Good afternoon, everybody, and I'd like to thank you for joining us today as we present Perenti's 2025 strategy update. Before we start, I'd like to acknowledge the Gadigal of the Eora Nation, the traditional custodians of the land on which we meet today, and pay my respects to their elders, both past and present. As Geoff mentioned, Tim Longstaff, fellow board member, chair of our sustainability committee, and a Sydneysider, is also here today. It's good to see you in person, Tim, in this post-COVID event in your hometown. Speaking of Sydney, I'm absolutely delighted to be holding this update here in New South Wales at the Sydney Mint, the oldest surviving public building in the CBD.
I can't think of a more appropriate venue, given the nature of our business, the history of this building, and our announcement this morning that we've been awarded the contract for the development of production work for Evolution Mining's Cowal Underground Mining Project here in New South Wales. I also want to recognize Ron Sayers, who recently passed away. As most of you may know, Ron was the founder of Ausdrill and a very active and entrepreneurial member of the Western Australian business community. He'll be greatly missed. Today, I'm joined by Mark Norwell and Peter Bryant, who'll deliver the presentation for all of you today. Perenti as a holding company or a brand is now approaching almost three years in existence. During that time, the team have delivered meaningful progress on a number of strategic objectives.
I wanna reflect briefly on the Perenti story since its formation and the journey of the business and the strategy since then. Since its inception and implementation in 2019, the board, the executives and all of our people have been disciplined on the delivery against the 2025 strategy. We've made significant progress across all areas of the five strategic pillars outlined within the strategy. We feel that as a result of everything that's been achieved by the business to date, that the foundations of the business are robust, that our risk management and corporate governance structures have evolved significantly, and that we're now in a strong position to take the next steps in the evolution and implementation of our strategy.
As Mark and Pete will outline, we'll build on what we have with a laser-like focus going forward on the creation of sustainable long-term value for our shareholders. The board is very pleased with the achievements to date, and we're excited and very supportive of this next evolution of the Perenti strategy. I'd like to say more, but without stealing his thunder, I'd like to hand over to Mark Norwell, Managing Director and CEO, who will outline the updated 2025 strategy. Mark.
Thank you, Rob, and welcome to our strategy launch presentation. Like Rob, I would also like to take a minute to pay my respect to Ron Sayers. Ron was an icon and pioneer of the mining industry for over 40 years in Australia and Africa. Ron started Ausdrill in Kalgoorlie in 1987, and through his entrepreneurial spirit, he built the business until his retirement in 2018. On behalf of the board and the entire organization, we are all appreciative for what Ron did for the industry, the Ausdrill business, and the people of Ausdrill. Our thoughts are with Ron's family and friends during this difficult time. Usual disclaimer.
For our presentation today, I'll start with our FY 25 targets and take a step back and outline some of the many achievements our team have delivered since we first launched our strategy in February 2019, followed by our future direction to deliver on our targets. Peter will then step through agenda item four, the detail associated with delivering improved financial results. I'll close on the outlook for FY 23 and our near-term priorities as we build to FY 25. Key targets in slide 5. We have several key targets with our overriding priority the health, safety, and well-being of our people. We continue to strive towards our goal of no life-changing events, which sadly, we have not delivered. The recent tragic event at the Zone 5 mine in Botswana reinforces that ensuring our people are safe is our first and most critical priority.
Along with everyone at Perenti, I'm deeply saddened by the loss of our two colleagues. Our thoughts remain with their families, friends, and workmates as we continue to provide support. Investigations are ongoing. However, what is clear is that we need to improve to prevent further events of this nature. In support of improving our safety performance, in addition to the independent investigation at Zone Five, we continue to focus on a safety improvement program across the business. Three areas that we are allocating additional resources to include an independent team to review our international operations, accelerating the next phase of our critical risk management journey that we commenced two years ago, and assessing our supervisor capacity across all our operations. I am personally committed to improving our safety performance. This goes to the physical safety of our people and their psychological safety.
We want people to feel safe when they work for us, and we strive for an environment where people bring their best self to work. This isn't a soft target. This goes to the heart and future of our business. The financial metrics are very clear. A significant step up on the quality of our earnings from where we are today, with a target of 20% for return on average capital employed and 10% for EBITDA. A material decrease in our leverage to below 1x and moderate revenue growth to AUD 2.5 billion from AUD 2.4 billion in FY 2022. Fundamentally, our focus is to generate earnings growth as we come out of the other side of significant and prolonged COVID impacts, recent capital investments, and the effort of our people in building our business foundations.
This improvement to our business performance will generate free cash flow that will then be allocated in accordance with our capital management policy. This allocation of capital will also cover the share buyback program that we announced this morning, as the board of Perenti believe we are trading at a significant discount, particularly given the easing of COVID challenges and the investment in our business over the last 3 years. Peter will talk to capital allocation, including the share buyback in more detail. On to slide 7. Since the acquisition of Barminco in late 2018 and the formation of Perenti in August 2019, we have continued to build our business into a global mining services company. For those that don't know much about Perenti, and for clarity to those that do, we aren't the owner of the mines we operate at.
We conduct mining activities on behalf of the owner. 94% of our earnings are generated from operating mines with our focus on mines that are at the lower end of the cost curve. By focusing on lower cost mines, it ensures that we continue to operate when commodity prices are at the bottom of the cycle, thereby reducing our downside exposure. This approach allows us to generate relatively stable earnings, given our contracts are scheduled rates with cost escalation protection, although that certainly has been impacted by a one-in-100-year pandemic. We have over 9,000 employees operating across 60 projects through some iconic mining service brands such as Ausdrill and Barminco. While we continue to build a new iconic brand, Idoba, our technology-focused product and services business that we launched last year.
