Forge Group discloses more losses

Forge Group has announced further cost blow-outs of up to $28 million on one of its power station projects, less than two months after telling the market it had defined the full extent of its problems.

The engineering contractor announced this morning that it would incur a further $23 million to $28 million deterioration of profit and cash on its West Angelas power station contract.

The company said it had identified “previously unplanned scope and subsequent unplanned and extended delivery durations, which are forecast to result in additional costs to complete.”

Commissioning is now expected early in the 2015 financial year; the company had previously said the project would be completed in the 2014 financial year.

The company said its financiers, including ANZ Bank, remained committed in their support.

ANZ Bank played a key role in keeping the business afloat in November, after Forge disclosed a $127 million profit write-down following cost blow-outs on the Diamantina and West Angelas power station projects.

Investors wiped more than 83 per cent from the contractor's market value in a single day when it revealed the write-down after a month-long trading suspension.

The bank’s support included provision of additional working capital and deferral of debt repayments.

Forge said today its net cash outlays would increase by up to $19 million as it completed the West Angelas project.

This would be funded from existing cash and banking facilities.

The company also disclosed that new bonding facilities have been provided by its ‘surety providers’ to fully bond phase three of its single largest contract, on the Roy Hill iron ore development. 

The contract, announced in September, provides for about $830 million of work attributable to Forge.

“The ongoing and expected support provided by our financiers and other key stakeholders gives Forge Group the confidence to continue to trade on a business as usual basis and deliver on our current work in hand,” Forge managing director David Simpson said.

Forge said it had delivered $10 million in cost savings as part of an organisational restructure and expected a further $5 million in savings before the end of the 2014 financial year.

The company said its contracted order book currently exceeded $1.5 billion, with about $600 million of this expected to be delivered in FY14.

Forge shares slumped on the back of the trading update, closing the day's trade 18 per cent lower at $1.025.