Welcome to the Perenti H1 2021 Results Presentation Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question- and- answer session. If you you wish to ask a question you will need to press star key followed 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 half- 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 an overview of our business, our results in the first half of FY 2021, and an operational overview. Peter will then 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. On to Slide two. Just to recap, for those who aren't familiar with our business, Perenti is a global diversified mining services provider operating at scale in both underground mining and surface mining. We operate several iconic mining brands, including Barminco, Ausdrill, and AMS.
We have 8,000 employees over 12 countries, with the U.S.A. our most recent entry to support our growth into the North American underground market through our Barminco business. Underground is a key component of our overall business, and it is a key differentiator to our ASX-listed peers. We generate significant returns through this business, and details of this excellent performance will be covered during the presentation. On to Slide three. We delivered very strong underlying results despite the key headwinds experienced during the half. We generated revenue in excess of AUD 1 billion, EBITDA north of AUD 200 million, and EBIT of AUD 94 million. The EBIT result was negatively impacted by AUD 6 million due to the stronger Australian dollar. When this impact is taken into account, we end up on par with H2 of FY 2020.
In the half, we delivered NPAT of AUD 45 million, which includes refinancing costs and reflects the softer EBIT. Cash conversion remains excellent at 92%, which is well above the 68% reported 12 months prior. Cash conversion continues to be a key focus of management. Due to the reduced EBIT performance, our ROCE decreased to 14.4%. Our ongoing focus on cash management resulted in our net debt decreasing by 14% on the prior corresponding period. Given the ongoing strong position of the business, the board declared an interim dividend of AUD 0.035 per share. On to Slide four. Our underground operations continued to grow during the half and performed very well. However, our results were impacted by the combination of the planned contraction of the surface Africa business and the underperformance of our investments business on the back of the challenged East Coast rental market.
We have taken decisive action to address the underperformance of AMS. During the half, we finalized the strategic review. We've made meaningful progress towards implementing these findings, inclusive of the actions that we have previously outlined to the market. Of importance is the significant progress we made towards the resolution of AMS legacy contracts in Mali and Burkina Faso, two loss-making projects that have impacted AMS over the last two years. We expect to liberate approximately AUD 80 million-AUD 90 million of cash, of which AUD 14 million has already been received. This cash will be redeployed into lower-risk jurisdictions that generate positive EBIT and ROCE above our hurdle rates. Our results include one-off accounting charges this half that Peter will cover in detail.
As announced in October 2020, we successfully refinanced our high-yield bonds, issuing $450 million of bonds to the U.S. credit market, receiving very strong support and at a lower rate compared to the previous bond. We have a very solid capital structure to support our business growth. From a pipeline perspective, we continue to win new work and extensions, with our order book and pipeline both very healthy. We are focused on our expansion into North America. During the half, we incorporated a U.S. company and will be opening an office in Denver to support our current tendering activities. Turning to our people. In response to the increasing competition for labor, we have activated a talent attraction and retention strategy. Securing and retaining the right people is paramount to the continued success and growth of our business.
During the half, we improved our safety performance, and from a sustainability perspective, we have taken some very important steps and made significant commitments to demonstrate our commitment to a sustainable future. On to Slide five. Our safety objective is no life-changing injuries. This is because the health and safety of our people is our highest priority. We also know that a business that values safety also delivers business performance. We've shown a pleasing downward trend in our serious potential injury frequency rate and our total recordable injury frequency rate. Although our focus is still to do better.
In a meaningful step towards this goal, we've implemented an in-field critical risk management program where our employees are encouraged to locate, identify, and verify that critical control measures are in place and working effectively with the intent to prevent life-changing injuries or fatalities. As you can also see, our workforce increased because of works at Hemlo and other projects organically growing. We continue to focus on developing and supporting local employees throughout the world. Strategically, this is a very important focus for us in support of our growth ambitions. Slide six. As previously communicated, we responded swiftly to the initial onset of COVID-19 and have provided business continuity despite significant international challenges. We have a team dedicated to managing logistical challenges in support of our 500-strong expat workforce.
