Earnings Call: H2 2021

Aug 12, 2021

good morning, everyone. My name is Grant Phan, and I'm the Chief Executive Officer of Downer. And with me is Michael Ferguson, and Michael is our Chief Financial Officer. So I'll begin with an overview of the 2021 full year results, and then Michael will go through the financials in a bit more detail. And we'll then open up the call for your questions. Now hopefully, you have the presentation pack in front of you. If not, it's on the ASX and also on the Downer website. And what I'll do is we go as we go through, I'll reference the relevant pages. So let's move to slide 2, titled FY 2021 Highlights. And it shows the financial performance for the 12 months to 30 Jan 2021. Now these are very pleasing numbers. I think we achieved in a year of COVID disruption. And I just want to take this time to acknowledge the outstanding efforts of our people as we've continued delivering for our customers over this period. It's been very, very good. And our focus on critical urban services has meant that demand has remained strong throughout the year. And that's resulted in the very resilient performance that you see. Underlying NPAT A was $261,000,000 up 21.4 percent when compared with the prior corresponding year. Underlying EBITDA increased by 12.3 percent to $467,000,000 and the group's EBITDA margin rose by 0.7 percentage points. Our cash flow performance was excellent. If we adjust for the $79,000,000 of cash outflows from individually significant items recognized as expenses in the prior period, then our cash conversion was 101%. Now without that adjustment, it was 92%. So either way, it was a terrific result. Following our capital raising, asset sales and strong operating cash performance, our net debt to EBITDA was 1.5% at 30 June and our gearing was down to 19%. Perhaps right now is not a bad time to have a very strong balance sheet, but we do intend to lift our net debt to between 2 and 2.5 times EBITDA in line with expectations for a BBB investment grade credit. And the 400,000,000 share buyback, which we commenced in April will help with that. And of course, we'll continue to invest in the business and look for accretive opportunities to grow. Earnings per share was up 3.5% from the previous year to 0 point366 dollars The Board declared a final dividend of $0.12 per share, taking the full year dividend payout to $0.21 and 57 percent of underlying NPAT A. If we now move to the next slide, Slide 3, talking about our priorities. Now we have delivered on the priorities that we set out in February at our half year results. We said we needed to deliver strong FY 2021 earnings and cash. Earnings were up 21%. Cash is 101 percent of EBITDA. Margins are up 0.7 percentage points and all in all a pretty solid financial performance for the year. We said we needed to complete the sale of our non core assets and we've made very good progress with $628,000,000 in sale proceeds so far with $510,000,000 in the bank. We continue to work on the sale of our Open Cut East Mining business and its 4 profitable contracts. Whether ultimately we sell Open Cut East or run the contracts out to expiry, We're very confident that appropriate value will be received by shareholders. We also highlighted that we'd make changes to our corporate structure and improve market focus and reduce costs. Spotless operations are now fully integrated into Downer and we've merged our major projects and rolling stock businesses to create rail and transit systems. We've also reduced management layers and consolidated functions for better performance. On the capital management front, we've recapitalized the business, reset our target capital structure, commenced our promised 4 $100,000,000 on market share buyback and lifted the dividend payout ratio to 60% for the second half. And our intention is to build the dividend cents per share over time. Our sustainability reporting and performance has continued to improve as have our external ratings in what's become a very important area. And this isn't a stretch for Deanna. We are a good corporate citizen and we're getting better at demonstrating that to investors. We also told you that we focus on the implementation of the Downer standard. And I'm very pleased to report we've achieved single quality certification across the group. We're having consistent and effective delivery aspects of our business is very key to improve project performance and higher margins. Now this is a significant cultural change program as much as anything else. And if well executed, we'll hold down and in very good stead into the future. So I'll now turn to slide 4, Urban Services Transformation. As most of you know, our Urban Services strategy is leveraged to the long term macroeconomic trends of expanding population, urbanization, bigger government, government outsourcing. The government is getting bigger every day and service expectations from citizens are always rising. As shown in the pie chart at the bottom of the slide, 90% of our work in hand now comes from contracts with governments in Australia and New Zealand all regulated critical infrastructure. And this compares with 56% 5 years ago. So it's quite a significant change. Our portfolio is now less cyclical with lower capital requirements and stronger cash conversion. But really importantly, we've got scale, we've got diversity in our earnings, and we've got financial strength. So we'll move now to Slide 5, strength through market position and diversity. Now transport's long been the powerhouse of the Downer Group. And you can see in here that it contributes a fraction over half of Deanna's revenue. And it's in a very strong position in both Australia and New Zealand. A few things that are very key here. We've been very successful in developing new green products that use a high level of recycled or repurposed materials from roads, road sweepings, glass, toner and other waste that otherwise would go straight to landfill. Our local government customers in particular really can't get enough of these what we would call high quality green products. We're also investing in state of the art manufacturing and recycling plants. They're energy efficient and can blend high levels of recycled material into our product mix. Not only is this more sustainable environmentally, but it's cost effective against virgin materials dug out of the ground. The best quarry is the existing rod, but you must have a manufacturing plant able to use it and a technical capability to produce