Thank you for standing by, and welcome to the Perenti FY21 Results Presentation. All participants are in a listen-only mode. There will be a presentation followed by a question- and- answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Mark Norwell, Managing Director and CEO. Please go ahead.
Good morning, ladies and gentlemen. Thank you for taking the time to join the Perenti full- year 2021 results presentation. My name is Mark Norwell, the MD and CEO of Perenti. Joining me is Peter Bryant, our CFO. I'll first provide a summary of our financial results and progress against our strategy before outlining our focus on people and sustainability, followed by our business performance. Peter will step through the detailed financial results. Afterwards, I'll provide an update on our 2025 strategy and near-term outlook, followed by a Q&A session. Starting on slide two. We have delivered solid financial results despite the headwinds, namely COVID-19, the stronger Australian dollar, and a tight labor market. We generated over AUD 2 billion of revenue, delivering AUD 380 million in EBITDA, just over AUD 170 million of EBIT and a NPAT of AUD 77 million.
Pleasingly, we had excellent operating cash conversion of 105% and decreased net debt by 10% to just over AUD 500 million. Due to the headwinds, our operating EBIT decreased, which flowed through into our ROCE with a reduction to 14.3%. Given the solid underlying performance and in line with prudent capital management, the board has approved a final dividend of AUD 0.02, which is a payout ratio of 43% on the H2 NPAT and in line with the dividend payout ratio average of 41% over the last 10 years. All in all, solid results. On to slide three. Not only did we deliver solid results whilst proactively navigating the headwinds, we also continued to deliver against our 2025 strategy. AMS performance improved half- on- half. We secured new work in high-quality jurisdictions, namely Botswana and Canada. Our ESG performance improved.
We launched our new technology business, idoba, and we refinanced our debt. Our team has really built some positive momentum that we are taking into FY22 as we continue to navigate the headwinds, deliver on our recent contract wins and execute our 2025 strategy. Moving on to people and sustainability, on to slide five. The safety of our people is critical, and it is with deep sadness that two team members tragically died in separate incidents. On the May 18th this year at the Obuasi mine in Ghana, Daniel Quainoo died when the ground he was standing on in the underground drive collapsed beneath him. The ground collapsed into old workings that were last mined at least five years before we commenced work at the mine. Tragically, on the July 12th last month, Troy Cameron was fatally injured at the Hemlo mine in Canada.
Given the recency of this event, the investigation is still ongoing, therefore, I cannot go into the details of the events. Our thoughts go out to the family and friends of Daniel and Troy. We continue to work closely with our clients to understand the specifics of each event and importantly, what we jointly need to do moving forwards. Our workforce remains relatively stable in numbers of circa 8,000. The ratio of our underground to surface employees has increased over the last 12 months as we continue to execute our business strategy. Our TRIFR increased slightly to 5.1 and our serious potential incident rate decreased significantly. Clearly, given the fatal events of Daniel and Troy, we need to do more and build on the work completed to- date. On to slide six. We've been very active on our journey to improve safety performance.
Since the Barminco acquisition, we have implemented several significant safety initiatives designed to identify critical risks and verification of controls to ensure they are active and working effectively. Our focus is on three extremely important areas: improving our safety leadership and culture, critical risk management, and safety assurance. We continue to implement safety improvement initiatives with the goal of nil life-changing events. We aren't there and we must always strive to do better. We firmly believe that when we are smarter together, we are also safer together. On to slide seven. As mentioned, we experienced three significant headwind events during FY 2021: COVID-19, tightening labor market, and a strengthening Australian dollar. COVID-19 remains a significant challenge. However, our proactive management plans are protecting our people from the worst impacts and ensuring we continue to operate.
We are recovering a significant proportion of our COVID-19 related logistics costs and are working with our client at Zone 5 on a plan that will lift production and our financial performance. Once again, I want to call out our people who have demonstrated significant resilience and commitment to continue operating through a COVID-19 world. Our people working internationally, particularly our expats, who continue to complete multiple quarantine periods, and our amazing team who manage the logistics. As everyone is aware, labor is tight, particularly in Australia, which drives an increase in labor rates and a reduced skilled labor pool. Regarding labor cost escalation in our contracts, we have rise and fall provisions that counter some of the volatility in labor costs, and we are budgeting new labor rates in tenders moving forwards.