I want to take a minute to recognize the tremendous effort by all our people for how well they have adapted to a world with COVID. I particularly want to acknowledge our expats who continue to complete long rosters and endure multiple periods of hotel quarantine. Their resilience is truly remarkable, and their efforts are very much appreciated. Overall, we've managed well, but there is no denying that there have been additional costs to manage a world with COVID. However, these costs have largely been recovered. Beyond these direct costs, there are also other costs associated with the restricted ability of our senior people to travel to our locations and provide support to achieve the productivity rates we are aiming for. There is also an impact from ongoing COVID-19 fatigue from people working extended rosters.
We see the impacts of COVID-19 persisting through 2021, which will continue to affect our business through impacted productivity, hindered projects and ramp-up pace, travel challenges, and intermittent brief site shutdowns. We will remain vigilant and continue to actively manage the controllable aspects of our business to ensure we continue to deliver exceptional service for our clients. In addition to the regular management of the logistics, we are also reviewing our approach to vaccinations and seeking to improve quarantining facilities. On to Slide seven. Whilst this is a focus area for the industry and for Perenti, I will only touch on the highlights as detail is included in our inaugural sustainability report released last year. We have commenced proactive engagement with independent ratings agencies to gain better recognition of our ESG credentials and improve performance.
We are committed to continuous improvement, some of our recent initiatives are detailed on this slide. Further details will be included in our 2021 sustainability report. Slide 8. I'll now provide more detail on the underlying performance of the business and industry sector groups or ISGs, covering underground, surface, and investments. Slide 9. Group performance. High-level financial measures have been provided earlier in the presentation, I want to stress again, as we compare this half to the second half of 2020, there are specific factors that have impacted our performance, namely COVID, currency movement, and the coal price. When the ForEx impact is considered, our performance this half is aligned with the second half of FY 2020, which is in line with our qualitative guidance previously provided.
As you can see, we have presented an FX-adjusted view of our performance, showing the significant impact the strengthening Aussie dollar has had on our financial performance. Underground continues to be the primary contributor to revenue at over 70% and generates excellent returns. Almost 50% of our revenue is generated in Australia, with Ghana the second largest at almost 20%. I would note that we have operated in Ghana for 30 years, so it is a region we are very experienced in conducting business. Gold, nickel, and copper are the dominant commodities, and we have a healthy spread of projects with our largest project by revenue at 7%, so we are not reliant on any one project in particular. Slide 10, underground performance. This slide details the excellent and ongoing strong performance of our underground business despite the COVID-19 impacts.
Due to COVID-19 restrictions, the ramp-up of Hemlo in Canada and Zone 5 in Botswana are below their planned ramp-up rates. The mines will get to a full run rate, however, later than expected, whilst it is too early to say when the ramp-up will be complete, it won't be complete in this half, meaning some revenue will be deferred, albeit positive for future periods. The majority of new projects and extensions within the group have come from underground. I'll expand on recycling of capital from AMS over the next couple of slides. This presents an opportunity to redeploy capital from exit and AMS contracts to underground and generate significantly higher returns. On Slide 11, surface performance. Australian surface performance continues to be strong. AMS contraction has weighed on results. Transformation initiatives continue with resolution of Boungou and exit from the loss-making project, Yanfolila.
I'll provide further detail on this over the next two slides. Strict tendering and management disciplines have been successful at Sanbrado and will continue into new tenders. Slide 12, AMS strategic review. As I mentioned, the AMS strategic review was finalized in the half, and this slide is a summary of the key findings, and importantly, the status of the key initiatives and actions to improve the business. Several of the initiatives had commenced prior to the period. However, there are some additional details included that we haven't covered before. We've really focused on improving our commercial and financial disciplines while removing unnecessary duplication. We consolidated the underground and surface businesses under the newly formed Mining ISG, led by highly experienced CEO Paul Muller, who has been the Barminco CEO for the past four years.
We have successfully completed the exit of both Boungou and Bissa, and we are progressing with the exit of Nkonsa. We are also progressing with the sale of these assets, and the combination is expected to generate AUD 80 million-AUD 90 million in the second half of FY 2021, to recycle capital into more attractive regions and generate positive returns. In further detail, covered on the next slide. We've lifted our corporate governance oversight to improve capital allocation and commercial discipline to focus on generating higher returns. With this in mind, we are currently renegotiating the terms of our Mako Project, with the intent to improve profitability through cost-saving initiatives for the client. We have implemented strategic procurement agreements with a dedicated focus on local procurement where possible, and we have reduced system duplication with the implementation of an ERP system common to both Australia and Africa.