products to specification. Our strength across the value chain from network management to bitumen importation gives this business significant advantages as does its network of contracts and facilities in strategic locations. And we will continue to invest in this position. We're also the market leader in passenger rolling stock in Australia with scale franchise positions in Sydney, Melbourne and Perth passenger fleets. In Sydney, we maintain an overhaul 136 8 car trains with a contract term of around 25 years remaining. And in Melbourne, once manufacturing is complete with the new trains down there, it will maintain 65 7 car trains for the next 30 years with options for the Victorian government to increase that to 125 trains. These are infrastructure like positions in critical state government assets. We've also extended our service offering into public transport operations as you would know. Through Kialistowna we operate the largest light rail network in the world in Melbourne. Light rail on the Gold Coast, Newcastle heavy rail on the newly privatized Adelaide network and bus networks around most of Australia's major cities. And there's now an unprecedented level of government investment across our 3 transport businesses. Utilities contributes 20% of group revenue and we've got a very well balanced portfolio across Power and Gas, Water and Telecommunications. We're the market leader in all three in both Australia and New Zealand. And that's based on strong long term relationships with our customers. Over 80% of our work in hand is with government or government backed contracts. Topic softened raised across the investment community in any case around the impending issues related to the reduction in NBN and UFB construction volumes as those rollouts have been completed. I'm really pleased with this business that those contracts have rolled off, but we've won significant long term contracts in each of our businesses in both Australia and New Zealand. So our success in gaining positions on a number of major city water panels has been very pleasing and our wastewater treatment technology is proving popular as utility owners look to upgrade their facilities. And there's an emerging opportunity to apply our knowledge and skills to help existing customers transition to new energy sources. Increasingly we're designing and installing renewable power generation on our customers' buildings and estates. Our diverse capabilities are providing increased value to our customers as they look to deal with the government and investor pressure to decarbonize. As with transport, we've made successful bolt on acquisitions in the utility sector and we'll continue to invest where we see opportunity. We're now managing facilities and asset services as one business. And you can see that this service line contributes just under 30% of revenue in 2021. We're the largest integrated facilities provider services provider in Australia and New Zealand with strong positions in a number of government areas including health, education, defense and social housing. We're the leading provider of asset management and specialist services to Australia's critical economic infrastructure including the oil and gas, power generation and industrial sectors. Our strong relationship in these sectors and our investment in capability means we will also be well positioned to participate in the hydrogen economy. Our technology partnership with Mitsubishi Power Systems does give us a technical edge. If we now move to slide 6, strong macro outlook. This slide reinforces the points that we've been making about our strategy and that is we're in the right spot given the macroeconomic outlook and the unprecedented government expenditure in the sectors we're strong in. I'm not going to go through all of what's the future for things that we're in. You can read on those slides and there's lots of other things that you can book to support that. We'll now move to working hand on Slide 7. Working hand in our core business is a very substantial $35,400,000,000 with a long tail. 90% of the work is government related split eighty-twenty between Australia and New Zealand. 91 percent of our work in hand relates to services contracts with just 9% attributable to building and construction. And only 1% of our $35,400,000,000 of work in hand relates to competitive fixed price lump sum construction contracts. Our risk controls across work type and contract model are working to significantly reduce construction risk. In both Australia and New Zealand, we are seeing an increase in governments using more collaborative risk sharing contract models such as alliances and early contractor involvement processes. Now this is increasing down as addressable market due to substantially reduced risk. Another issue that's risen lately in Australia is our companies are managing the risk of labor cost escalation. And that takes us to the next slide. There was a piece of analysis put out recently suggesting that Downer was heavily exposed to labor price increases. And we thought it would be helpful for investors if I address this. And we do that on this slide 8. Now across down our long term contracts typically include mechanisms to mitigate the risk of cost escalation including labor. Now as you can understand, this is a critical area of focus for bid teams and management review for bid and contract approvals. That gets a lot of attention. Our shorter term contracts generally involve minimal risk precisely because they are short term and prices are current. We just run through today. So within transport our longer term maintenance contracts have monthly rise and fall mechanisms based on appropriate indices to account for movements in costs, but most importantly in bitumen and labor. Surfacing jobs on major road builds also have rise in 4 mechanisms like this. Within utilities, our maintenance contracts are scheduled of rights or panel based with labor and other costs reviewed annually or covered by escalation mechanisms. And for facilities PPPs make up a substantial proportion of the portfolio and these all have specific labor escalation provisions and major reset opportunities typically each five years. Our non PPP facilities contracts with governments include specific labor adjustment mechanisms. And our asset services contracts are usually shorter term and cost reimbursable, so the risk is minimal. In short, the risk of input cost escalation isn't 0, but it's limited. Our contract prices adjust and we manage