Thank you for standing by, and welcome to the Perenti FY 'twenty one Results Presentation. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Mark Norrell, Managing Director and CEO.
Please go ahead.
Good morning, ladies and gentlemen. Thank you for taking the time to join the Prenti full year 2021 results presentation. My name is Mark Newell, the MD and CEO of Perenti. And 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 then step through the detailed financial results. And afterwards, I'll provide an update on our 2025 strategy and near term outlook, followed by a Q and A session. Starting on slide 2. We have delivered solid financial results despite the headwinds, namely COVID-nineteen, the stronger Australian dollar and a tight labor market. We generated over $2,000,000,000 of revenue, delivering $380,000,000 in EBITDA, just over $170,000,000 of EBIT and a NPAT of $77,000,000 Pleasing, we had excellent operating cash conversion of 105% and decreased net debt by 10% to just over $500,000,000 Due to the headwinds, our operating EBIT decreased, which flowed through into our Rocky 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 0 point 0 2 dollars which is a payout ratio of 43% on the second half 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 3. And 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 FY 'twenty two as we continue to navigate the headwinds, deliver on our recent contract wins and execute our 2025 strategy. Moving on to people and sustainability and on to slide 5. The safety of our people is critical and it is with deep sadness that 2 team members tragically died in separate incidents.
On the 18th May this year at the Iwasi mine in Ghana, Daniel Kwaenothey 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 5 years before we commenced work at the mine. And tragically, on the 12th July 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, although the ratio of our underground to surface employees has increased over the last 12 months as we continue to execute our business strategy. Our TRIFA increased slightly to 5.1 and our serious potential incident rate decreased significantly. Although 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 6. We've been very active on our journey to improve safety performance. Since the Baminko 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 3 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 new life changing events.
We aren't there and we must always strive to do better, but we firmly believe that when we are smarter together, we are also safer together. On to slide 7. As mentioned, we experienced 3 significant headwind events during FY 2021: COVID-nineteen, tightening labor market and a strengthening Australian dollar. COVID-nineteen 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-nineteen 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-nineteen 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 Additionally, we also attracted 11 graduates from the Camborne School of Mines in the UK who have started with us over the last 6 months. Additionally, we mobilized 110 highly qualified underground employees for the Savanna project in Western Australia. All of these points reflect the quality of the Parente brand and associated operating brands to attract people, which places us in good stead for continued navigation of this challenge. So all in all, the headwinds continue. However, with our dedicated team, we are focused on continued proactive management.
On to slide 8 and our shareholders. Focusing on ESG is aligned with our purpose and principles and we believe an area of strategic advantage. We released our 2nd sustainability report this year and we are raising the bar on our commitments into FY 'twenty two 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 FY 'twenty, which was a record year, with a 3rd year of growth in underground and an improved second half in Surface Africa, dollars 380,000,000 and an EBIT of 171,000,000 dollars 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 $27,000,000 impact on the EBITDA line, and capital management delivered a record operating cash conversion of 105%. Furthermore, we have reduced our net debt position to $503,000,000 which is down 10% since FY 'twenty and down 20% since December 2019. Bocky was 14.3%, softer than the FY 'twenty 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. And 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. Group 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 FY 'twenty one 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 FY 'twenty. 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-nineteen impacts. Slide 12, surface performance. Following the implementation of the AMS strategic review, we have seen second half earnings from AMS double compared to the first half. 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 Matteo and Itau Aperim will underpin improved surface performance into FY 'twenty two, although the earnings benefit of Matteo won't be seen until FY 'twenty three. Slide 13, Investments. Our VTP business makes up the majority of our investment size G. 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. Earlier 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 higher 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 in ISG. I will now hand over to Peter.
Thanks, Mark. And I'd also like to welcome everybody to the call. Mark talked about the prolonged and increasing impact of COVID-nineteen 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 3rd consecutive reporting season, we are unable to travel and meet face to face with our non Western 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 8 weeks ago, we were very confident we'd be able to travel to Sydney to launch I Dova. Now we are planning a virtual AGM. Moving to slide 15, and you can see the key elements of Parete's underlying profit and loss for both the current and prior financial years. Marcus provided quite a bit of commentary around the revenue and EBITA numbers. It's been a year with some strong headwinds and we are happy to be reporting a set of very solid numbers against those headwinds.
I was particularly pleased with the second half 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 second half. 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 strength in the Australian dollar, the margin would have in fact been above 20%. To have held our EBITDA margin at such a high level, the 2 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 $700,000,000 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 pay. 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 results.
Almost all of the adjustments in the table were made in the first half of the financial year and thus were presented and explained when we released our half year results. A very brief recap. During the first half, we booked an impairment in relation to the closeout of the Yanfilila and Bongu contracts and other elements related to the cleanup of Mali and Burkina Faso. The half year result also captured the costs related to the successful refinancing of the company's core U. S.