Given all of our work we've completed, we've reduced our capital base in West Africa, we've liberated cash, and we are focused on a smaller number of high-quality projects. Slide 13. This slide demonstrates the approach to recycling capital from loss-making projects in Mali and Burkina Faso, and into less challenged regions and projects that generate returns at or above our hurdle rates. As we show in the graphs, we have reduced our base of working capital employed, and through negotiations, we expect to generate AUD 80 million-AUD 90 million in cash. We expect we will redeploy this cash elsewhere in the business, with a target ROCE of greater than 20%, which could result in an annual positive EBIT of almost AUD 20 million compared to AUD -5 million at the two projects.
This is not the end of it, as we believe that as we continue to embed the findings of the strategic review, that will continue to enhance our future earnings. Slide 14. Investments is the smallest part of our business at 6% of our revenue. Profits decreased as a result of BTP being impacted by a challenging Australian East Coast rental market on the back of weaker coal prices. The team are working through opportunities to address this during the coming halves. I will now hand over to Peter Bryant, our CFO.
Thank you, Mark, and I too would like to welcome everybody to the call, and thank you for your interest in Perenti. As you've heard from Mark, it has been a busy time since we presented our full- year 2020 results. As a business, we are pleased with our financial performance, and particularly our ability to have strengthened our balance sheet and maintain our margins in spite of the challenging backdrop of the pandemic. Over the half, we have also taken significant steps in addressing some legacy issues and positioning Perenti to deliver our strategy and, importantly, deliver returns to our shareholders. Slide 16 provides a high-level snapshot of the underlying results for the half against the results for the corresponding half in the 2020 financial year.
Mark has touched on the majority of the numbers as he ran through the performance highlights of the group, including the underground surface and investment businesses. I'm going to focus on some of the key numbers and performance metrics. Firstly, our underlying EBITDA margin. At just a touch under 20% for the half, our EBITDA margin is both one of the strongest in the sector and one of the most stable. Impressively, we delivered an EBITDA cash conversion of 92%, which I'll discuss in more detail later in the presentation. On a pro forma basis, Perenti has delivered an EBITDA margin of circa 20% for the past five years, providing a stable and consistent profile of performance. I've used five years as a reference point, given we prepared pro formas for this period to support our refinance.
I also want to call out a comment in the second bullet point around our investment in people and systems. The increase this half when compared to the second half of FY 2020, relates to the additional costs associated with the alignment of our long-term incentive program to industry standards. This alignment means we now book a notional expense based on the likely vesting of the share rights. Additionally, as reflected in the accounts, we made a small technology acquisition during the half. That acquisition generated revenue but contributed a small loss to the overall result. Mark will talk further about our investment in people and systems later in the presentation. Moving down the slide, you will see the reduction in our NPAT margin, which is largely driven by the reduction in EBITDA, which flows down and in percentage terms is amplified.
The effective tax rate has been pretty stable at 30%. That said, we are expecting this effective rate to increase in the second half as our ability to book tax losses in Australia diminishes, and thus the related tax credits are not available. Finally, on this slide, the one-off and non-underlying items of AUD 89.1 million, which delivers a statutory NPATA loss for the half of AUD 34.5 million. Moving on to slide 17, which reconciles the statutory result to the underlying numbers we've been presenting. Clearly, the largest reconciling item is the one-off EBIT and NPAT impacts of the AUD 88.1 million implementation of the AMS strategic review. I will run through the individual elements of this on the next slide.
We will also see in the NPATA column an amount of 8.1 million, representing the redemption premium payable in relation to the refinancing of the group's U.S. higher-yield bonds in October. This redemption premium represents the amount payable under the form of bonds through redeeming them prior to maturity, which is a standard element of all U.S. higher-yield bonds. The remaining reconciling items, excluding redundancies, will be familiar to you as they are consistently a part of our claim. Amortization, which relates to the customer-related intangibles that were acquired as part of the Barminco acquisition and are expensed in accordance with the accounting standards. Foreign exchange movement, which represents the crystallized movement on intercompany loan accounts, one-off transaction costs, and redundancies, with the majority of this AUD 2 million number relating to redundancies. Slide 19 sets out the components of the one-off costs related to the implementation of the AMS strategic review.
