Thank you for standing by, and welcome to the Ventia Investor Ca ll. I will now hand the conference over to Mark Ralston, Ventia's Managing Director and Group CEO, for some opening remarks.
Thank you, Darcy, and good morning, everyone. I am Mark Ralston, CEO of Ventia, and I am joined today by our CFO, Mark Fleming. I would like to make a few opening comments on the announcement that we released this morning, and then we will open up the call to questions. Building on over a decade at Ventia, over the past 10 weeks since commencing as CEO, I have spent time assessing our market outlook, our strategy, our operating model, and our trading performance. I have also engaged extensively with customers, employees, investors, and other key stakeholders. From all of these activities and interactions, the conclusion is clear, and that is Ventia has built a strong platform, a reputation and track record of consistent performance and delivery for all of our stakeholders, and I intend to build on that track record.
We have a workforce of approximately 35,000 people who are passionate and proud of the services that we provide to customers and communities across Australia and New Zealand every day. We are well-positioned in the markets that we serve, and they have strong tailwinds and remain highly attractive, particularly given the technology-driven disruption facing some sectors of the economy today. We have long-term contracts, deep customer relationships, and for these reasons, I am confident in sustaining our performance and growth long into the future. Our review has also reinforced the impact on some of our customers from the changing macro market environment that we are operating in, and therefore, the expectations and priorities of our customers. In response, there is a need and opportunity for Ventia to evolve.
We need to be more creative with customer-led solutions, simplify our business, lower our overhead cost base, and fully leverage our extensive capabilities and scale so we can meet our customers as they evolve. In summary, our goal is to unlock the full potential of Ventia, creating long-term value for our customers, our people, our shareholders, and our partners. Importantly, this is an evolution of our strategy, not a change in direction. Our existing markets and our four stated growth areas of Defence, digital infrastructure, energy and renewables, and water remain our focus. Governments and owners of critical infrastructure face increasing complexity, aging assets, greater security requirements, workforce challenges, and have rising expectations around reliability, service delivery, and productivity. In some cases, they also have capital constraints that limit the speed of their investment cycles.
Against this backdrop, infrastructure resilience is becoming an increasingly important driver of investment across our markets. Customers are looking for strategic partners that can solve their challenges, accelerate the speed of delivery, bring innovation, and drive operating efficiencies. This plays directly to Ventia's strengths, our scale, breadth of capabilities, strong balance sheet, and deep customer understanding. Our focus is on bringing these together more effectively and efficiently to deliver better outcomes for our customers. To support this, we will invest in the capabilities, technology, and partnerships that differentiate Ventia, including in areas such as digital security, network resiliency, enhanced data capabilities, and innovative solutions that respond to the evolving needs of our customers. To realize the full potential of our market opportunity, we will now align our business more closely to our growth markets and customers while simplifying our organization.
The simplified structure will provide clear accountabilities, fast decision-making, lower cost, and close alignment between our capabilities and customer priorities. The simplification of our business includes reducing the number of operating sectors and simplifying our corporate functions and shared services to better leverage the scale of Ventia, reduce duplication, and standardize processes across the group.
We are doing this from a strong financial and technology foundation, following the successful delivery of our major SAP upgrade on time and on budget last month. In short, we are evolving now to position for a future we can see today. These actions are expected to generate at least AUD 60 million of annualized cost savings, with a full run rate expected from December 2027. We currently estimate one-off costs at approximately AUD 30 million, which will be recognized through our statutory result. I want to emphasize that this is not simply a cost-out exercise.
This structural simplification is one part of the evolution of our strategy. We are making changes to support our customers and their long-term ambitions. We are simplifying Ventia so we can move faster, make best use of digital capabilities and our scale, and improve the delivery of services to the owners of critical infrastructure in Australia and New Zealand. Let me now turn to the trading conditions that we are currently seeing in telecommunications and energy. In telecommunications, our customers are focused on productivity and cost discipline. Capital allocation is selective, and the timing and prioritization of discretionary programs is being closely managed. Market commentary also reports planning delays as a constraint on the pace of network investment in the industry, and as a result, we are not seeing the revenue growth that we have experienced in previous periods.