the potential for mismatches very closely. Now slide 9 summarizes the impact of the latest COVID-nineteen restrictions on the group. And while we have certainly not been immune, you can see the impact has been relatively limited. The biggest issue for us and industry in generally has been the restrictions on mobility for our skilled labor and management. Due to the closure of the national and most importantly the state and even local government boundaries. Now this has resulted in pockets of industry skill shortage. And where that's happening, increasing competition for experienced blue and white collar employees. This has been particularly acute in Western Australia and I'm sure you understand that from all of the people he's talking to. And for us, that's most acute in our Asset Services business. For our Road Services business, July August is relatively quiet. So the impact on the shutdowns in Sydney hasn't been that great. There's been limited impact for rail and transit systems. And while reductions have affected progress on a few projects listed on the slide, that's the extent of it in transport. It's important to note that we have got contractual protections in place to extend completion dates and recover the cost of delay. There's been no material impact on utilities and facilities except of course for hospitality. In summary, while COVID-nineteen restrictions have affected us in some areas the impact has been limited. We might now turn to slide and our sustainability performance. So the downer, what does sustainability means? Well, it's sustainable and profitable growth. It's providing value to our customers. It's delivering what we do in a safe and environmentally responsible manner. It's helping our people to be better and and advancing the communities in which we operate. And we continue to improve our sustainability performance and reporting. And today, we published our 2021 sustainability report. Now I got to say that's no moon feet to get that out as quickly as we have the financial side of the scorecard given the size and breadth of our business. And I would encourage you all to read the report and it's got a lot of very good detail and really interesting information that you may not be aware of. And it's got a range of case studies in there. We just move to slide 11. There's a whole list of sustainability achievements for the year. And they're pretty substantial. I'm not going to go through all of those, but it's worth sitting down and going through them in your own time and couple those back to the sustainability report. If we flip over to slide 12, it's an interesting slide here and these are opportunities coming out of the sustainability area. And we think the increasing focus on sustainability by our customers and the capital providers is a real a real opportunity for us to differentiate ourselves. We believe we're a net winner in this space. As we highlighted at our recent Investor Day, our urban services strategy delivers not only lower capital intensity, but also lower carbon usage. So the divestment of our mining and laundries assets will reduce our Scope 1 and 2 emissions by 35% or 206,000 tonnes of carbon dioxide equivalent. Slide 12 that you've got in front of you will identify some of the sustainability opportunities for each of our businesses as well. So in transport, we expect more investment in recovery and repurposing of materials for road building Services. And these offerings putting us in a very strong position. We're now a major player in waste. We'll continue to develop smart road and rail solutions and we're already building new infrastructure required to support alternate fuel vehicles. All governments will look to reduce energy use on their transport fleets and we're working on the production and trial of lower emission trains, fleets and we're working on the production and trial of lower emission trains and locomotives as well as 0 emission buses. Our utilities business will continue to play a role in renewable electricity generation and benefit from the network upgrades required to support higher renewable capacity including transmission lines, substations and associated connections. And there's also opportunities in energy storage systems, energy efficient wastewater treatment facilities and smart meter technology. We'll continue to maintain and upgrade existing power generation assets and we're well placed to play a role in delivering hydrogen associated infrastructure as well as carbon capture and underground storage. In summary, Downers extensive capabilities provide our customers with a range of sustainable services and solutions. The answers are at their doorstep and they are inviting us in. More broadly on the sustainability front, we are good corporate citizens as I've said and our corporate culture is strong. Our workforce is diverse. We support and empower indigenous businesses, culture and education and we work very hard to look after our people including their mental health. So I'll stop there now and I'll hand it over to Michael to take you through the numbers in a bit more detail. Thanks, Grant and good morning everyone. I'll pick up on slide 14, underlying financial performance. On a consolidated basis, the group reported total revenue of $12,200,000,000 for the 12 months to 30 June 2021. This was 8.8% lower than the prior corresponding period predominantly due to the reduced contribution from the non core and divested businesses. EBITDA on a consolidated basis increased 4.3% to $899,000,000 with EBITDA margins increasing from 6 percent to 7%. Depreciation and amortization fell 3.2%, again predominantly due to the reduced depreciation from mining and laundries. Consolidated underlying EBITDA rose 12.3 percent to 460 $7,300,000 and EBITDA margin lifted 0.7 percentage points to 3.8%. Net interest expense reduced by 10.2% due to lower debt levels and an improved average cost of funds. The effective tax rate of 28 a lower lower corporate tax rate in New Zealand. The statutory rate for the year of 20.1 percent reflects the non taxable gains and capital losses recognized as part of our divestment program. DADA delivered an underlying NPAT A of $261,200,000 which is 21.4 percent higher than the corresponding period. Return on funds employed increased almost 2% to 12.1%, reflecting the improved financial performance and the impacts of the capital raising and divestments. Our strong earnings and cash performance related resulted in the Downer Board declaring an unfranked final