I want to reiterate that as a result of exiting these loss-making contracts, we expect to generate AUD 80 million-AUD 90 million of cash inflows to the group, of which so far we have received AUD 14 million. We plan to redeploy this cash elsewhere in the group to maximize value, targeting returns of + 20%. There are effectively four categories of costs that are explained on this slide. Most material of the categories are the cost of exiting the Yanfolila project in Mali. We are close to concluding the negotiations of an early exit from this loss-making contract. At a high level, the terms of the exit will see the workforce and equipment transfer to a new contractor. To achieve this, we have worked closely with both the mine owner and incoming contractor to ensure a transition that works for the three parties involved.
There are a number of elements to this early exit, and there are still some T's to be crossed and some I's to be dotted, but we have progressed to a stage where we believe it is appropriate that the expected outcome of the transaction should be reflected in our accounts. Most significantly, we have impaired the value of the assets that will be sold to the incoming contractor for the value in the draft sale agreement. We are working to have the transaction completed and all the required government approvals in place during the half. The next category relates to the finalization of the sale of assets at the Boungou site in Burkina Faso. We had previously impaired these assets to the value of a sale agreement entered into with a contractor who we had expected would be awarded the Boungou contract.
That did not materialize, and we needed to find a new buyer and negotiate a new sale agreement, which is now concluded. The last of the material adjustments relate to the impairment of assets held in Ghana, Senegal, and Burkina Faso to their recoverable value based on an external valuation that was concluded during the half. The final element or the final adjustment relates to redundancies and other costs associated with the implementation of the strategy. These redundancy costs reflect our focus on ensuring we have the correct cost base to support our business in Africa. Cash conversion for the half being underlying EBITDA to operating cash flow was a very pleasing 92%. As you've heard both Mark and I state on multiple occasions, cash conversion, working capital management, and more broadly, capital management, are one of our key focus areas.
Cash outflows reduced debt by AUD 36.1 million during the half. The redemption premium and borrowing cost of AUD 22 million, including the AUD 8.1 million I referred to earlier. CapEx is AUD 119.4 for the half. With the second-last bullet point providing some detail, which includes AUD 73 million of the spend related to growth CapEx, primarily at to the half . Final dividends for the half were up due to the effective payment of two dividends during the period. With the FY20 interim dividend, which was deferred as we focused on building liquidity when COVID-19 started to take hold 12 months ago, ultimately paid during the half, together with the final FY 2020 dividend. All up, net cash flow for the half was negative for the reasons I just ran through. On to my last Slide 20.
Although it now seems like a distant memory, we completed the successful debt refinance of our U.S. higher-yield bonds in October of last year. The placement was 3x oversubscribed with significant interest across the globe. Given the level of interest, we elected to review our capital structure and increased the value of the placement from our targeted $360 million- $450 million. We also reduced the capacity of our revolving credit facility by $130 million. The final allocation of the debt, which reflected the keen support for the business, saw bonds issued to high-quality investment names or investor names across Asia with 39%, Europe with 36%, the U.S. with 21%, and Australia with 5% of the final placement. We secured a reduction in our coupon rate, which now sits at 6.5%. Importantly, we have in place a long-term five-year core debt facility that is effectively covenant free.
We also have leverage constant at 1.3x , a number we are comfortable with, but a number we are targeting to bring down to circa one times in the near- term. Thank you again for your interest, and I'll hand you back to Mark to close out.
Thank you, Peter. Slide 21. I'll now provide an update on our 2025 strategy, provide details on our order book, pipeline, and outlook. Moving on Slide 22. We've shown this slide consistently now for the last two years. I won't go through all the detail. It's just to remind people of the strategy and the fact that Perenti has thought in detail about the strategic pathway ahead and is continually executing against this plan. On Slide 23. As I mentioned, the 2025 strategy has now been in place for two years. It's an appropriate time to check back in on some of the key achievements since its development. I won't go through all achievements. However, I will call out a couple of key points. We have been disciplined about our capital allocation, which is heavily weighted to underground, giving the excellent returns.