As we called out in our February 2019 strategy, we have focused on shifting our business into better operating regions, namely Botswana, Canada, and the U.S. This shift has occurred while navigating COVID. Over the last 2 years, we have commenced 2 new projects in Canada and 2 in Botswana. At the same time, we have not lost focus on securing and extending projects in Australia, as demonstrated by the timely announcement of Cowal this morning. In FY 2022, we expect to deliver revenue of AUD 2.4 billion and earnings of between AUD 170 million and AUD 175 million, despite navigating unprecedented challenges throughout the year. Slide 8.
As I mentioned, our February 2019 strategy didn't contemplate a global pandemic nor a war in Europe and the flow-on effects to global border closures, flight restrictions, labor shortages, supply chain issues, and overall cost escalation. These issues have been a challenge for all Australian-focused businesses and an order of magnitude more challenging for global businesses like us. Despite these challenges, our people have done an amazing job to keep our operations going and at the same time delivering on our strategy, which reinforces that we have great people and a robust business. I cannot overstate how proud and appreciative I am of our people over the last few years.
The ability of our people to manage international travel throughout COVID while continuing to move over 500 of our expats, plus some of our clients' employees and citizens from other countries, is an achievement that is hard to match for any organization and demonstrates the commitment and capability of our people. Furthermore, recent geopolitical challenges have also impacted the business. However, we continue to navigate all these challenges, which makes the tightening of guidance an even more impressive feat. Our ability to still deliver guidance in the range released in August last year demonstrates the resilience and strength of our business, supporting our optimism for future earnings growth. Slide 9. I could spend the whole presentation just talking to what our people have delivered in the last three years. However, the focus of today is where to from here.
I will step through one slide summarizing what has been achieved. We have focused on four parallel streams. We've stabilized the business, recycled cash, invested in our business foundations, and positioned Perenti for the future. In stabilizing the business, we successfully integrated Ausdrill and Barminco to form Perenti, exited some high-risk projects in West Africa, worked through historical business issues, and navigated the unprecedented challenges of COVID. We have enhanced the cash generation capacity of the business through the improvement of AMS, the rationalization of our portfolio, and the formalization and announcement of our capital management policy. We continue to invest in our organizational health to ensure we have the right people, systems, and governance frameworks to support our business. Finally, we have positioned the business for the future. We launched our future-focused digital and innovation service offerings through Idoba.
We successfully expanded into low-risk jurisdictions and established a sustainability framework. Importantly, our senior management time is now shifting more to future-focused initiatives rather than historical and COVID management activities. Slide 10. While we have implemented many strategic initiatives and continue to deliver for our clients throughout the pandemic, we have not generated acceptable returns to our shareholders. To date, we are yet to realize acceptable cash returns on our investments, and this needs to improve. We are also seeing macro shifts globally and within the industry, such as the adoption of technology, the ever-increasing importance to sustainability, including ESG requirements, sustainable energy generation and mining electrification, plus ever-evolving global and market challenges and changes. As we emerge from COVID and with these macro changes, we see significant opportunity for our business into the future.
Our updated strategy has been designed to capitalize on these shifts to deliver improved returns through disciplined capital investment. On to slide 12. For a business to sustainably prosper, we need to generate returns throughout all business cycles, and if this is not achieved, we ultimately fail to deliver for our people, our clients, our shareholders, our suppliers, and our communities. Generating value for all our stakeholders is why we exist. To ensure we achieve this year in, year out, we have set a fundamental objective to deliver competitive total shareholder returns. We will deliver this objective by building a portfolio of complementary businesses that deliver consistent and quality cash profits to create enduring value and certainty for our clients, our people, and shareholders. It's our people that make the difference, so we need to continue to attract, retain, and develop our people.
This will ensure we deliver the objectives of our clients, so we extend and win more work to generate competitive returns for our shareholders and attract further investment to continue building our business. While this framework focuses on our people, our clients, and our shareholders, our purpose is at the center of everything that we do, which extends to all other stakeholders, including our suppliers, the communities in which we work, and the relevant public sectors in the countries we operate. Our purpose goes directly to ensuring sustainability is embedded into everything we do. Like the industry, we are on a journey as we shift to be a more sustainable business. We have always focused on investing in the communities in which we operate, developing our people, and looking for opportunities to reduce our energy usage, but we need to do more.
To support our focus on sustainability, during this financial year, we established a board sustainability committee chaired by Tim Longstaff. Over recent years, we have spent significant time enhancing our governance framework, meeting our reporting requirements, but most importantly, working on what we do into the future to make a meaningful difference. Linked to our purpose, we continue to focus on supporting and developing our people, delivering solutions to our clients, and evolving our business to do more with less to reduce any negative impacts to our footprint. In August 2020, we delivered our first sustainability report, and this year, when we release our FY22 report, we will also outline our future objectives and commitments. Slide 14. To achieve our objective to deliver competitive TSR, we have updated our business model to build a blended portfolio.
There are four key elements to our business model, three operating divisions and a corporate center. The focus of the operating divisions is to safely generate cash from the capital allocated to each division in support of our overarching objective. The contract mining division, a combination of our surface and underground businesses, has quality long life projects and is focused on generating increased earnings through margin enhancement and moderate revenue growth. While revenue growth won't be the headline number, over time and as we decrease our exposure to West Africa, we will see an increase to our revenue generated in North America and Botswana. Contract mining, led by Paul Muller, will continue to provide significant and important baseload earnings to the organization. Our investment business will transition to mining services. This isn't just a rebrand of the old. This is about positively positioning this division for the future.
Under Ben Davis, we have successfully generated cash through divesting several non-core businesses and investments over the last couple of years that don't align with our strategy. Peter will speak to the dollars. However, Ben and the team have divested MinAnalytical and our Chrysos investment, Well Control Solutions, and our investment in HiSeis and other equity holdings from our previous drill for equity programs. We have successfully decreased the investment business for it to now grow as our mining services operating division. This business will be focused on emerging new growth areas with lower capital intensity to build out a complementary service offering to our contract mining division. Subject to timing, investment, and opportunities, we expect this division will deliver a greater contribution of earnings into FY 2024.