The attraction and development strategies have been successful as we are attracting high-quality talent to the organization as turnover rates stabilize. Pleasingly, we have increased our intake and attracted over 400 apprentices and trainees to the business. We also attracted 11 graduates from the Camborne School of Mines in the U.K. who have started with us over the last six months. We mobilized 110 highly qualified underground employees for the Savannah project in Western Australia. All of these points reflect the quality of the Perenti brand and the associated operating brands to attract people, which places us in good stead for continued navigation of this challenge. All in all, the headwinds continue. However, with our dedicated team, we are focused on continued proactive management. On to Slide eight and our shareholders.
Focusing on ESG is aligned with our purpose and principles, and we believe an area of strategic advantage. We released our second sustainability report this year, and we are raising the bar on our commitments into FY22 and beyond. There is room for us to grow in this area, and it is something we are actively embracing. Moving on to business performance and on to Slide 10, group underlying performance. We generated underlying revenue in line with FY20, which was a record year. With a third year of growth in underground and an improved H2 in Surface Africa, AUD 380 million and an EBIT of AUD 171 million, which was down as a direct result of the headwinds and people. One clearly quantifiable impact is the foreign exchange rate, which equates to a AUD 27 million impact on the EBITDA line. Capital management delivered a record operating cash conversion of 105%.
Furthermore, we have reduced our net debt position to AUD 503 million, which is down 10% since FY20 and down 20% since December 2019. ROCE was 14.3% softer than the FY20 result given the reduction in EBIT. The balance of our revenue remains heavily weighted towards underground. Our commodity and country mix is evolving in line with our strategy, with 56% of revenue from Australia, North America and Botswana. The success of our business is not leveraged to any one project, with the largest of our operating projects contributing 7% of revenues. On to Slide 11, underground performance. For growth driven by increased work in hand and scope increases primarily in Australia. However, the continued delays in growth projects, particularly Zone 5, means the full earnings contribution of this project have not yet flowed into our results.
If we normalize our FY21 underground performance for foreign exchange changes and remove the impact of the delays at Zone 5, we see our margin to be more in line with FY20. We have a plan in place for Zone 5, which is based on optimizing the scheduling of our workforce to improve productivity subject to further COVID-19 impacts. Slide 12, surface performance. Following the implementation of the AMS strategic review, we have seen H2 earnings from AMS double compared to the H1 . We expect that the changes that have driven this turnaround are sustainable. The changes we have made have reinvigorated AMS and recent contract wins at the Motheo and Iduapriem will underpin improved surface performance into FY22. Although the earnings benefit of Motheo won't be seen until FY23. Slide 13, investments.
Our BTP business makes up the majority of our investments ISG, and with coal pricing challenges and the change to the JV operating approach of our largest contract, demand and returns for equipment rental was down on the East Coast, which was the major impact on performance for investments. Early this year, several changes were made with the BTP team, and with a greater focus on marketing, we have seen an increased demand for our hire fleet, resulting in utilization rates increasing by circa 5%. MinAnalytical experienced very strong demand for its services, delivering record sample throughput volumes. Obviously, this is a small part of our business. However, the team are focused on improving the financial performance of the investments ISG. I'll now hand over to Peter.
Thanks, Mark. I'd also like to welcome everybody to the call. Mark talked about the prolonged and increasing impact of COVID-19 on our business and how for the better part of 18 months, we've had to evolve and adapt to ensure we continue to deliver a quality and consistent service to our clients. In a small way, the fact that for the third consecutive reporting season, we are unable to travel and meet face-to-face with our enormous Australian shareholders, both current and prospective, is an example of the COVID impact. It also reflects the uncertainties that COVID presents with the landscape forever moving. Just eight weeks ago, we were very confident we'd be able to travel to Sydney to launch idoba. Now we are planning a virtual AGM.
Moving to Slide 15, and you can see the key elements of Perenti's underlying profit and loss for both the current and prior financial years. Mark has provided quite a bit of commentary around the revenue and EBITDA numbers. It's been a year with some strong headwinds. I was particularly pleased with the H2 performance of the Surface business in Africa. It's no secret this business has been challenged for some time. At the half year results, we called out that we felt this part of our business had moved from a net risk to a net opportunity position. Hence, it was very pleasing to see the opportunity start to materialize with growth achieved in the H2 .