dividend of $0.12 per share, taking full dividends to $0.21 per share for the year. As a result of the group's tax losses and the recognition of capital losses arising from the divestment program, Downer expects to return to frank dividends either for final FY2023 or interim FY2024. Moving now to slide 15, outlining the business unit performance. Downer's core urban services businesses delivered EBITDA of 523 $600,000 up $21,000,000 or 4.3 percent on the prior year. Transport delivered EBITDA of $250,000,000 with a strong performance in roads offsetting a reduction in rail and transit systems brought about by the completion of the Waratah Bode overhaul program. Whilst the utilities result has only increased slightly, up 0.4%, it is pleasing that as the NVM construction nears completion, this has been offset by strong results in power projects, water and telco in New Zealand. Facilities also performed well, increasing EBITDA by 12.1% through good contract performance in defense, government services, health and building, in addition to cost reductions following the full acquisition of Spotless. Facilities margins have increased to 5.6% for the year. Asset Services EBITDA of 18,300,000 dollars represents a 33% reduction on the prior year and arises from COVID driven decisions to defer shutdown and maintenance work, in part offset by strong performance in power maintenance. The EC and M result relates to the final cost of closing out legacy contracts, while the results for Mining and Laundries represents their earning contributions for the period, including the stub contributions for those parts that have been sold. Corporate costs rose by 21% to $103,000,000 Whilst we have reduced our head office costs as part of the divestment program, the benefit of these reductions has been offset by increases in other costs, specifically insurance and IT security costs, which have led to a combined increase of $14,000,000 FY 2021 also saw amounts recognized for short term incentives that were not paid in FY 2020. Included in corporate cost is $20,000,000 related to fixed non cash amortization arising from the group's significant IT investment over the last 5 years. This all equates to total underlying EBITDA of $467,000,000 an increase of 12.3% with a corresponding EBITDA margin of 3.8 percent, up 70 basis points. We have provided more information on the divisional performance as part of the supplementary information to this presentation. Slide 16 lists the 5 items that reconcile Downer's statutory result with the underlying result, 4 of which are consistent with the first half. First item relates to the non cash fair value movement on the Downer contingent share share obligation liability arising from the options issued as part of the Spotless minority acquisition. These options were granted as part of the acquisition of the remaining 12.2% interest in Spotless with 2,500,000 options each vesting when the Downer share price reaches $6.38 $6.87 $7.36 The fair value of these options are required to be recognized as a financial liability at issue date with the future movements being mark to market through earnings. As a result, we have recognized a non cash charge of $16,600,000 for the full year. The second item relates to the non cash write off of the 3rd financing costs relating to the termination of Spottless' standalone financing arrangements as a result of the refinancing undertaken during the year. The 3rd item relates to the net result of the mining divestment program, including asset write downs, transaction costs and redundancies. The 4th item relates to the laundries divestment, including transaction costs and stamp duty. The mining and laundries divestments have also seen the recognition of capital losses and other tax benefits of $34,000,000 The final item relates to the impacts of an accounting policy change in relation to the group's treatment of cloud based software as a service costs. Following a decision by the IFRS interpretations committee, software configuration and customization costs where the customer doesn't control the software can no longer be capitalized as an intangible asset. This includes many applications used by Downer, including Microsoft Dynamics and Office 365. As a result of the decision, Downer has expensed $14,000,000 of costs in FY 2021 that would otherwise have been capitalized, with the comparative period and opening retained earnings also restated to reflect the historic impact. I will now move on to operating cash flow on Slide 17. It is pleasing to report an underlying cash conversion of 101% and a statutory conversion of 92%. Consistent with the half year, the statutory cash flow has been adjusted to reflect the impact of items recognized as part of Downers' restructure in FY 2020, which were funded by the proceeds of the July 2021 right tissue. These totaled $79,000,000 for the year and include portfolio restructuring exit costs, payroll remediation costs, and the settlement of the spotless shareholder class action. Cash performance was good across the portfolio and reflects the increasing shift to a higher proportion of service based revenues with stable recurring cash flows. Pleasingly also receivables factoring at 30 June 2021 reduced to 63,000,000 from $102,000,000 this time last year and $105,000,000 at the half. Turning to overall cash flow on slide 18. The strong operating cash flow performance has resulted in funds from operations of 251.1 $1,000,000 This also reflects reducing capital expenditure as part of the divestment program, which I'll cover in the next slide. Low funds from operations, dividends paid has increased a result of the payment of the FY 2020 deferred interim dividend in addition to the FY 2021 interim dividend. Whilst the divestment and share issue proceeds have contributed to a strong cash and balance sheet significant liquidity of $2,200,000,000 Please now turn to Slide 19, capital expenditure. Core capital expenditure totaled $154,000,000 which included several growth projects, including our new Brendale Road Services facility in Queensland, equipment for the City Rail Link JV in Auckland and incremental investment in new equipment and fleet. Non core net CapEx of $74,300,000 relates to mining and laundries. IT security and upgrade CapEx relates predominantly to the fleet management system enhancements for the SGT and HCMT rail projects and IT security enhancement. In a climate of increasing cyber risk, Downer has committed to attaining ISO 27,001 accreditation, which