Idoba, launched in July of last year, is our digital and technology-focused product and services division that is led by Sarah Coleman. Sarah is the founder of Impres, one of the first businesses we acquired to establish this future-focused division. Idoba is focused on delivering digital platform products and services, supporting our internal businesses, plus external clients to deliver greater value and in turn, generate earnings for Perenti. This is our long-term play with moderate investment for large potential future upside to FY 25 and beyond. In support of our business model, we will be moving some support resources into each division, such that we have a lean corporate center with specific areas of focus. The corporate center will be responsible for capital allocation, executive talent development, corporate governance, enterprise-wide architecture, and other standard corporate functions. I recognize that contract mining is currently the main contributor to our earnings.
Which over time, will see greater balance as we grow mining services and Idoba. When deciding upon this business model, I wanted to set a model that empowered our people and supported our business to grow into the model, rather than having constant change as the business evolved. In summary, over the short term, we will look to optimize and improve our current businesses. In the medium term, we will build out and grow our lower capital intensity service offerings, and in the longer term, we will expand Idoba. The ultimate goal is a blended portfolio that will deliver sustainable and competitive total shareholder returns. Slide 15. In building out our operating divisions, we'll be disciplined on where we allocate capital to ensure we develop a blended portfolio to generate cash returns. Peter will talk to capital allocation in more detail.
However, from a qualitative perspective, in building our divisions, we'll consider three key areas, strategic attractiveness, value creation potential, and fit within Perenti. In alignment with our purpose, we want to deliver value now and into the future. Each mature business we own needs to be one of the top three performers of the relevant segment, generate adequate cash returns, and be a strategic fit across a range of factors. We will be patient, considered, and disciplined in how we allocate capital to build our mining services operating business. Slide 16. A key area for our future is Idoba. As I mentioned earlier when I spoke of the case for change, we are seeing technology as a key enabler to delivering a sustainable future.
Through contract mining, we have significant mining capability, and that coupled with digital and technology-focused capabilities in Idoba, presents significant future upside, and at the same time, de-risks our business from new competition. To date, we have completed 5 acquisitions and established a key strategic partnership with Sumitomo as we build out this exciting new product and service-oriented business. Focus for Idoba is to support our current business, support external clients, and build new digital products that generate recurring revenue streams across the mining industry. As the world relies more on technology, by establishing Idoba, we are well-positioned to capitalize on this transformative shift. Slide 17. Our updated strategy isn't just about setting an objective and outlining a new business model, it is also about implementing a fit-for-purpose operating model to support the delivery of our strategy.
Our operating model provides the common frameworks under which we will operate. Put simply, it outlines the way we will work. Having the right operating model in place with clear accountabilities, authority levels, business tools, and governance is critical for the delivery of our strategy and setting the business up for future success. Under the new model, we will shift to a largely decentralized structure with each operating division taking accountability for their business performance, including safety, client management, winning work, cash generation, profitability, and ultimately, positive capital returns. As outlined earlier, this will also mean the role of the corporate center will be reduced, providing less direct services to the operating divisions, but having a greater focus and responsibility for capital allocation, current and future Perenti leader development, and enterprise system architecture and governance. Slide 18.
In support of our updated strategy, we have set five strategic focus areas in addition to our sustainability focus that I called out earlier. Business performance. Improving the performance of all projects and businesses to improve safety performance while generating stronger cash back profits. Capital management. We will continue to rigorously allocate capital to deliver sustainable and competitive returns to shareholders. Organizational health. We will bolster our corporate governance approach while providing our people with the right tools and authority levels to ensure they are set up for success. People and culture. By living our principles, we will attract, retain, and engage quality people to deliver outstanding results for all our stakeholders. Lastly, but importantly, data analytics. Through support from Idoba, we will manage, maintain, and analyze data to provide fresh insights to support the decision-making process and to deliver improved results. Slide 19.
We clearly need to generate cash returns from our divisions, but then we need to selectively allocate the cash to deliver competitive returns to our shareholders. This focus was outlined in our capital management framework and policy. It was announced in December last year. In summary, the accountable executives for each division will focus on optimizing business performance to generate cash returns. We will continue to assess our current portfolio and move into lower-risk operating jurisdictions, reduce corporate costs, including overheads, interest, and tax costs, and allocate capital to generate future returns. Our initial focus on allocating capital from normal operations will be paying down debt, and a portion of capital generated through divestments will be allocated as share buybacks. I'll now hand over to Peter, who will step through in detail each component of our capital management framework.
Thanks, Mark, and welcome everybody. It's really great to be here in Sydney today presenting a strategy that we're confident and highly optimistic we'll build on the hard work and solid foundations that we've put in place since we formed Perenti. Importantly, the strategy is underpinned by a clear pathway with clear deliverables that will facilitate the delivery of our targeted FY 25 outcomes. Beyond that, we'll see Perenti go from strength to strength. Over the next few slides, I'll step through some of the specifics of that pathway and talk to some of the initiatives and the actions that will enhance the group's financial and cash flow performance, and cash flow generation. I'll also talk to some of the detail around how we will effectively allocate capital, to deliver quality and sustainable returns to our shareholders. On to slide 21.
Clearly, the starting point to generating cash flow is to ensure our operating divisions deliver the strongest possible returns. There are many levers we can call, pull across our organization to address this. As many of you will know, the effective and efficient management of working capital has been a focus for all of us since we formed Perenti. Cash flow conversion, which effectively reflects our management of working capital, is a KPI for the senior leadership team. We've done it well, consistently delivering a cash flow conversion above 90%. A very strong outcome, particularly in the recent reporting periods as inventory holdings were increased to help mitigate the COVID-related supply chain challenges. As we come out of COVID, we've challenged the business to improve on this already impressive track record.