At the same time, the ongoing and underlying growth in data demand and adoption of AI continues to increase the need for reliable, resilient, and new digital infra. Based on the underlying market drivers, we are confident in the medium-term opportunity, though the timing of growth in this sector will be influenced by the pace of build programs and customer volumes. In energy, the growth opportunity is compelling. However, we are seeing market delays. The movement of projects from planning into execution has been slower than anticipated, with transmission constraints, grid connection delays, planning approvals, and higher-than-expected capital costs being factors. As a result, Ventia's group revenue is expected to reduce in the second half compared to the prior corresponding period. Having said that, the impact of these delays on earnings is being mitigated through productivity improvements and cost efficiency initiatives already underway across the group.
For FY 2026, we are keeping our underlying NPATA guidance of 7%-10% growth, excluding the one-off costs associated with the changes announced today. In conclusion, I am confident that the evolution of Ventia's strategy, our plan to simplify our business, and the actions announced today will strengthen the speed of execution and cost competitiveness, and also support sustainable earnings and EPS growth. These actions will better position us to unlock the full potential of Ventia, creating long-term value for our customers, our people, our shareholders, and our partners. Mark Fleming and I will now happily take questions. Thank you.
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 are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Cameron Needham with Bank of America. Please go ahead.
Yeah, good morning, Mark and Mark. Thanks for the brief presentation. Just first question, could you just unpack in a little more detail what is actually deteriorated in telecommunications and energy? I think at the half-year presentation, energy and digital infra were highlighted as growth areas, whereas today we are talking about work deferrals and lower second-half group revenues. What sort of changed in the customer environment, and how much of that is sort of simply delayed mobilization versus customers actually reducing their spending intentions?
Yeah, thank you for the question, Cameron. Again, I will start by saying the outlook for both the telecommunications and energy sectors still remain buoyant, evidenced by the underlying market growth in those sectors as well as the underlying market drivers. At the half-year, we had seen some indications of lower volumes in telco when we reported the half-year results, but remained positive on the fundamentals that we had seen in prior periods.
Those conditions have continued through the second half, and there has also been some new projects that we anticipated would be awarded in the second half that have not yet been awarded. But we do definitely see that as deferral of work as opposed to lost opportunities. Energy is really the same, as I said, driven by some delays and slower-than-expected contract awards for the reasons I outlined before, but certainly see those still looking to emerge in through 2027.
Okay, sure. Appreciate the color. Thanks. Just a quick second one, if I may. I guess just with second-half revenue now expected to decline, but your FY 2026 NPATA guidance unchanged, can you just help us think about the bridge into FY 2027? So, how much of that AUD 60 million savings program is already in the FY 2026 earnings base? How much is incremental in FY 2027? Do we expect any as well to come through into FY 2028 at all? Thanks.
Yeah, I'll take that, Cameron. Mark Fleming here. So, the AUD 60 million cost out is going to happen progressively between now and December 2027. So, we'll see a portion of it come through in the FY 2027 year, but the full run rate wouldn't be until FY 2028. The other thing I'd say is that that is a gross number, so we're not necessarily expecting that that AUD 60 million automatically goes to margin. There will be some investment associated with this and some sharing with customers as well. So, the key focus for us going forward is that we drive strong revenue growth, but we do believe that what we're announcing today will support sustainable EBITDA margins. But the key focus is really on revenue growth going forward.
Okay, sure. Thank you very much for the color. I'll pass it on there. Thanks.
Thank you. Your next question comes from Jakob Cakarnis with Jarden. Please go ahead.
Hi, Marks. Thanks for the presentation. Just wondering how long you guys can continue to generate the kind of operating leverage that the guide suggests against a weaker revenue environment. Flipping that around, do you guys see 2026 as a reset year for the revenue base? Are we looking at more contract wins to get back to revenue growth from here, or is it simply that these deferrals roll over?
Look, thanks, Jakob. I might answer your second question first and then hand to Mark on the first part of your question. Look, I guess ultimately, we think about the growth outlook in our markets as highly attractive and over the long term remain focused on the 5%-10% growth over the medium term across our markets. The market opportunity is strong. We operate with a total addressable market of around AUD 100 billion, and we've called out four key growth areas of Defence, digital, energy, and water, where we see strong growth opportunities emerging.