Although down relative to the prior year, the underlying EBITDA margin remains very competitive relative to our peers at 18.8%. If we adjust the margin for the negative impact of the strengthening Australian dollar, the margin would have, in fact, been above 20%. To have held our EBITDA margin at such a high level with two projects, including one of our largest in ramp up, at a time when we had significant headwinds, was a very strong outcome. Depreciation at 10.4% of revenue is in line with expectations and the guidance we've provided. At 31.6%, the effective tax rate is also in line with the guidance we've provided. I'm sure you'll appreciate, as a business that operates in 12 countries, tax management is a challenging proposition. We have in excess of AUD 700 million of carry forward tax losses, predominantly in Australia, which offset our Australian cash tax exposure.
By contrast, our foreign operations bring with them some complex tax regimes, which at times have multiple tax types. Those on the call who have had the pleasure of studying accounting will know that tax effect accounting means the effective tax rate does not reflect the actual tax paid. That said, I was very happy to have delivered an effective rate of 31.6%. Moving to slide 16, which shows the reconciliation between our underlying and statutory result. Almost all of the adjustments in the table were made in the H1 of the financial year, and thus were presented and explained when we released our half year results. A very brief recap. During the H1 , we booked an impairment in relation to the close out of the Yanfolila and Boungou contracts and other elements relating to the cleanup of Mali and Burkina Faso.
The half year result also captured the cost related to the successful refinancing of the company's core U.S. debt. During the H2 of this year, we posted a further impairment and stock obsolescence provision in relation to BTP, which had an EBIT impact of AUD 18 million. This adjustment flowed from the softer performance of the BTP business in the H2 . The remaining adjustments to the underlying result are standard and have been made since the formation of Perenti. They include an adjustment for minority interests related to our UMA joint venture, the net foreign exchange movement on the translation of certain balances accounts, and the net tax effect of all the adjustments made.
Although not apparent from the information on the slide, Perenti statutory NPAT half- on- half delivered a significant turnaround in profit, going from a loss of AUD 63.8 million in the H1 to a gain of AUD 11.8 million in the second. This is primarily related to a much cleaner H2 , recognizing less adjustments to our earnings and improvements in our interest and tax expense. Moving on to slide 17, which is a slide we are very proud of. We talk a lot about our focus on capital management, cash conversion, working capital discipline. This slide is a clear reflection of the outcome of that focus. With net debt declining since we first reported as what is now Perenti. There have been various drivers to this improved position, but in simple terms, net debt is down 20%.
The refinancing of our core U.S. debt was completed in October of last year, and we reported on it when we presented the half- year results. Thus, I don't plan to add any further commentary. At June 30, we have currently available liquidity of AUD 550 million. With plenty of headroom in our RCF, we are confident with our ability to fund our current business and our growth plans. Slides 18 and 19 both present much the same information in relation to cash flow and cash conversion. On slide 18, the information is presented in a table. The key takeouts from this slide include the very impressive cash flow conversion of 105%, which Mark referenced. This calculation reflects the conversion of our underlying EBITDA of AUD 380 million to our operating cash flow before interest and tax.
As many of you will have heard us say in the past, cash flow conversion is one of our key focus areas. We've always delivered very solid numbers, but achieving 105% is a significant outcome. As I pointed out to Mark, it has set the bar very high for FY22. Cash interest for the year was down 11% on the prior period due to the combined impact of cheaper rate on our new debt, lower debt levels during the year, and a stronger Australian dollar, remembering that our core debt is denominated in U.S. dollars. Cash tax was down 17%. As with the reduction in interest, the cash tax saving is driven by several factors, including the global mix of our business, a focus on tax management, and currency movements. After deducting tax and interest, we delivered an operating cash flow of AUD 296.3 million.
If we now move to slide 19, I'll run through the rest of the key cash flow elements. The column on the far left of the slide reflects the operating cash flow number, so cash flow after tax and interest. Moving to the right, you can see the proceeds from the sale of property, plant, and equipment, which relates largely to the sale of the Yanfolila and Bongou fleet, followed by stay-in- business capital, giving us adjusted cash flow of AUD 233 million. We have growth CapEx. We are a reasonably capital-intensive business when we grow. When we grow, we need to invest in equipment, trucks, loaders, et cetera, to deliver that growth. In FY 2021, there were various elements to the growth CapEx, most significantly related to the Zone 5 project in Botswana.