Debt. During the second half of this year, we posted a further impairment and stock obsolescence provision in relation to BTP, which had an EBIT impact of $18,000,000 This adjustment flowed from the softer performance of the BTP business in the second half. The remaining adjustments to the underlying results are standard and have been made since the formation of Perenti. They include an adjustment for minority interest related to our UMA joint venture, the net foreign exchange movement on the translation of certain balance sheet accounts and the net tax effect of all the adjustments made. Although not apparent from the information on the slide, Parete's statutory impact half on half delivered a significant turnaround in profit, going from a loss of $63,800,000 in the first half to a gain of $11,800,000 in the second.
This is primarily related to a much cleaner second half, 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 Parete. 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 30 June, we have currently available liquidity of $550,000,000 with plenty of headroom in our RCF.
We are confident with our ability to fund our current business and our growth plans. Slides 1819 both present much the same information in relation to cash flow and cash conversion. On slide 18, the information is presented in the 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 380,000,000 to our operating cash flow before interest and tax.
As many of you have heard us say in the past, cash flow conversion is one of our key focused areas. We've always delivered very solid numbers, but achieving 105% is a significant outcome. And as I pointed out to Mark, it has set the bar very high for FY 2022. 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, our focus on tax management and currency movements. After deducting tax and interest, we delivered operating cash flow of 296,300,000 dollars 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 Yanfilala and Bolongru fleet, followed by same business capital, giving us adjusted cash flow of 233 $1,000,000 We then have growth CapEx. We are a reasonably capital intensive business when we grow. So when we grow, we need to invest in equipment, trucks, loads, etcetera 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 $8,800,000 relating to the acquisition of 3 businesses that reflect our recently announced technology offering.
This gives us positive cash flow before dividends and financing cash flows of $94,300,000 Continuing to move to the right of the graph, cash dividends during FY 2021 amounted to $63,500,000 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-nineteen. We retired just shy of $60,000,000 of debt during the period and spent $25,300,000 on refinancing our core U. S. Debt, which included the redemption premium on the old Baminko bonds of 8,100,000 dollars Onto my final slide, Slide 20. Parenchy's value is underpinned by a portfolio of quality real assets.
We have circa 750,000,000 of property, plant and equipment, split equally across Australia and Africa. And our total asset backing is approximately $1,400,000,000 Adjusting for our net debt of circa $500,000,000 the value of our high quality assets is supported by market capitalization much higher than where we currently find ourselves. I'll now hand you back to Mark.
Thank you, Peter. And now to 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. But we are delivering against our strategic objectives, as can be seen on the following slide, Slide 23. I covered this slide earlier, so 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 $2,800,000,000 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 pit safer. Clearly, technology is critical to
the mining industry and therefore, an imperative
for our business and at the opportunity, last month we launched iDOBA, our technology driven service offering, which I'll expand on, on the next slide. Slide 24. IDOBA is a combination of 3 businesses we acquired during FY 2021 with each having a strong history of innovation, top tier clients and a track record of delivering value. Group has its own IP that is currently deployed for many clients with a key software as a service product named Acumen, which is a data analytics and AI platform. Acumen is currently used by many clients with interest increasing.
Perenti is in a unique position as we operate in underground and surface mines across 3 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. And lastly, identifying new growth business opportunities by leveraging the capability of IDOBA in 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 solar 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 2 fold: 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 $1,400,000,000 since the 30th June 2020.
Work in hand represents over 3 years of contracted work at current run
rate of
$2,000,000,000 And for FY 2022, we already have $2,000,000,000 of revenue secured and $1,500,000,000 secured for FY 2023. On to slide 27, our pipeline. We talked about this in May, but our organic pipeline is very strong at $11,000,000,000 and we are focused on top tier jurisdictions with 71% of our projects in Australia, North America and Botswana.
We have taken our time with
future growth, especially in We have taken our time with future growth, especially in North America and are very focused on XLs as a market leader. On to slide 28. The mining services of Perenti Off Underground Mining are capital intensive. Consequently, in the 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 sustained business capital over the life of the contract and cash inflows effectively EBITDA are assumed to be reasonably constant over contract life. Before you get your rulers out and try and calculate exact numbers, these are indicative graphs and not necessarily to scale. As the 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. However, 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 2 contracts there and position ourselves for further growth. AMS is showing encouraging signs. We'll support the team to deliver against Mateo, 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 'twenty two.
In terms of the outlook, we have $2,000,000,000 of committed works for FY 'twenty two and we are well positioned for more work from existing and new clients. The North American pipeline has a value of $3,000,000,000 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 the COVID-nineteen and labor shortages to persist through FY 2022.