We've called out AMS underperformance, and we are actively working to transform this business. We have expanded the business into quality mining countries, namely Botswana and Canada. In August 2020, we published our first sustainability report. Our disciplined approach to cash has seen cash conversion increase and net debt decrease. We continue to invest in the foundations of the business to support our long-term growth with a focus on maximizing value for our shareholders. I'll go into some of the detail of this investment in the next slide. On to Slide 24. We have invested in our business to ensure that we have a solid foundation underpinned by streamlined processes and procedures to enable our continued growth. We invested in additional security and emergency management measures to better protect our workforce. We are continuing to establish a presence in North America, and we are actively tendering for contracts.
Our presence in North America will grow as we build a base of operations through an office in Denver. We have also recognized the historical underinvestment made in systems and processes. We are removing duplication and inefficiencies that arise from legacy technology infrastructure across multiple business functions and multiple jurisdictions. For example, our people data is currently managed across two systems and 17 spreadsheets. By June, we will have one system. In addition, we previously had two safety reporting systems. We are currently moving to one. Last year, we were operating three ERPs. We now operate two. Over the next couple of years, we will transition to one. We know that once these changes have been made, we will have a safer, more productive business with strong foundations to support both organic and inorganic growth. Slide 25.
We have AUD 5.5 billion of work in hand, including AUD 1.3 billion of contract extension options. It's not just a very significant volume of work in hand, but it is also high quality, focused on top-tier mining jurisdictions with an underground focus in very attractive commodities of gold, copper, and nickel. Our focus on quality returns in underground is evident, given 80% of our work in hand is underground, with over half in Australia. Gold remains our dominant commodity. However, we are also diversified with approximately 25% of our work in copper and nickel. As part of our refinance, work in hand is a key area of focus for debt providers, and the quality of the book was a significant factor in a very positive refinance in October last year.
Just to confirm, the work in hand is secured and some of the delays experienced at Zone 5 in Hemlo doesn't mean it's value lost, rather just value that will be realized in future periods. Slide 26. This slide details the bridge from our work in hand at 30th June, 2020 to the 31st of December, 2020. I would note the negative impact due to the strengthening Aussie dollar to the U.S. dollar. Beyond that, it is relatively self-explanatory. Moving on to Slide 27. We have increased our pipeline from AUD 8.8 billion at 30th of June to AUD 9.2 billion at 31 December. It would have been AUD 9.6 billion if the exchange rate hadn't changed. This is a significant pipeline of opportunities in underground in the right jurisdictions and commodities. At 30th June, we had 63% of our pipeline focused on Australia, Botswana, Canada, and U.S.A.
Now we have that at 76%, reflecting our increased appetite to operate in top-tier mining jurisdictions and operational friendly jurisdictions. Perenti will not just be mining anything. We are very conscious of counterparty, geography, and commodity risks. Therefore, we have strict tendering disciplines in place. The North American option is very real. We have increased the pipeline to AUD 2.1 billion across 14 projects, compared with AUD 1.8 billion at 30th of June. Again, this delta will be greater on the same exchange rate. On to Slide 28. First, let me talk to our priorities. It is very important for us to continue to deliver operational excellence across all of our projects, especially our high-margin underground projects, but also the successful ramp-up of key projects as a key earnings driver in the near- term.
We will finalize the conversion of capital in AMS to cash and then redeploy that cash to where we can target higher returns. With our strict financial and commercial disciplines, we expect to win further work with AMS to enhance the performance of our surface business. We need to continue navigating COVID-19 and deal with the current challenges, plus any additional challenges that may arise. We will continue to pursue new project and renewal opportunities with an increasing emphasis on North America. Onto the general outlook. We have a very strong order book with AUD 900 million of committed revenue for the second half of FY 2021. Our pipeline is equally as strong, and our focus remains on winning new work in highly prospective top-tier mining jurisdictions.