Again, the strategic changes we've made today is all about setting ourselves up for that, capturing those opportunities in the market and becoming much closer to our customers as well as the end markets we're focused on. The changes that we're announcing today positions us for growth in 2027 and beyond. We're working through our FY 2027 budget process right now, but we're certainly expecting that we're sort of returning back to a growth profile from 2027 and beyond.
Yeah. I might just expand on that as well. Look, I do see FY 2026 as a bit of a reset year. In terms of revenue, as we've previously said, we've had the Defence Base Services Contract, which was a significant reduction for us versus what we had in FY 2025. We've called out the weakness in telco at the half-year result, and that's obviously continued, and energy as well. But importantly, with telco and energy, we see those as timing, not as permanent. And obviously, the Defence Base Services reset is a one-off. We've also won significant contracts this year, including, for example, the Defence clothing stores that started during the year. So, I do see FY 2026 as a reset from a revenue perspective, and we do expect to see growth from here.
Part of that growth, yes, will be new contract wins, but a lot of it is within contract, where we should at least be seeing inflation growth, but obviously, inflation plus is what we're aiming for, which is why we talk about 5%-10% being the market growth and also our expectation of growth over the medium term. So, yes, from a revenue perspective, I see FY 2026 as a base and a reset. And clearly, we're taking the opportunity now to reset our cost base this year as well, which will result in some one-off costs, which we'll take into this year's result. But FY 2027 will be growing off a new base.
Thanks for that, guys. Then just the second one, I mean, there's a lot of commentary out there about some fiscal prudence, both at the federal and the state level. But the conversations today, or I guess the segments that you guys are guiding to as being softer, seem as though they're more private market considerations. So, definitely on the telco side, but just interested in how you're seeing the state government versus federal government spending outlook and how we should be thinking about that moving forward, please.
Well, look, I mean, as I sort of mentioned, Jakob, certainly broader economic pressures across the market, certainly from what we are seeing at the moment, the sectors we've called out, telco and energy, is where really the impact has been. I think the nature of our business, again, is one of those that if there is not further investment into infrastructure stock, there is still a requirement of the maintenance of the critical infrastructure and the sovereign resilience point, which I need to reinforce.
We really believe that there is an absolute increasing theme across all critical infrastructure asset owners, Defence, but other critical infrastructure asset owners around sovereign resilience. And that is the protection, the duplication, the replication, and restoration of assets in times of disruption. So, we're not seeing anything specifically that's impacting our results or performance at a state or federal level at this stage. Really, those areas that we've called out on the deferral and lower volumes on some of the telco and energy work is where we're seeing it.
Thanks, guys. I'll hand it over.
Thank you. Once again, if you wish to ask a question, please press star one. Your next question comes from Tony Mitchell with Shaw and Partners. Please go ahead.
Thank you for your rundown. My question is, why didn't the former CEO make these cost reductions? Why was it left to a new CEO to do these things?
Thanks, Tony, for the question. I can't really comment on the prior CEO, but equally, I think some of the elements that we've seen in the last number of months obviously have continued where we didn't anticipate earlier in the year. But equally, what I've talked about is this is an evolution of our strategy, and the platform that we've built and have in place is tremendous. I think the team and the CEO that's led that over the last number of five years has done a terrific job to build that platform. My role is now to build on that platform, and this is really a change of emphasis on what I believe are the right drivers to set the business up for the next five years and beyond, but also recognizing that the market's changing as well.
The macroeconomic factors, geopolitics factors, the emergence of AI, and other areas. The reality is our customers are changing, and therefore, we need to evolve with that. So, I would like to think that, 10 weeks into the role, but no doubt with some preexisting knowledge of the business, this is seen as a fast, proactive step that I believe will set us up very well for the future. So, won't comment any more on that on the prior CEO, Tony, but building on a great platform that's been established.
Okay. How many people are going to lose their jobs?
So, we talk in the AUD 60 million. There's a range of elements that make up that number. There are some people, there are contractors, there are consultants, and there's also some discontinued projects that go into that. But the way we were sort of thinking and framing around that number, we built through it's circa 1% of our workforce.