Finally, in the growth category is our investment in idoba at AUD 8.8 million, relating to the acquisition of three businesses that reflect our recently announced technology offering. This gives us a positive cash flow before dividends and financing cash flows of AUD 94.3 million. Continuing to move to the right of the graph, cash dividends during FY21 amounted to AUD 63.5 million, which I remind you all included last year's interim dividend, which was paid in July following a decision by the company to defer the payment given the uncertainties related to COVID-19. We retired just shy of AUD 60 million of debt during the period and spent AUD 25.3 million on refinancing our quarter U.S. debt, which included the redemption premium on the old Barminco bonds of AUD 8.1 million. On to my final slide 20. Perenti's value is underpinned by a portfolio of quality real assets.
We have circa AUD 750 million of property, plant, and equipment split equally across Australia and Africa, and our total asset backing is approximately AUD 1.4 billion. Adjusting for our net debt of circa AUD 500 million, the value of our high-quality assets is supportive of a market capitalization much higher than where we currently find ourselves. I'll now hand you back to Mark.
Thank you, Peter. Now for the last section, strategy and outlook. On to slide 22, our 2025 strategy. Hopefully, this slide is familiar, given it has been included in each results presentation since February 2019. We are very pleased with how we are progressing against our strategy, particularly given the macro challenges we have been navigating over the last couple of years. We are still working on some of the foundations, namely the replacement of legacy systems, which is a multi-year journey. We are delivering against our strategic objectives, as can be seen on the following slide 23. I covered this slide earlier, I won't go through all items. However, I'm very proud of what our people have done through this pandemic.
Delivering not just continuity of operations to our clients, but high levels of operational performance that is evidenced by the AUD 2.8 billion of contract extensions we have been awarded during the year. In addition, they continue to deliver against our long-term plans as our focus is clearly on delivering today, but what is also critically important is to ensure we are building the business for sustainable shareholder returns. One pillar I would like to call out and expand on over the next slide is our technology-driven future. We continue to work on some game-changing operating technology initiatives, such as electrification of underground mines, drones in the use of blast hole mapping, and robotics to make the walls of our open pits safer. Clearly, technology is critical to the mining industry and therefore an imperative for our business and at the same time, a fantastic opportunity.
In consideration of the opportunity, last month we launched idoba, our technology-driven service offering, which I'll expand on the next slide. Slide 24. idoba is the combination of three businesses we acquired during FY21, with each having a strong history of innovation, top-tier clients, and a track record of delivering value. The group has its own IP that is currently deployed to many clients with a key software as a service product named Akumen, which is a data analytics and AI platform. Akumen is currently used by many clients, with interest increasing. Perenti is in a unique position as we operate in underground and surface mines across three continents and in a variety of commodities to leverage the skills and expertise that sits in idoba. The value proposition of idoba is threefold.
Firstly, to utilize the idoba skills to work with our contract mining business, underground and surface mining, to identify opportunities to improve safety and productivity, resulting in greater returns. Secondly, to continue selling idoba services directly to customers. Lastly, identifying new growth business opportunities by leveraging the capability of idoba and our mining business. On to slide 25. As you are no doubt aware, our overheads have increased year- on- year, and this is because we are investing in our business to strengthen our systems and develop our people. We are growing globally, so we need solid foundations. We are installing IT and operating technology infrastructure to support our new growth projects, and we are strengthening our corporate governance and risk management structures. Additionally, we are rectifying the duplication of systems and processes, which are a legacy of our business history.
We will continue to invest in the right areas to ensure we have the right governance and operating systems in place so that we can operate safely and efficiently. As I said earlier, our focus is twofold: delivering today and ensuring sustainable future returns. Hence, our investment now. On to slide 26. Here again, we can see our strategy in action. Work in hand in Australia, North America, and Botswana increased by about AUD 1.4 billion since the June 30, 2020. Work in hand represents over three years of contracted work at current run at AUD 2 billion. For FY 2022, we already have AUD 2 billion of revenue secured and AUD 1.5 billion secured for FY 2023. On to slide 27, our pipeline.