We will continue to strengthen our presence in North America with an office in Denver expected to open this half to bolster our already active tendering activity
The resourcing sector is in fantastic shape and forecast to continue to grow. We have done a great job of creating a stable foundation to capitalize on a buoyant industry outlook. We are ensuring we have the right people in the right roles, with the right systems and disciplines in place. Our balance sheet is strong, and our capital structure is appropriate for our growth aspirations. That said, the headwinds we encountered in the first half of FY 2021, most notably COVID-19, are expected to persist through the calendar year, with ramp-up of growth projects and order pipeline opportunities delayed. This does not mean the value is lost. We will deliver on these contracts, but rather pushed out into FY 2022 and beyond. I'm very pleased with how our business and people have responded to and have navigated these challenges.
As we move forward, Perenti remains in a very strong position. Factoring in a continued impact of COVID to our business, we expect Perenti to deliver second half FY 2021 revenue and margins consistent with the results achieved in the first half of FY 2021. Thank you for your time. We 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 cancel your request, please press star two. If you're on a speakerphone, please pick up your handset to ask your question. Your first question comes from Ben Brownette from CLSA. Please go ahead.
Hi, Mark, Pete. Can I start on Slide 13 with AMS? Can I understand that a little better? Is that chart there, is that the EBIT result of the whole of AMS? It looks like about AUD -6 million to AUD 7 million, something like that. Is that correct?
Ben, it's Peter. That chart on 13, I just say, is an indicative chart that just shows the redeployment of capital and how we can generate better returns from it. It's really based on the Yanfolila and Boungou, just the Boungou and Yanfolila, not the full AMS.
Okay. Can you give us an idea of what, in U.S. dollar revenue and EBIT, AMS was, just so we can put it in context of what's left after those exits?
Ben, I've got those numbers. I'm not going to give them on this call. You can possibly back calculate in AUD what the contribution has been by looking at the slide that deals with the service business and by just backing out the AUD 3.8 million, the AUD 3.4 million adjustment that we call that.
Okay. Can you give us an idea then of how many at what AUD value of assets is left in AMS, post-selling the assets or post the AUD 80 million- AUD 90 million, what the asset base left in that business is?
It's about AUD 300 million.
That's Aussie?
That's Aussie, mate. Yeah, everything I say will be Aussie, unless I call out otherwise.
Okay. Understood. Then with respect to the COVID costs, should we be looking at that corporate line, for the majority of those costs, or are they as well in the underground business?
The bulk of them actually sit in the projects to which they relate to. Ben, I would say, though, it is difficult to isolate them. The bigger impact from COVID, as we said during the presentation, is more around the productivity impact from our workforce being in country for a longer period of time, inability for some of our senior staff to freely travel. That productivity impact is very hard to pull from.
Also, Ben, it's Mark here. Peter's covered off the operational costs. You're correct, we also have a dedicated team that are managing it globally for us, and those costs do come through into the overhead.
Right. Okay. Obviously, you're saying that it's hard to quantify, but could you ballpark a number or a range of what you would expect the COVID-related impacts to be?
I guess the two parts or probably three parts there have been, one is the sort of direct costs associated with moving people globally, plus the direct costs from the quarantining, so particularly within the countries they operate. Those costs are generally recovered through the clients. That's one category. Another category is around the productivity impact that Peter has spoken about, and they are hard to quantify. I guess if you think about sort of reduced coverage of expats on site leading to the productivity impacts. If you look through the last 12 months, we've had isolated periods of significant folk in isolation on site, more from a precautionary aspect, given contact tracing. They are hard to quantify. The third category is what I call our core, which is the team dedicated to managing COVID.
In reality, that's probably about five people, sort of full-time dedicated to covering our exits.
Yeah. Okay. With respect to the underground business itself, it looks like there was some pretty good growth in Australia. Can you talk about that? Can you talk about, from an overall margin perspective in that underground business where it looks like a bit of mix shift back into the Australian business at lower margin, where you are happy with that EBITDA margin that was 15.1%? Would you expect in a normal environment that to be back where it was, call it H1 2020 unimpacted or are there some mix changes there?
I guess overall, we're certainly very pleased with our underground performance. The growth that you called out, Ben, has been both international and domestic. Domestic, sort of in the south, predominantly through just some ramp-up with some of the projects that we have. Obviously the ramp-up internationally on the back of Zone 5 and also the Hemlo project. Good growth. As far as the margins are, we're always looking to improve those margins where we can. We did have an improvement on this half compared to the prior. The half that you called out at the 15.6% was slightly down. That would be our objective, but I wouldn't be actually placing too much weight on that, just given the headwinds. Ideally, we do get back to that point quickly, but I think we just need to keep navigating and keeping the consistency.