We will continue to focus on successfully ramping up new projects so that they deliver the returns required for the capital we have invested. In FY 2022, we have invested heavily in growth capital, an investment which we know will generate returns and free cash flow in future periods. Motheo is a great example. This is a quality project for a quality Australian client. We have and will continue to invest upfront capital in the fleet to enable us to deliver this high-quality greenfield surface project in Botswana. The margins and the cash it will generate for Perenti in the long term or in the term will be significant. Importantly, this contract aligns with our strategy to transition our operations to high-quality countries. When coupled with the Zone Five underground contract in Botswana, I can say with confidence that we are now Botswana's leading mining contractor.
More recently, in fact today, we announced that we've secured the Cowal Project in New South Wales for Evolution, which is magnificent and very well-timed news. Our focus will also be on ramping up this great project in the near term. Significantly, it will generate Australian earnings, which is important to remember when I get to the tax section of this presentation. To improve margins, we need to proactively address some underperforming contracts, which I'll cover in the next slide. We need to proactively address underperforming regions and businesses. We do operate in some regions where, to be frank, the returns aren't what they need to be. To operate as a good corporate citizen who pays tax and complies with all local rules and regulations comes at a cost.
These costs may make economic sense where we have multiple projects in a country, but single contract countries can be a challenge. Moving forward, our strategy is clear. We are focused on countries and regions where there are multiple opportunities, thus ensuring we can leverage off the efficiencies that come through multiple projects. Focusing on and delivering operational and corporate efficiencies is another key area. It's an area where there are many things we can do that individually may only shift the dial by a small amount, but which collectively will make a difference. Operationally, we will continue to engage our suppliers to ensure we have the best possible access to equipment, to parts, and to consumables at competitive rates. Beyond pricing competitiveness, we are constantly looking at ways to improve our efficiency to enable us to do more with less.
We see a very real opportunity to leverage off the skills and expertise, sorry, that the team at Idoba bring to the group to help us improve operational efficiency. Be it through a better understanding of data, be it through the use of artificial intelligence or through the years of business improvement expertise that is within Idoba, or be it simply by having a new set of eyes bringing a different way of thinking to the table. Over the last three years, we have invested heavily in our corporate functions. We've had to ensure that the corporate elements of our business align with our aspirations. Some areas of the business suffered from a historic underinvestment and required both time and money to fix. We've made significant progress on this front.
Although there is still some work to be done, we have reached a point, a pivotal point, where we clearly see an opportunity to realize some efficiencies. As Mark explained, we are reviewing our operating model. We are looking to slim down our corporate center without impacting our management of governance and risk, and we are looking to be more efficient. Put simply and in short, we are committed to delivering an EBITA margin of 10% by FY 2025, and beyond that to deliver a margin above FY 2025. Slide 22. For the avoidance of any confusion, the bridge from our forecast FY 2022 margin to our targeted margin in FY 2025 is indicative. It's not to scale, and please don't try and figure out what the numbers are.
We've already had a few folk ring me up this morning saying, "We've tried to figure out the third section of the graph." The left-hand side of the graph won't be a surprise. We've had some margin compression over the last three years. COVID and the related labor and supply chain challenges has, without question, had an impact. The positive is the margin compression is addressable. We see a clear pathway to our target of 10%. As Mark said earlier, as a business, we are very confident that Perenti has managed COVID better than most. Our workforce at all levels have gone above and beyond.
Initially, the COVID impact was mainly on our international expat workforce as we and they managed the challenges associated with the global commercial airline industry shutting down and the quarantine requirements that placed pressure on our workforce who were already working extended rosters. As COVID evolved, so too did the challenges. More recently, the West Australian government's policy around border closures evolved into challenges around sourcing labor. In those WA lockdown days, we were COVID-free, but as the resource sector boomed, labor became a limited resource. The borders are now open, and in time, the labor shortage will correct. This won't happen overnight, but already we have seen some positive signs as interstate fly-in, fly-out folk come back to the market. In summary, the COVID impacts and the related labor and supply chain challenges are on the improve, and we will see positive margin.
The business performance step-up in the graph is a broader bucket. It picks up many of the elements I talked to earlier around ramp-up of new projects and operational efficiencies. It also captures the positive impact that will flow into margins as the rise and fall provisions in our major contracts kick in. All of the major contracts in our mining division have rise and fall provisions, and the majority of those provisions operate six monthly. It's no secret costs have been increasing, and over the last six months, they've increased on quite a steep trajectory. We will and are already seeing some relief through the rise and fall provisions, and we'll continue to see relief as those provisions kick in. In the fullness of time, when costs start to level out, we will see the margin compression related to those inflationary pressures ease or reverse.
Last, but by no means least, overheads. I touched on it in my previous slide. We are focused on managing overheads, both through a review of our corporate costs, but equally through a review of the overheads that are embedded in our operating businesses or operating divisions. We have a very clear plan on how we will achieve these savings, and we are implementing that plan. Slide 23. We currently have approximately 50 contracts of substance in our portfolio. In a perfect world, all of them would be performing to target and delivering the margins and the returns we require. Unfortunately, it's not the perfect world, and there are a couple of outliers. We need to improve them, or when the contracts end, we need to exit them. It's not new to us. We have had to manage a few underperforming contracts over the years.
As a brief recap, in our surface mining business, we successfully exited two underperforming contracts, Boungou in Burkina Faso and Yanfolila in Mali. Not only did this enable us to improve our earnings, it also freed up valuable capital and people to be redeployed to far more profitable and rewarding opportunities. There are still three, well, actually two and a half based on the graph, contracts that need to be improved. We have been pretty open about these underperforming contracts, so the graph should not be a surprise. There are various factors that have contributed to this underperformance, including COVID and the related labor and supply chain challenges. The worst performer in the portfolio this year is the only project that we have that operates on a full variable schedule of rates. All of our other contracts have a mix of fixed and variable rates.