Right. Now, in terms of these deferred contracts you've mentioned, can you give us an idea of the size of those contracts? Because obviously, you normally deal in larger contracts over four or five years. Can you give us a taste of what sort of contracts have been deferred, how big they are, and what their time period would be?
Yeah. Look, we never, Tony, get into specific contracts or specific customers, so we won't do that. What I would say is that it's a combination of works under existing contracts that have been deferred that we fully expect to happen next year, and some new works. But most of it is with existing customers under existing contracts. So it's just timing of works, and we do expect, as we said, that those works will be completed in a future period.
Okay. You've probably seen, no doubt, that Service Stream have announced a AUD 975 million acquisition, call it AUD 1 billion, which is pretty significant. They operate in similar areas to you, particularly in telco. Do you think it makes sense for you to be looking at a large acquisition like that to significantly enhance earnings growth? Because their statement today said it's about 20% EPS accretive.
So look, at this stage, Tony, our capital allocation framework, which we've communicated, remains in place. We've had success with some bolt-on acquisitions in recent years. We continue to look at that. But equally, as we're sort of evolving our strategy, these areas of Defence, in particular sovereign resilience, is really, really important. So if we build out, we look to build out capabilities that continues to enhance our positions in those four target markets that we've identified, and we'll look at opportunities as they arise.
Not to count anything out, but we continue to be focused on our capital allocation framework that we've outlined. I would say that where we will be looking for growth is absolutely in the four areas that we've particularly now built the business around, being Defence, energy, and digital, water, as I said before as well. We will be focusing in on those areas.
Okay. You have seen the reaction of the market today. Your stock has been belted down to about AUD 5.07, down 10%. Would you consider accelerating your buyback? In other words, buying a lot more stock back at these lower levels?
Yeah. Look, I would just say our buyback program is live and ongoing. Yes, I would expect that we will be buying back through the course of the rest of this year.
It would make much more sense to be buying a lot more stock at these lower levels.
Potentially, yes. We will consider that, and obviously agree with your sentiment. I do not want to give any particular numbers. Yes, the buyback will be active.
Just to reiterate from that earlier question, in terms of the federal government's commitments in terms of Defence, I mean, do you see They have got this mid-year economic review where they are obviously looking for savings. Do you foresee that there will be any change to the upward momentum in Defence expenditure over the medium term?
Look, I cannot comment, Tony, exactly what will come out of that review. We just look at the total addressable market we have, which we believe is critical infrastructure resilience project. We have estimated that as a AUD 10 billion market growing to AUD 16 billion over the next four to five years. So within that, we see substantial opportunity, and we also, as I mentioned before, see increasing opportunities around sovereign resilience across the Defence areas. We cannot comment on the outcomes of that review, but certainly we believe the outlook for Defence is really attractive. As the third-largest provider into the Australian Defence Force, we believe we have got a really good opportunity to not only maintain, but continue to expand on our position to support Australia and the Australian Defence Force.
The last question I have got, and just in terms of the dividend, given what you have said, you probably will not comment, but can we say that the dividend from 2027 onwards will not be reduced? If you are selling-
Look, I mean, the way we think about the dividend is as a payout ratio
Yeah
of NPATA. Certainly in relation to FY 2026, we will be looking at the underlying NPATA growth, which we have said is 7%-10%, and the dividend will be a percentage of that number. Future years will depend on the NPATA in those years.
Yeah, but if you are saying you are going to grow at 5%-10%, the reality should be, if you stick, dividend in absolute terms shouldn't reduce. That is a logical conclusion.
Yeah. Again, I do not want to give any earnings guidance for 2027, because that is what I would have to do in order to fully answer your question. But yes, if revenue grows 5%-10%, I should say, if margins are broadly maintained, then yes, I would expect we will get bottom line growth and we will be able to grow the dividend. But I do not want to give any specific guidance around 2027 at this point.
Thank you. Your next question comes from John Purtell with Macquarie. Please go ahead.
