Korvest Ltd Navigates 1H Profit Dip Amid Operational Hurdles, Eyes Strong 2H Recovery
Korvest Ltd’s first half of FY25 saw profitability pressures from operational setbacks and inflation, but a record order book and new major projects set the stage for a promising second half.
- 1H FY25 EBIT impacted by $670k one-off costs and operational disruptions
- Margin contraction driven by competitive pressures and project timing
- Record order book fueled by two new major infrastructure projects
- Strong operating cash flow of $7.12 million despite profit decline
- Full year FY25 profit forecast to surpass FY24 results
Operational Challenges Temper 1H Performance
Korvest Ltd (ASX: KOV), a leading Australian manufacturer of cable and pipe supports and galvanising services, reported a mixed first half for FY25. The company’s earnings before interest and tax (EBIT) declined by nearly 29% compared to the prior corresponding period, primarily due to a combination of one-off costs totaling $670,000 and a significant galvanising operational disruption that resulted in 17 days of lost production.
Additional pressure came from margin contraction, influenced by competitive market dynamics and the phasing of project work. Inflationary cost increases in staff, freight, and occupancy further squeezed profitability. Despite these headwinds, Korvest managed to generate a robust operating cash flow of $7.12 million, underscoring strong underlying business resilience.
Record Order Book and Major Projects Signal Upside
Encouragingly, Korvest closed the half with a record order book, driven by the securing of two new major infrastructure projects scheduled to commence in the second half of FY25. This pipeline is expected to significantly boost major project activity, which had been subdued in the first half. The company’s diversified sales footprint across Australia and New Zealand, supported by manufacturing and galvanising facilities in Adelaide and a flexible overseas supply chain, positions it well to capitalize on this demand surge.
Korvest’s Industrial Products segment, led by the EzyStrut brand, maintained steady sales despite margin pressures. The company is addressing product rectification issues and operational inefficiencies, aiming to restore margin strength. Meanwhile, the Production Services segment faced a 14.3% sales decline, reflecting reduced external galvanising volumes and the operational downtime.
Strategic Investments and Operational Improvements
Capital expenditure in the first half totaled $2.1 million, focusing on new equipment to enhance capacity and capability, including automation upgrades and a waste heat recovery project that has already delivered gas savings. Korvest is also advancing site redevelopment plans and expanding in-house freight operations to improve logistics efficiency.
Management highlighted ongoing efforts to optimize costs, improve customer service metrics, and enhance staff engagement and safety performance. These initiatives are critical as the company prepares for the anticipated ramp-up in project activity in the second half.
Outlook: Profit Growth Expected Despite Near-Term Pressures
Looking ahead, Korvest expects full-year FY25 profits to exceed those of FY24, supported by the strong order book and increased major project work. However, working capital requirements are likely to rise with the commencement of large projects, and broader economic conditions remain a variable factor for day-to-day and smaller project markets.
Investors will be watching closely how Korvest manages inflationary pressures, operational risks, and project execution to deliver on its optimistic guidance for the year.
Bottom Line?
Korvest’s 1H setbacks are clear, but its record order book and strategic investments set a promising stage for FY25’s second half.
Questions in the middle?
- How will Korvest mitigate inflationary and operational cost pressures in the coming quarters?
- What is the expected timeline and margin profile for the two new major infrastructure projects?
- How effectively can Korvest scale its automation and logistics initiatives to support growth?