As a fully variable project, it has been hit the hardest by the productivity impacts of COVID. What's really pleasing to report is we saw the trend, and we reacted to it. We engaged with our client, and off the back of a long-term relationship, we secured some improved rates. In parallel, we focused our efforts on addressing the operational underperformance. The very pleasing thing is that over the last couple of months, we've seen a positive trend on that project. Slide 24. Beyond delivering on an improved cash flow from our operating divisions, there are three other significant areas that will contribute to the generation of free cash flow, interest and tax, steady business capital spend, and portfolio management. Our interest cost is not insignificant, and we are focused on reducing it.
Our leverage ratio has been stable at 1.3-1.4x since the acquisition of Barminco, and we see it ending this year in line with the guidance we previously provided. That said, we are committed to reducing this leverage to 1x by FY 2025, and clearly, less debt will mean less interest. Outside of reducing debt, there are a number of other things we can do to reduce our interest expense. We're in the final stages of refinancing our RCF, and there will be some scope to manage the mix of our debt going forward to take advantage of this refinance. I can see a number of our existing and new RCF members here today, and I'd like to take this opportunity to sincerely thank you for your support of Perenti.
As we simplify the business and optimize our global structure, we see scope to reduce our foreign cash holdings, which in turn will enable us to reduce our debt levels. Tax is another area where we see potential to improve the cash generation by reducing tax leakage. Under our current global structure, we pay a relatively high level of tax. This includes both tax on our company profits and withholding tax on the repatriation of cash to Australia. We have a dedicated tax team focused on the implementation of changes to our global transfer pricing structures, to our funding models, and to our corporate structures. The new projects in new countries, this is relatively easy. The countries where we've been operating for years, it's a little bit of a slower process. As a group, we have considerable balance of Australian tax losses.
Thus, as we grow our Australian earnings, and thank you to Evolution, those losses provide some tax relief and facilitate the generation of better cash flows. The management of stay-in-business capital is another key element for maximizing cash generation. As an overarching comment, I think we manage stay-in-business capital well. We have a dedicated and highly skilled team who manage our fleet of equipment. That said, we have challenged them to do better. We need to ensure we get the balance between stay-in-business capital and maintenance spend right. There is an optimal point at which maintenance costs on an aging piece of equipment mean that it is financially better to invest capital to replace that kit. We know exactly where that point is.
Our focus and our challenge to the team is to ensure, through efficient maintenance and usage, that we optimize the fleet and get even more hours of productivity out of the 1,200 items of fleet we have. Our policy around depreciation must align to the above, and as a result, stay-in-business capital spend and depreciation should be the same number. Portfolio management is about optimizing our portfolio of businesses and maintaining a mixed portfolio that aligns to our strategy. The immediate focus for us has been the implementation of our strategy to divest non-core assets that do not generate the required returns and that do not form part of the strategic future of Perenti. We've had success in FY 2022 with the divestment of a number of businesses and assets in the portfolio.
That included the divestment of property in Canning Vale in Western Australia, the divestment of Well Control Solutions and MinAnalytical, the divestment of some of our equity holdings that were received in exchange for exploration drilling in years gone by. Finally, the very well-timed divestment of our interest in Chrysos. Collectively, these divestments have delivered just shy of AUD 135 million of cash into the Perenti Group in FY 2022. While the sale of MinAnalytical was always part of our strategy, it's important to acknowledge the efforts of the team within our investment division and the team at MinAnalytical for the role they played in enabling us to exit the businesses on such favorable terms. In the lead-up to the sale, a new MinAnalytical leadership team was put in place. The team came from within the Perenti Group.
Their focus and drive saw the fundamentals, both financial and operational, of that business go from strength to strength. That improvement that they delivered enabled us to achieve the extremely successful outcome that we did. Slide 25. Having generated free cash flow, we need to be highly disciplined in how we allocate it. Our clear objective is to allocate free cash flow to maximize shareholder value. There are a number of ways this can be achieved through debt management, through returns to shareholders, and through investing in growth. We have set and communicated to the market that we are focused on achieving a sustainable leverage target by FY 2025 of 1x. Nothing has changed in that regard. It is our target, and we are confident we will achieve it.
Paying down debt is a priority, but to be clear, it's not the only priority, or it's not a priority at the exclusion of all others. We will make decisions around capital allocation based on what we believe will ultimately deliver the best returns to our shareholders. We need to invest in growth to ensure we have a long-term sustainable business, and we need to be cognizant of returns to shareholders. There will be times in the cycle where returns to shareholders may be the most accretive way to invest our cash. Investing in growth in a controlled and structured way is imperative to the long-term delivery of shareholder returns.
When we set our strategy back in 2019, we were very clear on our desire to transition to better jurisdictions, and we have delivered on this strategy, having secured two large projects in Botswana and two quality projects. Sorry, the ones in Botswana are quality as well, two quality projects in North America. To be clear, the Zone 5 underground project in Botswana is now the largest underground project in the group, and the Motheo job, the Motheo surface mine will be our biggest surface contract by a long way. The delivery of this expansion has required a significant investment in growth capital. Having now successfully secured a foothold in these two new jurisdictions, it's time to reduce our investment in growth capital and deliver returns on what we have invested.
Moving forward, capital allocation will be actively managed, and projects and divisions within Perenti will need to compete for this growth capital. When we decide to invest in a project or in any element of our business, we will continue to be focused on ensuring they meet all of our financial returns and hurdles, which as many have heard me say, are all tied back to our weighted average or risk-weighted average cost of capital. Finally, the amount of cash we allocate to growth capital will be set to ensure the business delivers the desired shareholder returns through share price appreciation and shareholder distributions by 2026. On the subject of shareholder distributions, as communicated earlier today, the company has today announced an on-market share buyback of up to 10% of our shares on issue.
