Verbrec sees a turnaround in previously underperforming projects, continued growth of StacksOnTM and a record $82 million in work-in-hand.

Engineering, infrastructure and training service provider Verbrec (ASX:VBC) looks set for a robust 2022 after  announcing the company has been able to work through a number of projects previously considered to be underperforming as well as adding significant new contracts which bring its work-in-hand up to a record $82 million[1]. The Company also continues to make very good progress on its proprietary StacksOnTM stockpile inventory monitoring system.

Just prior to the commencement of 2022, Verbrec provided an update on three underperforming legacy projects which have been holding back the Company’s recent financial performance.

One of these three projects, involved the design of an LNG import terminal is now no longer considered an underperforming project by the Company as further variations agreed between it and the client now mean all remaining work will be at, or near, historical group gross margins.

The company also announced it had settled previously reported delay claims on a second designated underperforming project involving the SCADA system upgrade for a major water utility business. The company settled its claims for $2.09M with $0.7M to be paid upfront, the remainder on achievement of project milestones. As part of settlement the client also agreed to return $0.5M in project performance bank guarantees and fund the costs associated with acceleration up to $1.2M.

The third project, again involving a SCADA upgrade for a major water utility business is in close-out phase with Team members moving on to other projects which are generating much higher margins.

CEO and Managing Director, Linton Burns, said that he was very pleased with the significant progress made in relation to the delivery of these important projects and minimising their financial impact.

“Whilst these legacy projects didn’t provide the financial results expected, we have further developed our capabilities and competencies in strategically important areas and are confident of being able to successfully execute similar projects in the future, albeit under different commercial models and with a much better understanding of the risks and how to price that risk.”

“Verbrec is clearly playing its part in the transformation of the energy mix as we move to a net zero carbon emission global economy,” he said.

“With gas seen as a transition fuel providing much needed base load power, we will see more LNG import terminals being built as a means of moving gas to where it is needed.”

Burns said the company was also assisting clients transform the way they operate, control and optimise their assets through the upgrade of legacy SCADA systems using the latest communication networks and controls and automation software.

“We have significant skill-sets and capabilities in two key areas which are currently undergoing significant transformation, that being energy and what is known as “Industry 4.0””.


Strong Rebound

Burns said that with work done in relation to these underperforming projects, and with record work-in-hand (reported at $82M at the end of October) and with much higher margin generating StacksOnTM software licence fees from BHP, the Company is even more confident now of a strong rebound in the second half of FY2022 and on in to FY2023.

Burns went on to say that StacksOnTM was now operational at two of BHP’s stockyards and being rolled out to another two. In addition, he said BHP had agreed to implement StacksOnTM at their  Western Australia iron ore port further increasing Verbrec’s licence fee revenue.

“This agreement validates StackOnTM’s commercial value and provides further growth of our recurring revenue streams,” Burns said.

“We expect margins from the StacksOnTM agreement to be very high, which will further improve our financial position and we are confident of other near-term growth opportunities for our first technology project.”

Work-in-hand is the strongest it has been for the engineering, training and infrastructure business, which has ~700 staff working in Australia and New Zealand for clients in those countries and PNG and the Pacific Islands.

One of the reasons Verbrec settled its previous claims with a $500K reduction in the bank guarantee exposure was to provide additional head-room under its current banking facilities for performance bonds on other work it is currently tendering.

In response to the strong pipeline of opportunities, the company continues to bolster its senior management team with the appointment of chief operating officer, Matt Cooper, in May 2021 and more recently Riaan Carstens joining the business as GM West and Iain Denholm as GM East. All are seasoned and highly experienced engineering industry professionals set to drive strong performance across the business.

This article was developed in collaboration with Verbrec, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.

[1] As at end of October 2021