Good day, Mark and Mark. Just had a few questions, please. I appreciate the year hasn't started. But Mark, let me just circle back on the early comments, I think Jakob's question there around, from what you're saying, you do expect revenue growth next year, and there's an assumption that obviously some of this deferred work comes through next year, and obviously you've got the uniforms contract in Defence, et cetera.
Yes, we are expecting revenue growth in 2027. We are not giving, as I've just said, specific guidance beyond that. But yes, we are expecting revenue growth in 2027. In fact, really what today's announcement is about is setting ourselves up for revenue growth, not just in 2027, but also in future years.
Thank you. In terms of the cost-out program, it sounds like that's basically now underway. So that's supporting profit in the last few months of the year?
Look, there is a little bit of support, but not a great deal. We have actually been driving efficiency through the business really for the last 12- 18 months. A lot of that has been around discretionary spend, which we have been controlling. That is really what is helping us in this FY 2026 financial year. The AUD 60 million is really incremental to what we will see flow through this year.
Thank you. Typically with sort of cost-out programs, you sort of spend a dollar to save a dollar. This is more a 1:2 cost-to-benefit ratio. I do not know if you had any sort of views on why that is a larger ratio.
A lot of the one-off cost here is around redundancy, and generally that would be less than 1:1. There are some other one-off costs as well that are associated with other aspects of the program. We are comfortable with the 1:2 ratio. I would just say that in the announcement, we do say that we expect savings of at least AUD 60 million and approximately AUD 30 million. There is a prospect that we may be able to find greater savings than AUD 60 million as we go through this program. If we do find greater savings, then I would expect that the one-offs will also increase.
Thank you. The final question, just in two parts. There is a reference to discontinued projects there in the AUD 30 million restructuring cost or below-the-line cost. Just what that relates to, and obviously you are gearing at sort of 1.4x at first half. You are expecting at or around that level at year-end from what you see. Thank you.
John, Mark Ralston here. I will just handle the first part of that, then Mark on the second. I think on the discontinued projects, again, full review of the business over the last 10 weeks. Many people may say that is fast, but clearly coming into the business with perspectives at that point in time. Part of the discontinued projects relates to some small non-core operational projects that we do not view as being aligned to strategy, and also some corporate programs and digital projects that are also being paused and full review as to where some of the investment is going at a corporate and overhead level as well.
Fundamentally, if I think about the cost-out program, it is all about lowering the cost base of the business. The main focus of this is around overhead costs. In fact, we are looking to enhance around the project delivery and customer-facing elements of this. This is really a back office overhead activity of which there is some discontinued projects in that.
Yeah, on the leverage point, on an underlying basis, I do not expect any significant or material change in leverage. So it should be approximately where it is today, noting that the AUD 30 million one-off will be in the statutory result. So we will back that out of the underlying result.
Thank you.
Thank you. Your next question comes from Nicholas Rawlinson with Morgans. Please go ahead.
Hi, guys. Most of my questions have been covered off already, but just a quick one from me. Is the plan to move to reporting underlying NPATA from here on in, or will you continue to refer to statutory numbers in your presentations and your guidance and the like?
Look, our preference has always been to report statutory. There's been two exceptions to that. Last year, when we got a one-off AUD 25 million benefit from the novation of our Toowoomba Second Range Crossing contract. So that was a one-off positive that artificially, well, elevated on a one-off basis our 2025 results, so we took that out. This is similar to that. So in this case, AUD 30 million negative one-off. That would, to me, be an exception. So we definitely have the view that we should be reporting statutory being equal to underlying, and that's our general orientation. The two exceptions being Toowoomba last year and this one this year. But going forward, our aim would be for statutory to equal underlying.
Great. That's it from me. Thanks, guys.
Thank you. There are no further phone questions at this time. I will now hand back to Mark for closing remarks.
Thank you, Darcy. Just in closing, I would like to thank everybody for their time on the call today. As I said at the outset, our goal is to unlock the full potential of Ventia and genuinely believe the actions that we are taking today are there to establish the next phase of the growth in the Ventia story. It is not purely a cost-out exercise, and we have full confidence in the team, but also the capabilities to capture the market opportunities in front of us. Thank you, and look forward to sharing progress as we progress through the journey. Thanks for your time.
That does conclude our conference for today. Thank you for participating. You may now disconnect.