Mentioned earlier that deleveraging was a priority, but it's not an exclusive priority, and at points in the cycle where returns to shareholders are more accretive than returns will be considered. This is one of those times. At an appropriate share price, the economics of a share buyback are clear. The EPS accretion that will be delivered makes this the right decision. In addition to the clear EPS accretive impact of the buyback, we feel it's the right decision to return to our shareholders some of the proceeds that the company has received through the very successful divestment of some of the assets in the portfolio. Most recently, the divestment of MinAnalytical and Chrysos. Full details of the buyback have been released to the ASX today.
As per the final bullet point on the slide, the buyback does not impact our ability to deliver our leverage target in FY 25. Ladies and gentlemen, that's my last slide. Before I step down, I think just point out that to condense the significant level of effort and substance that sits behind what we're presenting to you today has been a challenge. The reality is, what we're presenting reflects the combined effort of many dedicated and committed people within the Perenti team, and that team are all excited about what the future holds for Perenti. I personally, having been at Perenti since it was formed, and prior to that, being part of the Barminco group, feel a genuine sense of positiveness about what the future holds and the new strategy and positioning the group for the future does significantly excite me.
I'll now hand you back to Mark.
Thank you, Peter. Move to slide 28. We've outlined the strategy to FY 25, covering our fundamental objective, our purpose of creating enduring value, and certainly for all of our stakeholders, our business model, operating model, and strategic focus areas. Now I'll step through what that looks like in FY 23 as a pivotal year for us to build out to FY 25. As mentioned earlier, we have established five strategic focus areas aligned to our strategy. These five remain current over the strategic timeframe with specific initiatives and actions changing under each area as we progress delivering on our strategy. The slide outlines a summary of key initiatives per focus area over two time horizons. Firstly, optimizing the current business within the next 18 months, and secondly, building our future portfolio in the next 1 to 3 years.
Although I would note, some of these initiatives will run concurrently and not strictly to these timelines, such as ongoing business simplification. This slide provides guidance to our priorities. I won't call out every initiative, although I will touch on some points to reinforce earlier messages. Under business performance, we are all focused on keeping our people physically and psychologically safe. As I mentioned earlier, this is a critical area that we are working on internally and with our clients to improve our overall safety performance. In addition, the team are focused on improving operating margins as COVID restrictions ease and the significant cost escalation starts to flow into our rise and fall formulas. Under business performance, but also linked to capital management, we will continue to shift our business out of high-risk jurisdictions.
This will see reduced margins at the operating level, which will be offset by lowering our risk profile and cost of capital. Plus, hopefully, we will see enhanced EV multiples flowing through to our share price. Capital management has been covered earlier by Peter, as has organizational health when I outlined our amended operating model and spoke to the focus on delivering against sustainability targets. Our people and our culture is critical to our future success, hence this being a standalone focus area. This is about creating a safe working environment, providing support and career opportunities so our people thrive. Through our people thriving, we will see stronger results delivered across all metrics. We generate significant data across our organization, but we are yet to fully capitalize on this rich information.
We'll look to leverage our capabilities from Idoba and seek insights to improve our current business and look for new offerings to the market. Slide 29. What does all this mean for FY 2023? It means we will have a stronger year across a range of metrics. This is as close to giving FY 2023 guidance that we'll get to today, as we are still finalizing our FY 2023 budget, which will inform the release of our specific guidance in August, along with our FY 2022 results. I'll leave it to your interpretation as to what solid beat, significantly less, stronger than, and well below convert to in numbers. It's fair to say we're confident about FY 2023 as we emerge from a very challenging 2.5 years of COVID impacts and more. On to slide 30, the last slide.
In summary, we are focused on delivering a competitive return for our shareholders. As the COVID operational impacts decrease, along with further business simplification and driving business performance, we are very well positioned to generate cash into FY 2023. In addition, we will continue to build a blended portfolio that is lower capital intensity and future-focused to ensure we sustainably generate cash for the long term to create enduring value for all stakeholders. Our team has demonstrated that we can overcome significant challenges. Now we will focus on capitalizing on the opportunities with operating conditions improving and a focus strategy to deliver competitive returns to our shareholders. This shift will require us to change, which is aligned with our principle of Enable Tomorrow, as we seek to actively embrace change in support of our strategy.
With FY 2023 set to be a financial step change on the last couple of years, we are optimistic and excited about the future. Announcing the share buyback program this morning is more than words saying the future is bright. It is a deliberate and considered action that supports our plan and reflects our belief in the future. Given the share price increase today, it appears this positive belief is held by more than just the directors and executives. Thank you. We'll now move to questions from within the room and online, and I'll hand over to Jeff to coordinate that.
Okay. If anyone has a question, please just raise your hand, and we will come around and pass the mic around.
Thanks for that, guys. Cameron Bell from Canaccord Genuity. I had a couple of questions. Firstly, you sort of, I got the feeling you were dancing around giving more detail on Surface Africa in the presentation. Can you maybe outline where that business sits in expanding the margins to get to those FY25 numbers?
Thanks, Cam. I'm not sure we're dancing around. I think pretty clear we wanna reduce our exposure to West Africa. We wanna keep improving Surface Africa performance, which we have done over the last number of halves. We will also look to improve any of the existing sort of contracts that we have there for performance. To be frank, if we see opportunities to recycle cash from projects that aren't hitting the hurdle rate in Surface West Africa, we will.
Okay, thanks. Just on the Cowal contract you announced this morning. The CapEx on that, could you maybe outline, firstly, how much is needed? Secondly, if there's any other kit that can slot in to take up some of that CapEx, and then also whether or not all of that's gonna be FY 2022.
Yeah. In terms of Cowal, given we're currently operating there, we already have some equipment at the operation. It's not a sort of full ramp up for all new fleet. It is an expansion, so there will be additional capital. Some of that capital is coming through into FY 2022, but some of that will come through into FY 2023. In terms of the capital projection numbers that we've given previously for FY 2022, we had included the numbers for Cowal. FY 2023 projection we'll provide when we provide guidance in August.