is the recognized standard in information security management systems. As a provider of services attached to critical infrastructure, Downer sees this as a competitive requirement. Turning to slide 21. The Downer Group balance sheet has improved metrics in the past year. Net debt in absolute terms has reduced from just under $1,500,000,000 to $708,000,000 whilst net debt to EBITDA on a post AASB 16 basis has reduced from 2.6 times to 1.5 times. Similarly, gearing has reduced to 19%. Downer continues to be rated BBB Stable by Fitch Ratings. Moving to Slide 21, down the sustainability linked loan has extended our debt duration and achieved a more balanced debt maturity profile. Our weighted average debt duration is now 3.8 years compared with 3.4 years in the prior corresponding period. This is partly driven by current borrowings at 30 June of $296,000,000 This includes a $250,000,000 medium term note issue maturing in March of 'twenty two, which will be repaid from our existing facilities and cash. Downer will also look at opportunities to refinance the maturities falling due in FY 'twenty six during the FY 'twenty two year to provide a smoother refinancing symmetry. Downer is in compliance with all covenants at 30 June 2021. The next slide, Slide 22 provides a pro form a overview of the impact of the divestments to date on our key metrics. Downer continues to consider capital allocation in the context of its first priority, being the maintenance of our BBB investment grade credit rating. This includes targeting a net debt to EBITDA range of between 2x and 2.5x. At 30 June 2020 one, we are comfortably below this range. The Board has declared a total dividend of $0.21 per share and we will continue the on market share buyback announced in April. This sees us well positioned for growth. Thanks very much. And I'll now hand back to Grant. Thanks very much, Michael. So the Downer business has again proved its resilience with solid earnings, strong cash conversion and high levels of work in hand. Our end markets are essential services in transport utilities and facilities and our position in those markets and their diversity gives us strength and reliability. Yeah, bring it in our relationships are strong. We expect our core urban services to continue to grow in financial year 2022 both in revenue and earnings. But we are cautious of the changing nature of the COVID pandemic and the ongoing restrictions. And we'll not provide specific earnings guidance for financial year 'twenty two. We will have more to say at our AGM in November and that will be with 4 months of operations under our belt. So thank you. That's the end of the formal presentation. And I'll now hand back to the operator for questions. Thank Your first question comes from James Redfern with Bank of America. Please go ahead. Hi, Grant. Just I've got 3 questions, please. Maybe the first one, just in relation to the sale of OpenCart East, just maybe if you could talk about the book value of the business and then sort of, I guess the level of interest you've had in that business in relation to a divestment, please? And I've got 2 more. Thank you. Yes, we've got interest certainly. Michael, I guess you can talk about the book value in a moment. But we've got interest there, but it's coal assets aren't easy to sell at this point in time, but we'll see where we go. Yes. Book value is about 1.80 Okay. Thank you. Whilst we're still working on that, I wouldn't be concerned as investors because in our view, running those contracts out is also going to return value to shareholders. If we look at the 2 major contracts there finish in 2022. And so they'll be cash positive in 2022, be profitable and then you sell the gear. So and then there's the smaller contracts roll on for a couple of years after that, but they're very small in comparison. So I wouldn't be too concerned about that, but we still work on sale as well. Okay. Perfect. Thank you. Second question is in relation to the Royal Adelaide Hospital contract. It hasn't been talked about for a while. And I know that the contracts will be reset in June next year. So maybe just wondering if you could please provide some commentary around the monthly cash flows from that contract with the scale of or whether they the scale and also whether it's positive or negative and just thoughts around the reset next year in June, please? Yes. So cash wise, it's positive. And we've been over the course of the last 6 months working with South Australian Health on what's called the reviewable services there on the reset. And we're very hopeful that in relatively short term that will be finalized and that project will be profitable for us. Okay. Thanks, Grant. And just the last question for me. Just you're talking about potential further bolt on acquisitions. I mean, the core business for Dana is performing really well and the balance sheet is strong, which is great. So just wondering if you could please talk to where you think Dana should or could grow in terms of its core businesses, please? Yes. Well, look, it is in the core. We do a fair bit in the core, but it's in transport, it's in utilities and it's in facilities. So there's between transport, it's around facilities and geographic position. And in some cases, it might be a particular product in a particular area and we'll pick up businesses and we've been doing that over the last bidding. Utilities, it's been related to water, gas and with particular technical skills that we can take national. And we continue to look at that in facilities. Similarly, it's looking at businesses that might be able to give us a technical edge as we look forward into the future sustainability wise. But we're not I haven't got a long list here. This is but we're on the search for growth opportunities that's for sure. And it's also in the future. Okay, great. Thanks, Your next question comes from Rohan Sundram with MST Financial. A few from me. I might start with the construction book and the work in hand, which looks to be about $3,200,000,000 Can I just confirm, is that comparable to the last disclosure in early 2020 of around $5,700,000,000 which and hence a big reduction? Yes. So that's right. And the same for the fixed price, which looks to be about $350,000,000 How much maybe ballpark, how much of a reduction is that on last disclosure in early 2020? A lot. Yes, it's we've dropped out of various markets here. So yes, it's significant. The economics just reflects the decision changes that we made as