We talked about this in May. Our organic pipeline is very strong at AUD 11 billion, and we are focused on top-tier jurisdictions with 71% of our projects in Australia, North America, and Botswana. We are taking our time with future growth, especially in North America, and are very focused on excellence as a market leader. On to slide 28. The mining services that Perenti offer in underground mining are capital intensive. Consequently, in a growth phase, the business needs to invest in capital to deliver future returns. The two graphs on this page reflect the indicative capital profile of a typical surface and underground project over a 10-year period, and based on the assumption that we have no idle fleet to facilitate new projects.
There is upfront capital invested, then some state business capital over the life of a contract, and cash inflows, effectively, EBITDA, are assumed to be reasonably constant over the contract life. Before you get your rulers out and try and calculate the exact numbers, these are indicative graphs and not necessarily to scale. As a contracting business becomes larger and runs a portfolio of mines, those mines will be at different phase of the cycle. Some will be more mature and will be generating free cash, others will be in their early stages and will consume capital. In our underground business, we have a substantial portfolio and the logic above applies. In our surface business in Africa, where we have recently exited some underperforming contracts and disposed of the related assets, we don't currently have that blend of contracts.
We are in effect investing in growing that business from a reasonably small base. What that means is that in the near term, we will see capital outlays that are greater than the operating cash flows for those projects as they grow. This is us investing in the rebuilding of our surface business to ensure future sustainable returns are delivered. Slide 29. Our priorities are simple. We have to continue to perform for our clients, proactively manage the headwinds, and focus on safety. We will be disciplined with the use of our capital. There are more opportunities in North America. We need to bed down our two contracts there and position ourselves for further growth. AMS is showing encouraging signs. We'll support the team to deliver against Motheo, which is a significant contract in the best mining address in Africa, Botswana. We have assumed COVID is here to stay.
We have demonstrated we can navigate the challenges, and we will keep doing so into FY 2022. In terms of the outlook, we have AUD 2 billion of committed works for FY 2022, and we are well-positioned for more work from existing and new clients. The North American pipeline has a value of AUD 3 billion. We are excited about the opportunity, and we are focused on converting a number of these opportunities. Guidance. Please note, this guidance is based on our JVs at 100%. As we noted in May, we expect that COVID-19 and labor shortages to persist through FY 2022, and therefore, we expect to deliver revenues of between AUD 2 billion and AUD 2.2 billion. EBIT of between AUD 165 million and AUD 185 million, and an Australian dollar to US dollar exchange rate of 0.75. This guidance is expected on the basis that the impacts of COVID-19 do not worsen throughout FY 2022.
In summary, we had a strong year despite the headwinds. We continued to deliver against our 2025 strategy. We refinanced our debt. We won AUD 2.8 billion in new work. We launched the future of our business through idoba. We have a strong business, great people. FY 2022 is positioning us for a positive future. Thank you for your time. We will now move into Q&A.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to counsel your request, please press star two. If you are on a speakerphone, please pickup the handset to ask your question. Your first question comes from John Szucs from Macquarie. Please go ahead.
Hi, morning, guys. Just two quick ones from me. Surface EBIT margins are strongly in the H2 of the year. Is this sort of levels you expect going forward into FY22? Secondly as well, just the rise and fall. Was there any impact on EBIT or on earnings in FY21 from that? Is any of these rise and fall provisions included in your FY22 guidance?
Good morning, John. Firstly, on surface EBIT, as you called out, improved H2 . On the H1 , we are expecting that improvement to continue. We're not factoring in significant improvement, though. We would see that come through into FY 2023 when Motheo fully ramps up. The short answer is yes, John, we're looking to see further improvement based on the actions that have been taken to- date. In terms of rise and fall, and if I understand your question correctly, John, we're not seeing any free kicks from rise and fall into our EBIT result. It is the protection mechanism around the cost escalation, obviously. We're not seeing any sort of free kicks or extra margin come through on the back of rise and fall calculations we have in the contracts.
Okay, excellent. In FY 2022, that's just based on the outlook for now. You don't expect any pickups, because of recruitment from FY 2022, FY 2021 costs. Is that correct?