Yeah. Okay. All right, thanks for that. Just on the safety side of things, I know the tragedy was only a couple of weeks ago, but could you maybe expand on what sort of policies you've been implementing as a response to that?
In terms of the event at Zone Five, from a policy perspective, at this stage, we've reviewed all of our operations based on what we understood at the time of the event to check sort of controls in place at all mines with similar activities associated with the tragic event at Zone Five. In parallel, we're commencing or we've commenced two investigations. One internal to the operating business and a second independent investigation. Those investigations are running sort of about a week apart, and we'll have the preliminary findings within the next fortnight for the internal and then the independent investigation, which are three external folks that we've engaged, we'll have soon thereafter.
Subject to what we get from that investigation and the findings, we'll look to implement across the business. But we are reviewing more holistically about other opportunities for safety improvement.
Okay, thanks. Just, Peter, you sort of did talk about your capital allocation. Was it AUD 2.4 billion revenue this year, going at AUD 2.5 billion in three or four years' time, plus Cowal on top is maybe AUD 100 million a year or so. Is it fair to say, like, capital allocation, when you talk about that, it's basically growth CapEx at least, is pretty much on hold for the next couple of years?
I don't know that I'd say on hold, Cam. I think though we have set limits to what that growth capital will be, and as Mark said on the second last slide, you will see a notable reduction in our capital spend next year.
I think just to add to that, Cam, obviously it's only AUD 100 million of increase over the next three years of the headline number. Our focus is to continue generating earnings of the invested capital. We've invested significant capital over the last couple of years as we've shifted the business away from jurisdictions that are more challenging. What we will see is ongoing shift. We have factored in some expansion growth capital for North America, but we would look to sort of offset that by winding down some projects in West Africa. It's looking at the capital intensity into better jurisdictions, basically.
Okay. Just the last question from me. On the EBIT margin expansion slide, the waterfall one, there was about four, you know, gray shaded boxes. Each of them look like they might be worth about AUD 15 million-AUD 20 million if you just judge the scale. Can you maybe expand on how you get AUD 15 million-AUD 20 million from labor savings and then also from overheads?
I'll go first. I thought you might've been a bit more accurate with your rule there, Cam. 15%-20%, that's a fair range. I guess if we look at overheads, our overheads are made up of a combination. Clearly, labor is a component of overheads, but there's other sort of corporate costs associated with running our business, particularly a complex business like ours, with a number of international jurisdictions. Peter spoke about countries that have one project, how we look to sort of wind down the number of countries. The sort of associated overhead with that, we'll look to sort of take out as well. We have invested significant overhead over the last couple of years around upgrading our corporate governance and risk that Rob spoke about as well.
We'll see some of that come off, and it's about sort of just driving efficiencies through how we operate with our overhead. In terms of the other areas, and I guess Peter spoke about some of the catch up, if you like, in terms of rise and fall corrections with high escalation, plus the labor market. Which labor is captured in rise and fall from a dollar per hour increase, but it doesn't cover the shortage of labor. As we see the pressure come off the market, we will see some improvement in performance just through having more people on the ground, and we're starting to see that in some projects internationally and domestically at the moment.
No, I think, yeah, I think Mark's handled it well. Cam, as I said, the graph wasn't to scale though, so those boxes do move around a little bit, but I think that answers for us now.
I'm Nicholas Rawlinson from Jefferies. Thanks for taking my questions. You set that 20% Return on Average Capital Employed target for FY 2025. Would it be fair to say that this is a hurdle level to allocate growth capital to new projects?
I'll touch on it first then Peter can add. I guess the hurdle range depends upon the regions we operate, the type of projects we work in, the clients that we provide service to. As a minimum level, that's what we're looking for. It will range subject to a number of factors.
Yeah, no, it's very. As Mark said, it's a blend. You've probably heard me talk about it before, but we always start with our weighted average cost of capital. We then get risk weightings that we source from a university in the US. That becomes our base rate. We then determine our NPVs, IRR and everything based on our weighted average cost of capital with a risk weighting in it. It does vary from region to region.
Maybe just to add a bit more there as well, and dangerous territory when we talk about tax for a second. Peter loves that. We also assess the regions for the tax and making sure that when we get the cash back to Australia, we're taking into account the tax leakage associated with funds coming back. That's another factor as well.
Thank you. Could you just comment on how those cost escalators are impacting this half and maybe split it into both surface and underground?
I'll answer that in a general sense. The reason I sort of will go with a general response is, with our contracts, we have very different rise and fall mechanisms with our clients. Predominantly we are seeing it through equipment parts. Whether it be through Sandvik, Caterpillar, significant increase in just the consumable parts. Labor's obviously having that sort of flow through as well. The cost of supply in addition to just the parts from a sort of freight perspective. With materials associated with particularly underground, where we have a lot of ground support, rock bolts, cabled mesh, a lot of material costs there. Generally, we don't provide explosives and fuel. That's provided by the client. We have a protection associated with those two large cost inputs.
Yeah, I'd say that the rise and fall provisions, as I've said, are starting to kick in. I'd park labor for the moment. Outside of labor, the rise and fall provisions work very well. We're probably, to be transparent, not getting 100% of the increase in the labor cost back through the rise and falls at the moment, because in WA particularly, it's been, you know, labor costs have been going up at a very high rate. The bigger challenge, and I think Mark referenced it, is that for us it's been getting people. Once we get people and we can get productivity levels up, then we can generate returns.
That's it from me. Thanks.
Thank you.
Thanks, guys. I'm Trent Allen from CLSA. I'm interested in how your journey into North America has been going so far. I mean, I cover some of the ASX miners, and they've had some good wins over there going into North America. Also some headwinds, particularly around culture. You'd be surprised to hear that miners have strong views about how they do things, sometimes. But you've been successful in getting a couple of contracts. How were you able to pitch your business there? What could you offer that the locals couldn't? And how will you know, looking forward, are there any other opportunities there for you?