part of the restructures that we announced We've not been building we're not in the megalact game in mining, building large pieces of mining infrastructure. We're very niche in what we do. So And we're focused. We concentrate very much on contract terms. Yes. Sure. Thanks guys. And last one for me is thanks for your commentary around labor markets. Has it impacted how to what extent has it impacted your ability to attract and retain labor during the last 6 months? Look, Dan is a market leader. So people want to work for us, but that doesn't mean that we don't have a whole heap of competitors trying to pick up best people in the market. I mean that's what we face. We book it's not the this is new, but where it's a little more acute where you've got issues around not being able to cross borders, right? So it can become acute in specific areas, right? WA is 1. Has it impacted your ability to start a new project? Or you're still able to find enough numbers to commence work? No, it hasn't impacted our ability to start a but I can just think I won't name it, but I've got a particular case in Western Australia where it's very difficult for us to put the people on there that we need to put on there. The school bus just isn't there. Yes. I think that's in Asset Services, right? That's been the business that's been most affected. But even in Raj, we've got a national well, most of our business is a national. And the great thing about that is that we're able to apply terrific skills and skill base across all of Australia and in fact across Australia and New Zealand, right? Now for the most part that works. When you've got lockdown situations, which again for the most part even over the last couple of years have only been sporadic. It does impact us. And right now it impacts us, right? But that won't be there forever. And we get back to having the competitive advantage that we have. Thanks, Ryan. Your next question comes from Wei weng Chen with JPMorgan. Just a few from me on transport. So first one was you made $150,000,000 of EBITA in transport in second half of 'twenty one. So that was a big increase on the prior half. What was the reason for the increase? And then secondly, can this be sustained going forward? Is this a $300,000,000 a year business now? Look, that's a very good business. It's volumes and it's across roads, rail and transport projects. So there's a fair bit moving in there and the roads business has done very well for the period. It will continue to grow in our view. Yes. Okay. There was a 50% half on half sort of increase there. So I was just wondering if you could give some additional color on I guess why there was that big increase? It's a seasonal business, particularly in New Zealand. So it's not I wouldn't run rate 150. So it's certainly improved and it's had a strong year, but particularly in New Zealand that's a second half SKU business. And you've got a lot of stuff going on. Just think about what's going on in the infrastructure space and this business is tied straight to it. Okay. Yes. Okay. All right. When I talk about money being spent, government is spending a lot of money and this is a business that benefits off the back of that. And that's at state government and local government levels. Yes. Okay. Thanks. And then just something I noticed. I'm not sure if it's coincidence or not, but every 2 years for the last 6 years, there seems to be a bit of a sharp increase in transport margins. So second half 'seventeen, second half '19 and 'twenty one. I know there is an element of lumpiness when it comes to things like FOGUE overhauls, etcetera. Is there something going on that occurs every 2 years or is that just a coincidence? I think it's a coincidence. The only sort of relative point I could give was second half 'twenty was very COVID impact. So that's sort of from 'twenty to 'twenty one, but we've not done that biannual analysis, so I couldn't comment. Yes, yes. That's fine. And then just on labor pressures, I guess what we're hearing out of WA is that cost pressures are I guess one factor, but almost a greater factor is the impact of high turnover on productivity etcetera. Can I maybe get you to speak on that perspective in terms of turnover? Are you seeing anything there? Look, I think what I spoke about before, time turnover is part of it. You don't want to lose your best people, right? And when you do that impacts you. But for us, the biggest issue here is just the extra effort in making sure that your people are settled in your business and not thinking about other things moving to others. I mean, that's the we've got very good people in our business. We are the place where others go to get people in our industry. And so we're constantly under attack here. There's no doubt about that. And we manage it very well because we are an employer of choice. As I said, there are pockets. Western Australia is one of them. And people are moving. There's movement between maintenance workers into construction, right, because construction particularly generally pays more. So you've got those sorts of things. But look at the end of the day you just got to manage it and we do. All right. That's all for me. Thanks so much. Thank you. Your next question comes from Scott Ryall with Rimowa Equity Research. Hopefully, the homeschooling in the background is not too loud. I was wondering if you could comment on Slide 12 of your presentation, please, where you've gone through the different sustainability opportunities. Grant, in your initial remarks, you talked about customers not being able to get enough of the green transport products that you produce and certainly we've looked at those in quite some detail. But at the same time and we obviously don't see all the moving parts, your transport margins are a bit softer this year than they were last year. Could you just comment across those three divisions, what are the opportunities also for margin growth as you sell more of those sustainability products, please? Do you think that should see margins increase over time? I'm not talking massively, but just on average, just is that a tailwind for you? Yes. Well, the two parts of the business that really on the sustainability front is on the roadside and also on rolling stock and all rail and transit systems. So in roads, already our position in the what we call a circular economy provides us with a very good competitive position, right? So you're already seeing that in the business and we're investing in new plant that can