Our main focus at the end is to get the job done and generate strong returns and manage it safely. In time, we hope to get back there, but not in the short- term.
Okay. Just lastly, on those two AMS contracts where the miners, I guess they've announced and you've announced that a new contract is coming and buying the equipment, do you expect that to be paid relatively soon after they take delivery of that equipment? Will there be some other adjustment to suggest that that might be over a longer period of time? That AUD 80 million-AUD 90 million less the AUD 14 million, is that an expectation for the second half, or should we expect that to be spaced out?
Yeah, Ben, we're targeting to have that through during the half. I guess the good news there about Boungou is that it's up and operating now. The Boungou mine is generating income again on the back of that restart. The Yanfolila contract and mine continues to operate. We are expecting when they take delivery, particularly Yanfolila, and we're looking for a handover in March. That's got to be finalized with some of the Ts& Cs over the next couple of weeks. We expect the cash coming through in this half. Peter, update on that?
Yeah, Ben, like you said, literally last again during this call this evening, another AUD 16 million came through last night from Boungou, which is a tranche of the payment. As you said, we've never seen trading in those.
Yeah. Okay. Well, thanks very much for that.
Thanks, Ben.
Thank you. Your next question comes from Josh Kannourakis from UBS. Please go ahead.
Hi, Mark and Pete. Just following on, firstly on starting off on the good stuff in terms of the underground, that was obviously extremely strong result despite the sort of COVID impacts. Just keen to really understand, when we're looking at that, how much of those productivity issues actually hit that underground business versus the surface business? Also just in terms of with the Hemlo and Botswana contracts, just how much profit from those contracts, or if you can even give us a feel for how far through maybe in terms of percentage terms are you from achieving the revenue and profit from those contracts? Thanks.
Yeah. Good morning, Josh. It's Mark. In terms of, I guess the COVID impacts, surface versus underground, we see generally a greater impact operationally on underground due to the additional expats. It's a high percentage of expats we run in our underground business internationally, and that's due to the technical sort of know-how required in underground, which is a key differentiator. Greater impact there. Having said that, the contracts in underground are generally better from a commercial acumen point of view for recovery than surface, which we have called out in terms of one of the legacy issues within AMS. Less impact. The other thing I would say is the review of AMS is it's a very strong brand, well recognized for quality delivery. That's not the issue. It's more about commercial management and cost management. I guess less impact, but less ability to recover.
In terms of the ramp-up of Zone 5 and the Hemlo, in terms of the update I provided, just provided a Q&A, did call out that the timing of that we're still working through on some impacts of the COVID and the international travel and the South African strain and the U.K. strain that have put further restrictions on. We're still just assessing when we'll get to steady run rate. We don't expect that to be in this half. We expect that to be through into FY 2022. As far as percentage, Josh, I won't be able to provide that to you, but the positive is it continues to ramp up, and we continue to see increasing earnings from those two jobs throughout the next 6-18 months.
Got it. Thanks. Just in terms of surface, I mean, you've obviously outlined your plans and strategy moving forward then. I mean, what are the major next steps? Like, when you look at the projects within there, are there any that are also concerning you, and are there any other further exit options or renewal options or change in terms of repricing options across the book into this second half?
Yeah. I guess one item I'll call out, and I did touch on it just prio r. The KITS and Brothers project, which was a competitive tender over the last couple of years, struck on, I guess I'll call it the new sort of commercial disciplines and hurdles, performs very well. Meeting our expectations, meeting our client expectations. I guess that's an example that with the right discipline, the AMS business can still generate positive returns from good contracts. It can clearly be done. To your point, Josh, regarding other challenged contracts, the Mako contract is another contract that is a loss-making project for AMS, and you'll probably be across it, Josh, but just for the benefit of other people on the call, back in 2017, three projects were struck in or one in quick succession for AMS, Boungou, Yanfolila, and Mako.