Yeah. Firstly, we certainly see other opportunities in North America, Canada and US. We've got the two projects in Canada at the moment, the Red Chris project in British Columbia and Hemlo in Ontario. Two very different projects. One being a brownfield long-term operating mine, Hemlo mine, and then a greenfield underground development with Red Chris. Certainly very different sort of starting with our own practices in the greenfield mine. To be frank, our preference would be into greenfield mines as per Red Chris. We are seeing expansion opportunities with Red Chris, as Newcrest works through the next phase of the investment there. We're working with the client and hopeful to secure an expansion there. Hemlo is more your steady-state sort of mine that's been in place for a long time.
There are cultural challenges, and I think that goes both ways. I think Australians do have a tendency to sort of say that we do mining well, and we do, but we also need to be learning from the locals in each region we operate. Australia sort of effectively pioneered the high speed decline development as opposed to sort of shafts which are predominant in North America. With that high-speed development, we have different methodologies. We're not just there to compete on price, it's more about competing on the methodology and then delivering value and securing margin through the value creation. That's our focus. We wanna expand in a measured way.
We don't wanna just chase work and just be able to say we've won a significant amount of work in a short time and not deliver, so we will be quite measured. Back to the question about future growth, we are looking at effectively one medium-sized job, possibly every 18 months in North America, just to manage that expansion. Early days, but so far, going well.
Just a second question. You're refocusing on North America and Botswana. Are there any other jurisdictions that you're looking at, broadly speaking, more in East Africa or anything in Southeast Asia or Europe?
Nothing in Europe or Southeast Asia or South America for that matter. Given the complexity of our operating entities at the moment, we actually just wanna continue to simplify the business and only focus on those regions. We already have footprint in Tanzania, which has improved from an operating region. We're working there currently. If something comes up there, we'll look to chase those opportunities. Beyond US, Canada, Botswana and our current footprint, we're not looking to expand, and we wanna keep getting Australian earnings.
Okay. Thank you.
Thank you.
Hey, guys, just one for me. Michael Ellis at Jefferies. I'm just wondering, I was looking at the operating structure you're putting up there and pushing some costs, and it seems like responsibilities back into the segments as well. Are these incentive structures changing at all, kind of the management at a project level or at a, you know, underground or regional level to kind of incentivize local management more?
Yeah. At the moment, we're working through updating sort of rem structures. Certainly bringing in greater focus regarding free cash flow generation. EBIT's obviously a key component, clearly. Bringing more of that measure in at the operating businesses or in the divisions. We're working through that currently. Longer term incentives, we've got to focus on return on equity, so sort of driving that at the NPAT level as well, for the longer term. We're looking at a range of areas to actually get the right measures at the right point of the business or the right level within the business. That's currently work in progress.
Okay, great. Thanks.
Thank you. Any online, Jeff?
Yep. Oh, sorry, this is from Roger N. S. Flynn. How much of the debt is interest-rate hedged, and for how long?
Under the current debt stack or debt structure we have, our US high-yield bonds, which is the bulk of our current debt structure, is at a fixed rate. There's a fixed rate exposure. The revolving credit facility, as I said, we're just about to close. That will be variable. We will consider interest rate swaps as we move forward. We have been doing a bit of work with our banks, looking at forward cost curves, et cetera, for interest rates. But at the moment, the RCF is unhedged.
If we can just check the phone lines as well, please.
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 the handset to ask your question. Your first question comes from Jon Scholtz from Macquarie. Please go ahead.
Hi, all. Sorry about not being there in person. Just thinking of technology and its future within the business, could you give us a rundown of how Idoba's been going at the moment and what you're seeing as the big breakthroughs potentially that could come through from that sort of stream of the business?
Thanks, Jon. I guess with Idoba, as we've called out, certainly early days at this point in time, but one of the key platforms that we picked up through one of the acquisitions of the 5 that we've done over the last couple of years is around a data analytics platform called acumen. We're currently working on with a number of blue chip clients on developing broader products that support their operations, including supply chains through the sort of operating aspects of their mines. Some mines from pit to port, which goes to the bulks in Western Australia. That'd be one of the main focus areas at the moment, Jon, building out data analytics on that platform for future product development.
Also, internally, looking at the broader, I guess, digitization, if you like, of our workflows within our operating mines. We're focused both internally and externally. Predominantly around the data analytics platform.
Okay, excellent. Can you maybe just remind us how you plan on keeping the market informed in terms of that technology breakthrough? I mean, I guess with everything else we see contracts and those sort of things, but how should we be following the Idoba story? Yeah.
In terms of, I guess you know, then in the future, Jon, as we, I guess, see Idoba become more material, we will look at our segment reporting. FY 2022, we'll stick with current segment reporting and we'll assess that as we move forward as it becomes more material. Obviously if there's anything material for the market, we will disclose. Peter, anything to add there?
No, I think you've answered well.
Yeah. Thanks. Maybe just one more from me. I mean, looking at everything in here in terms of capital management, it doesn't seem to leave that much space for M&A. Would a potential American acquisition still be on the cards if it becomes available?
In terms of M&A, Jon, certainly we continue to sort of keep a watching brief, if you like, of opportunities within the market. We don't have anything that we're focused on in the near term, but if something does look to be value accretive in line with our strategy and we can meet the metrics that we've spoken about today and previously, we will consider it. Australia would be a preference from an Australian earnings perspective, and potentially North America. At this stage, nothing we see in the near term, Jon.
Excellent. Thank you very much.
Thank you. There are no further questions on the phone line.
All right. Jeff's given the signal that no further questions online either. Thank you everyone for attending in person and those that dialed in virtually. Appreciate the time and those in Sydney, if you have time, it'd be good to catch up post the formalities. Thank you everybody.
Yeah. Thank you.
Thank you.