basically produce higher levels of recycled material. We're still waiting at the state government level for specifications to change. When that does, we'll be the net beneficiaries of that, right? So we've all got we've already got sort of maximum limits of glass, limits of glass, toner, recycled asphalt, etcetera. Now these will move specifications. Less specifications at the local government level and all the local governments want to be seen to be doing their piece in on the sustainability front. Roadways are a very large part of their spend patterns. And so these products very, very strong, right? So in roads, that's where it is. We use a lot of aggregate from millings from existing roads, unlike our competitors who are quarry owners. We really don't care about we don't want to be using virgin aggregate. It's very beneficial for us and we get benefit from that because the stones already coated in bitumen. So that's already in our numbers, but it will go a lot further as specifications change. If we look to rail and transit systems, that's all about smart solutions, whether it be how the existing fleets currently run. And that's in tuning, air conditioning, etcetera. It's the creation of hybrids. We're very much a leader in Australia on development of hybrids. And by that I mean diesel, electric and batteries. We're already very much in discussion with state governments about how we can supplement that onto existing and new fleets. And we're also looking at where the topography works. What can we do in locomotives where the generation of power through braking? These are new things. We've been doing them the world's been doing them in vehicles passenger vehicles for a long period of time. But in locomotives now, and we're getting real traction there. So it's pretty interesting stuff. Some of it will take longer and others we're right in the middle of it now. You're not going to see a lot in infrastructure projects that's very much apart from the products that we use to build stuff. So that's very much shorter term and we'll be using the recycled materials as much as we can. Okay. And utilities and facility? Well, utilities is all about new energy, right? So they've got they touch transmission lines, power distribution, solar, wind, facilitation of powering of EVs for fleets, buses, etcetera. So they're already in the middle of that as well. So their customer base now is now requiring solar in their estates. The buses they're looking at having provision for quick charging of electric buses. We will see in the very, very near future no more diesel buses being purchased. That will all be electric. All that stuff's got to be done. Fleets of vehicles, we've got a massive fleet of vehicles. It won't be very long before all our fleet will be electric as soon as the capability increases there. And you can imagine the effort that goes on and that comes through utilities. And on the facility side, they're very similar. So we've got a bit of a crossover between facilities and utilities, right? Our On the PPPs where we're doing life cycle asset management, On the PPPs where we're doing life cycle asset management, in many cases we're also looking after the energy consumption. So but I'll keep going for a long time, but there's a we're right in the thick of this. We've got a technology partnership with Mitsubishi Power Systems, which also helps us on the technology front on power gen. So it's a very interesting So it's a very interesting space, which is why I say the whole push, particularly on the decarbonization, we're very much a winner out of that going forward. Okay. And then the only other question I had, I was wondering if you could comment on your on the STI scorecard, please. The particularly the people scores, it seemed like you were were most of them hit reasonable scores apart from people employee engagement. How is that measured? And what have you got in place to turn that around, please? Yes. So those scores typically, while they do come off employee engagement requirements, right? So some parts of our businesses haven't hit what we required as targets. And in all cases, we have plans to improve where we're good and improve those areas that are scoring less to improve as well. So it's not been the easiest period through this either I've got to say. So that's the way that works. It's off engagement schools. Okay. And what are the strategies to turn that around? Well, it depends. Each business is different, mate. So this is a big place. Okay. So what we require is each of the businesses to deal with the individual responses where we've been good, where we've also been need improvement and we put plans together and that's how it's dealt. Okay. I'll leave it at that. Thank you. That's all I had. Thank you. Your next question is from Jon Pirtle with Macquarie Group. Please go ahead. Thank you. I just had three questions, please. First one for Grant. You mentioned that you're seeing more collaboration and risk sharing, renewed projects. I mean, it's taken a long time. But do you think that the wheel is finally starting turn on risk sharing and that potentially opens up more opportunities for you on the transport and interest side? Well, look, the fact of the matter is the major players in this space have lost a lot of money and continue to lose a lot of money over major transport projects. And so I think just as a matter of actually getting projects done, the government has to share more appropriate way. And that's just the situation. So we're very pleased to see the government putting out its 10 port plant a couple of years ago and now following through. And we are seeing on the major projects, which are more difficult to price and estimate that they are coming to market more collaboratively. I think the politicians have finally been able to break through at the bureaucracy level and we're seeing that for sure. And we're seeing it across the states. So it's not just in one particular jurisdiction. We're seeing major projects in Victoria, Western Australia, New South Wales coming to market that way. It will be interesting to see whether it flips back. Again, when we're not doing as much in 6 or 7 years' time when there perhaps isn't as much infrastructure build, what happens then? But certainly now it's market opportunity for us has grown as a result. We wouldn't be in a number of the things that number of the projects that we're currently in without that risk sharing. Essentially, the Alliance style stuff is open to market to