4 million from A$84.6 million.

The underlying margin recovery was stronger than the revenue trend suggests. Gross earnings increased to A$150.6 million from A$79.3 million and gross margin expanded to 6.5% from 3%, a 350-basis-point improvement. However, those numbers still absorbed A$65.2 million of losses associated with remaining loss-making projects in Infrastructure Southeast Asia and the Kidston Pumped Storage Hydro project in Australia.

Aveng released the audited result at 17:45 South African time on August 21, after the normal Johannesburg trading session, meaning investors had not yet had a full market session in which to price the numbers. The shares were indicated at 421 cents, or R4.21, unchanged in the post-release market display; the previous recorded trading session also closed at 421 cents.

How significant is Aveng’s 95% reduction in headline losses?

The headline loss dropped from A$84.6 million to A$4 million, a reduction of approximately 95.3%. Headline loss per share similarly improved from A64.6 cents to A3 cents, while the basic loss narrowed from A$92.3 million to A$15.7 million.

That improvement matters because it signals that Aveng’s portfolio is much closer to group-level profitability after a prolonged period in which problem contracts overwhelmed stronger operations elsewhere. The return to A$19.3 million of operating earnings before capital items from a A$60.4 million loss provides a further indication that the core operating result has moved materially in the right direction.

The turnaround is not yet complete, however. Infrastructure Australia and Southeast Asia remained loss-making, with additional costs recognised on Kidston and the J108 project. Aveng said a commercial settlement with the J108 client during the second half substantially reduced that project’s risk profile, although reassessed completion costs resulted in another loss being recognised during FY26.

Why did Aveng’s revenue fall while margins improved?

Revenue declined because infrastructure markets in Australia and New Zealand softened as expected, reducing group activity from A$2.6 billion in FY25 to A$2.3 billion. Yet profitability improved because a greater proportion of the remaining portfolio performed satisfactorily and gross profitability returned across all operating segments.

Mining was a particularly important contributor. Segment operating earnings before capital items rose to A$12.9 million from just A$0.2 million, supported by strong execution at Gamsberg. Tshipi remained less satisfactory, with production and profitability below plan, although contractual claims were recognised after an in-principle commercial agreement with the client.

The margin expansion therefore reflects project quality and execution rather than simple top-line growth. For Aveng, that is arguably the more important metric because the company’s recent history has demonstrated that high revenue has limited value when major projects generate losses.

Does Aveng’s A$51 million cash outflow weaken the turnaround case?

Cash remains the main counterweight to the improved income statement. Operating free cash flow swung from a A$23.2 million inflow in FY25 to a A$51.1 million outflow in FY26, a negative movement of A$74.3 million. Cash on hand declined to A$225.3 million from A$267.3 million, while net cash fell to A$159.8 million from A$211.4 million.

Some further cash pressure is already visible. Aveng said the cash-flow impact of completing the Kidston project will continue into FY27, although it expects healthy cash balances and cash generation in the Infrastructure and Building segments to fund the remaining outflow.

That makes FY27 an important test of the distinction between accounting recovery and financial recovery. If operating profit continues improving while legacy-project cash drains diminish, Aveng could move toward substantially stronger free cash generation. If completion costs remain elevated, the headline profit improvement may take longer to translate into balance-sheet strength.

What does Aveng’s A$3.1 billion work in hand say about FY27?

Group work in hand stood at A$3.1 billion at June 30, only modestly below A$3.2 billion a year earlier, but the mix changed materially. Infrastructure backlog increased to A$1.7 billion from A$1.2 billion, growth of about 42%, supported by water and wastewater, ports and coastal projects in Australia and civil and transport work across New Zealand and the Pacific Islands.

Building work in hand dropped to A$517 million from A$864 million, while Mining decreased to A$909 million from A$1.1 billion. Aveng has indicated that Mining is prioritising profitable delivery of existing contracts before pursuing additional extensions or awards.

The quality of backlog therefore matters more than its absolute size. Aveng enters FY27 with enough work to support operations, but investors will be looking for evidence that newer projects avoid the cost overruns that damaged prior periods.

The FY26 result represents a meaningful turn: operating earnings are positive, gross margin has more than doubled and the headline loss is close to elimination. The remaining challenge is converting that improvement into cash while finally closing out the loss-making contracts that continue to obscure the performance of the stronger parts of the group.