In terms of costs are factored in, obviously the labor market is tight. The team are doing a good job of holding our own. The market across the board is a challenge, but we are doing well, and we're expecting we will get the people we need into 2022, albeit, it is a challenge, but the team are doing well.
Excellent. Thanks.
Thanks, John.
Once again, if you wish to ask any questions, please press star one on your telephone and wait for your name to be announced. Your next question comes from Michael Aspinall from Jefferies. Please go ahead.
Good morning, guys. Just firstly on the claims that you've mentioned in the presentation, you mentioned you received AUD 15 million of the AUD 16 million you applied for. Is there any scope for additional claims from the kind of broader labor productivity challenges you faced this year?
Morning, Michael. Thanks for the question. I guess we're looking at cost recovery in a couple of different ways. The numbers that you quoted sort of link to the logistical costs of flying folk into our international operations and quarantining costs, so they're the direct and measurable costs. We have worked with our clients in some areas, raised some sort of productivity claims, which have been factored in. I guess the main area of cost recovery that we're working on with our clients at the moment is some retention schemes for our employees. Given the hotter labor market, we are working on cost sharing re retention schemes. They'll be the key claims moving forward, Michael, in terms of labor retention in the tight market.
Yeah. Okay, great. You mentioned new contracts being priced or incorporating some of the labor issues that you're seeing. Is that incorporating lower productivity or higher wages or just a bit more color around that?
For the Australian contracts, predominantly the higher wages. Putting that into our cost estimates and then setting our rise and fall indices based on that higher labor cost. In terms of productivities, for our international operations that require expats, which we have a greater proportion of expats in our underground mines, we are factoring in the reduced coverage of expats into the productivity for our international contracts.
Okay. Sounds like you're effectively pricing new work in international markets on kind of lower productivity metrics.
Yeah. That's right, Michael. I guess the key focus for us is, clearly we want to win new work, of course. We want to make sure that when we win new work, we get the right returns. If we win work and don't have the right returns, then it's a long time to actually deal with the wrong estimates. We're definitely focused on winning work, but work at the right rates and the right returns.
Yeah. Has there been any kind of change to the structure of how those agreements or what those agreements might look like given COVID's been probably quite unexpected for the last 18 months?
I guess there's been some changes in terms of the conditions and express conditions regarding COVID. Pre the pandemic, the wording regarding global pandemics was probably limited at best, and that's probably being generous. We have expressly called that out in our contracts moving forwards. A couple of our contracts we have at times shifted into cost reimbursable periods subject to the COVID impacts, given the challenge of pricing, but that's only been on the odd occasion and for short durations.
Yeah. Just the last one from me. The guidance, does it incorporate any improvement in kind of the margins that we're seeing in the H2 in underlying? I mean, down from about 15% EBITDA in the H1 to 12% in the H2 , what kind of margins does your guide presume for underground?
I guess for the FY2022, we've maintained margins to be relatively stable compared to FY2021. We do see some sort of ups and downs in some areas. I called out before with John's question that we will see, or we're hoping to see some further slight improvement around AMS, but given the scale of that business at the moment, that won't materially shift the overall group result. We are seeing FY2022 to be pretty similar. Clearly with COVID, the challenges keep evolving. We think we're doing a really good job to maintain the margins where they are on the backdrop of COVID. If we see that impact abate earlier into 2022, we'd hope to see some margin uplift then. We're assuming COVID hangs around for the whole of FY2022.
Michael, it's Peter here too. As you'd be aware, when we do commence a new job, the margins generally in the first sort of commencement ramp-up period of that job are usually a little bit softer than the run rates.
Yeah. Okay, great. Thanks for that.
Thanks, Michael.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. There are no further questions at this time. I'll now hand back to Mark Norwell for closing remarks.
Thank you. I'll just start off with two thank yous. One thank you being thank you for joining the call, and two, thank you for going light on the questions. Although I think that probably means we'll get a lot more questions in the one-on-ones. Looking forward to those discussions over the next couple of days. I guess just rounding out where we see FY 2021 and moving into 2022, look, really pleased with the performance of our team, given the global challenges. I think, great effort by the 8,000 employees we have. Well-positioned in the future and looking forward to FY 2022 and beyond. Thank you again, and talk to some of you during the next couple of days.