its for a greater share. And just second one for Michael. We obviously saw a decent step up in corporate costs in the second half. How do you see corporate costs profiling into next year and maybe some of the moving parts within that? Yes. As I said, John, we had some pretty big step ups in insurance costs, particularly sort of D and A and some of the other liability covers in the year and with our increased IT security costs and the STI accrual. So, we still think there's a little bit of work to do on the total corporate costs, but I think, yes, sort of full year, they're trending about where they'll be. Thank you. And just final one, similar question on CapEx, Mike, as far as do you see sort of similar CapEx overall for next year or does it drop down with the sale of non core assets? Yes. So I think the core the reference point John called it out in the cash flow is the core CapEx in the period, which was $154,000,000 there's a little bit of growth in that. We generally set the business plan around maintenance capital, which is about $130,000,000 And then whatever growth on top of that, we consider on a business case basis. So as mining trails out, we expect the core to stay there or thereabouts to where it is this year and the core the non core will slowly go down. Okay, great. Good result. Thanks. Thank you. Thank you. Your next question comes from Nathan Reilly with UBS. Please go ahead. Hi. Thanks, Michael. Just a follow-up Just a follow-up question to that around the CapEx. Is it a similar situation with your lease payments around the core business for next year? Yes, we think so. Yes, the modeling that we've done for 'twenty two sees that pretty consistent. Yes, that's in the most part property. The half of that number is the property portfolio around the group, so that's reasonably set. And then the rest of it split between light vehicles and other plant, which ebb and flow relative to volumes. But we think it's again, we put the core number in there specifically to sort of guide to what we think that's going to be going forward. Yes. No, that's super helpful. And then I guess the next question just with respect to your operating cash flow conversion or your underlying operating cash flow conversion at that 101% mark. If we were to back out mining, would it have been a similar cash conversion? Yes. Mining in itself was yes, it wasn't the highest cash converting business that we had for the year. So the majority of the service businesses performed very strongly. So it's proportionate. Okay. So, is that so if we exclude mining, does that suggest your core businesses were generating conversion greater than 100% is that the take out? Okay. And similarly Yes, it varies, varies. The other call out that we'll make on it is a little bit of some of the working capital release proceeds have gone into for mining specifically have gone into that number that's been offset by the reduced So, yes, the business has ranged in conversion from sort of 70% to 120%. Yes, that's not unusual for us. Got it. And when we're looking at your reported cash conversion there, was the businesses in wind down, being laundries and facilities, was that a drag on your cash conversion? No, not really. No. I mean, the way the mechanics work for the exit is, we got cash for the periods that we owned it. So the divested businesses, we just had proportion of contribution for the businesses that were in wind down. We made the provisions in FY 2020 and so that forms part of the adjustments that we've made as part of the bridge between 92 and 101. Perfect. And Graeme, final question, just with respect to that stronger transport result, Is it fair to say that you're seeing some of the benefits of the recent infrastructure budget allocations around road maintenance projects in the regions and also around metro networks coming through and that's driving some of the uplift in your volumes there? Look it's always very positive. Now we play in the space of major road building as far as servicing goes and asphalt in the road space. But it's we're not a major player at this. It's more because generally there has been more spent whether it be local councils or whatever and we benefit very significantly from it. Now why are we able to do that? Well, we have been investing in better plant, better equipment and we've got a broader geographic footprint, right? So if you like our franchise in this area is very strong. We've also focused on products and products are proving very helpful. So there's a range of things that we do and we're focusing on a couple of areas where we dropped off over the last decade or so and that's helping as well. Got it. Thanks for taking my questions. Thank you. Your next question comes from Shaulia Baidan with Goldman Sachs. Please go ahead. Hi, Brian Michael. Thank you for taking the question. I have a very quick one for you on the cost. So you have mentioned refinement of corporate structure and cost base. So I was just wondering when do you think that gets fully reflected in your operations? And are we already beginning to see some of it, which is sort of reflecting in higher margin? Thank you. Yes. Look, you'll see when I say you'll see, what I really mean is that the majority of those will be coming through in part of it in 2021, but also in 2022. So you'll see that with a number of those changes have been made in June, July. So you'll see benefit into 2022. You're seeing in the facilities result the benefit of the amalgamation of spotless after the take out of minority. And so that's reflected in the increased margins in the Facilities business. We've got some savings in corporate as I just talked to, which we've seen some offset. But we'll see that improve through 2022 because we're still providing transitional services to a lot of the divested businesses. And so we're recovering some, not all of the cost of those services. And so we've had to keep the cost base at a level that allows us to continue to do that. But as they drop off through the first half of twenty twenty two, we'll be able to we expect we'll be able to rationalize further. Okay. Thank you. Very clear. Thank you. We have reached our allocated time for questions. I will now hand back to Mr. Fen for closing remarks. Well, thanks very much for taking the time to get on the call. If you have further questions, please send them through to Michael Sharp and we'll do our best to answer them as quickly as we can. Thank you very much and hopefully you have a good reporting season.