Those three jobs have all been loss-making projects. We obviously had Boungou. We're close to exiting Yanfolila, and we're working through Mako. What our focus with Mako is to actually work with the client, look at the mine plan, find opportunities to drive the cost base down, and share the savings with the client and with ourselves as well. That contract runs until May of 2022. There is an extension option on that for a two-year period thereafter, but our focus is to actually find cost savings to improve the profitability of the Mako project. That's the main sort of overhang around operations within AMS, Josh.
Yep, got it. Just maybe one just for Pete, just around the currency playing into, the currency was probably a slightly larger impact than I'd expect it anyway within this half, just with the debt offset. Just interested into the second half, just how much impact you're seeing there and how we should maybe look at sensitivity of currency moving forward, please.
Yeah. We've called out that we're pegging our guidance on a rate of AUD 0.76. If it holds at AUD 0.76 against the prior year, the impact's around AUD 8 million at the end of the line.
Got it. All right. Thanks, guys.
Sure.
Thank you. Once again, if you wish to ask a question, 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.
Hey, Mark and Pete. A couple from me. I'll just start one more on the surface business. You've talked a bit about new contracts in AMS. Can we take that the Australian surface contracts should be performing to your expectations?
Yeah, Michael, the Australian surface business is performing well. Very happy with the performance there in both the exploration and Ausdrill. Different nature of contracts in terms of the T&Cs that we're more comfortable with, and the performance is strong. Comfortable with how we're going with Surface Australia.
Okay, great. One on the pipeline. Pipeline's up to AUD 9.2 billion. Can you give us any indication of how much of that is recontracting mines already on, and then the timing of that as well?
Yeah. In terms of the pipeline, it does have some numbers associated with renewals and existing jobs. For example, we've got Iduapriem, which is a job in Ghana. We've got And I'll just call out the main ones. We've got with AGA, Nyankanga and Geita in Tanzania, and we've got Sukari, which is a project with Centamin in Egypt. They are the main ones that make up the bulk of that. We have already extended a couple of projects that link to that value, and it's AUD 1.4 billion of the AUD 9.2 billion. Quite a portion with existing clients.
Okay. AUD 1.4 billion is extensions and the remaining is new contracts.
Yep.
Yep. Okay. You used to have a slide on the phasing of that pipeline. Can you give us any indication of, do you expect much of that to fall in the second half and into FY 2022?
Yeah. Well, I'll say in two parts, Michael. We expect that a number of contracts will be awarded in the second half of 2021, but the actual revenue associated with those awards will come through into FY 2022, and a number of the large jobs that we're currently targeting will be the second half of FY 2022.
Okay, great. Thanks for that. One on North America. You mentioned that you expect the award of a project in the second half. Is that expected to be in the underground business?
Yes, it is. Michael, in North America, we're only targeting underground services in North America. We see our underground offering as having significant differentiation to the North American market. Therefore, we're only targeting jobs that are underground-specific.
Okay, great. That's very useful. On BTP, have you started to see the East Coast rental market improve? Have higher coal prices started to flow through operationally or not yet?
Yeah. We did see some slight improvement in January, in terms of coal. I guess two parts to the BTP business. Obviously, the softening coal, but Peabody and their joint ventures and change of control, which did flow through into December. We have seen that pick up a bit into the new year. Look, early signs are positive there, Michael, but I guess given the volatility we've seen, it'll be interesting to see how it goes for the half.
Great. Last one for me. Thanks for your comments on the corporate charge and what's driving that. Can we infer that a similar number should be expected in the second half and into FY 2022 as well, given the change in accruing for LTIs?
Yeah. It should be similar.
Sorry, stable.
Great. Thanks for that, guys.
Thanks, Michael.
Thank you. There are no further questions at this time. I will now hand back to Mr. Norwell for closing remarks.
Well, thank you everyone for taking the time to join our call this morning, particularly those of you in Perth for an early start. Obviously, we'll be running through further discussions over the next couple of days. I guess just rounding out, given the headings I've called out, and particularly the ForEx, and if you back out the AUD 6 million impact, we're back up to AUD 100 million EBIT for the half, which is comparable to the previous half at AUD 101 million, which we had called out to be consistent with the period. Strong performance. The business is in fantastic shape to continue to grow into 2022 and beyond. We're well positioned, and we look forward to further discussions. Thank you.
Thank you. That does conclude the conference for today. Thank you for participating. You may now disconnect.