And therefore, we expect to deliver revenues of between $2,000,000,000 $2,200,000,000 EBIT of between $165,000,000 $185,000,000 and an Australian dollar to U. S. Dollar exchange rate of 0.75. This guidance is expected on the basis that the impacts of COVID-nineteen do not worsen throughout FY 'twenty two. In summary, we had a strong year despite the headwinds.
We continue to deliver against our 2025 strategy. We refinanced our debt. We won $2,800,000,000 in new work and we launched the future of our business through IDOBA. We have a strong business, great people and FY 'twenty two is positioning us for a positive future. Thank you for your time and we will now move into Q and A.
Thank you. Your first question comes from John Schultz from Macquarie. Please go ahead.
Hi, good morning guys. Just two quick ones from me. Surface EBITDA margins are or EBIT margins are strongly in the second half of the year. Is this sort of level do you expect going forward into FY 2022? And then secondly as well, just the rise and fall, was there any impact on EBIT or on earnings in FY 2021 from that?
And is any of these rise and fall provisions included in your FY 2022 guidance?
Hey, good morning, John. Firstly, on surface EBIT, as you called out, improved second half on the first half. We are expecting that improvement to continue. We're not factoring significant improvement though. We would see that come through into FY 'twenty three when Matteo fully ramps up.
But 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, I guess, free kicks from rise and fall into our EBIT result. It is, I guess, the protection mechanism around the sort of cost escalation, obviously, but we're not seeing any sort of free kicks or extra margin come through on the back of rise and fall calculations we had in the contracts.
Okay. Excellent. So 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 cost effect in, obviously, the labor market is tight. The team is doing a good job to hold 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 is doing well.
Excellent. Thanks. Thanks, Your next question comes from Michael Aspinall from Jefferies. Please go ahead.
Yes, good morning guys. Just firstly on the claims that you've mentioned in the presentation, you mentioned you received you mentioned you received $15,000,000 of the $16,000,000 you applied for. Is there any scope for additional claims from the kind of border labor productivity challenges you faced this year?
Yes. Good morning, Michael. Thanks for the question. I guess we're looking at cost recovery a couple of different ways. The numbers that you quoted sort of linked to the logistical costs of flying folk into our international operations and quarantining costs are there the direct and measurable costs.
We have worked with our clients in some areas, reasons for the productivity claims, which have been factored in. I guess the main area of, I guess, 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 retention schemes. So that would be the key claims moving forward, Michael, in terms of labor retention in the tight market.
Yes. Okay, great. And 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?
Yes. So for the Australian contracts, predominantly the higher wages, so putting that into our cost estimates and then setting our rise and fall indices based on that higher labor cost. In terms of, I guess, 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, I guess, the reduced coverage of expats into the productivity for our international contracts.
Okay. So it sounds like you're effectively pricing new work in international markets on kind of low productivity metrics?
Yes, that's right, Michael. I guess the key focus for us is clearly we want to win new work, of course, but we want to make sure that when we win new work, we get the right returns. And if we win work and don't have the right returns, then it's a long time to actually deal with the wrong estimates. So we're definitely focused on when you work, but work at the right rates and the right returns.
Yes. And has there been any kind of change to the structure of how those agreements or what those agreements might look like given COVID has been probably quite unexpected for the last 18 months?
I guess there's been some changes in terms of, I guess, the conditions and express conditions regarding COVID. Obviously, pre the pandemic, the wording regarding global pandemics was probably limited at best and that's probably been generous. We have expressly called that out in our contracts moving forward. 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 auto Cajun and for short durations.
Yes. And then just the last one for me. Your guidance, does it incorporate any improvement in kind of the margins that we're seeing in the second half in underlying? I mean, down from about 15% at EBITDA in the first half to 12% in the second half. What kind of margins does your guidance assume for underground?
I guess for the FY 'twenty two, we've maintained margins to be relatively stable compared to FY 'twenty one. We do see some sort of ups and downs in some areas. I called out before with John's question that we will see 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. So we are seeing FY 2022 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 the impact of BATE earlier into 'twenty two, we'd hope to see some margin uplift then, but we're assuming COVID hangs around for the whole of FY 'twenty two.
Michael, it's Peter here too. And as you'd be aware, so when we do commence a new job, the margin is generally in the 1st sort of commencement ramp up here, that job, they usually will get softer in a little more run rate.
There are no further questions at this time. I'll now hand back to Mr. Norvo for closing remarks.
Thank you. I'll just start off with 2 thank yous. 1, thank you, Ben. Thank you for joining the call. And 2, thank you for going live on the questions.
Although I think that probably means we'll get a lot more questions in the 1 on 1. So looking forward to those discussions over the next couple of days. And I guess just rounding out where we see FY 2021 and moving into 2022, really pleased with the performance of our team given the global challenges. So I think great effort by the 8,000 employees we have, well positioned in the future and we're looking forward to FY 'twenty two and beyond. Thank you again and talk to some of you during the next couple of days.