Half Year 2021 Perenti Global Ltd Earnings Call Canning Vale Feb 23, 2021 (Thomson StreetEvents) — Edited Transcript of Perenti Global Ltd earnings conference call or presentation Monday, February 22, 2021 at 10:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Mark Alexander John Norwell Perenti Global Limited – Group MD, CEO & Director * Peter John Bryant Perenti Global Limited – Group CFO ================================================================================ Conference Call Participants ================================================================================ * Ben Brownette CLSA Limited, Research Division – Research Analyst * Josh Charles Kannourakis UBS Investment Bank, Research Division – Research Analyst * Michael R. Aspinall Jefferies LLC, Research Division – Equity Analyst ================================================================================ Presentation ——————————————————————————– Operator  ——————————————————————————– Thank you for standing by, and welcome to the Perenti H1 ’21 Results Presentation Conference Call. (Operator Instructions) I would now like to hand the conference over to Mr. Mark Norwell, Managing Director and CEO. Please go ahead. ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– Good morning, ladies and gentlemen. Thank you for taking time to join the Perenti half year 2021 results presentation. My name is Mark Norwell, the MD and CEO of Perenti; and joining me is Peter Bryant, our CFO. I’ll first provide an overview of our business, our results in the first half of FY ’21 and an operational overview. Peter will then step through the detailed financial results, and afterwards, I’ll provide an update on our 2025 strategy and near-term outlook, followed by a Q&A session. On Slide 2. Just to recap, and 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 mine 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 3. We delivered very strong underlying results despite the key headwinds experienced during the half. We generated revenue in excess of $1 billion, EBITDA north of $200 million and EBIT of $94 million. The EBIT result was negatively impacted by $6 million due to the stronger Australian dollar. When this impact is taken into account, we end up on par with H2 of FY ’20. And in the half, we delivered NPAT of $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 reduced EBIT performance, our ROACE decreased to 14.4%. Our ongoing focus on cash management resulted in our net debt decreasing by 14% on the prior corresponding period. And given the ongoing strong position of the business, the Board declared an interim dividend of $0.035 per share. On Slide 4. 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, and 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, 2 loss-making projects that have impacted AMS over the last 2 years. We expect to liberate approximately $80 million to $90 million of cash, of which $14 million has already been received. This cash will then be redeployed into lower-risk jurisdictions to generate positive EBIT and ROACE above our hurdle rates, and 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 USD 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 we 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 5. 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 value 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 implemented an infield critical risk management program where our employees encourage 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 6. 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 the 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 have 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 impact of productivity, injury projects in ramp-up phase, travel challenges and intermittent brief site shutdowns. But 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 7. 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 improved performance. We are committed to a continuous improvement and 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, but I want to stress again. As we compare this half to the second half of ’20, there are specific factors that have impacted our performance, namely, COVID, currency movement and the coal price. And when the ForEx impact is considered, our performance this half is aligned with the second half of FY ’20, 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. And 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 had come from underground. I’ll expand on recycling of capital from AMS over the next couple of slides. However, this presents an opportunity to redeploy capital from exiting AMS contracts to underground and generate significantly higher returns. On Slide 11, surface performance. Australian surface performance continues to be strong. However, 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 2 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’re 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 a highly experienced CEO, Paul Muller, who has been the Barminco CEO for the past 4 years. We have successfully completed the exit of both Boungou and Bissa, and we are progressing with the exit of Yanfolila. We are also progressing with the sale of these assets, and the combination is expected to generate to $80 million to $90 million in the second half of FY ’21 to recycle capital into more attractive regions and generate positive returns, with further detail covered on the next slide. We have 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 clients. We have implemented strategic procurement agreements with a dedicated focus on local procurement where possible, and we have reduced system duplication through the implementation of an ERP system common to both Australia and Africa. Given all of our work we’ve completed, we have reduced our capital base in West Africa, we have 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 $80 million to $90 million in cash. We then expect we will redeploy this cash elsewhere in the business with a target ROACE of greater than 20%, which could result in an annual positive EBIT of almost $20 million compared to negative $5 million at the 2 projects. This is not the end of it as we believe that as we continue to embed the findings of the strategic review, that we 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’ll now hand over to Peter Bryant, our CFO. ——————————————————————————– Peter John Bryant, Perenti Global Limited – Group 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’s 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 past against the results from 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. So I’m going to focus on some of the key numbers and performance metrics. Firstly, our underlying EBITDA margin. As we’re 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 5 years, providing a stable and consistent profile of performance. I’ve used 5 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 from the second bullet point around our investment in people and systems. The increase this half when compared to the second half of FY ’20 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 the slide, the one-off and non-underlying items of $89.1 million, which delivers a statutory NPAT, a loss for the half of $44.5 million. Moving on to Slide 17, which reconciles the statutory results to the underlying numbers we’ve been presenting. Clearly, the largest reconciling item is the one-off EBIT and NPAT impacts of the $88.1 million implementation of the AMS strategic review. I’ll run through the individual elements of this on the next slide. You will also see in the NPAT column an amount of $8.1 million, representing the redemption premium payable in relation to the refinancing of the group’s U.S. high-yield bonds in October. This redemption premium represents the amount payable under the [former] bonds to redeem then prior to maturity, which is a standard element of all U.S. high-yield bonds. The remaining reconciling items, excluding redundancies, will be familiar to you as they are consistently a part of our reporting: amortization, which relates to the customer-related intangibles that were required 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 $2 million number relating to redundancies. Slide 18 sets out the components of the one-off costs related to the implementation of the AMS strategic review. Most importantly, I want to reiterate that as a result of exiting these loss-making contracts, we expect to generate $80 million to $90 million of cash inflows to the group, of which we have received — of which so far we have received $14 million. We plan to redeploy this cash elsewhere in the group to maximize value, targeting returns of plus 20%. There are effectively 4 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 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 transferred 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 3 parties involved. There are a number of elements to this early exit, and there has been 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 asset that will be sold to the incoming contractor to the value in the draft sale agreement. We are working to have the transaction completed and all required government approvals in place during the half. The next category relates to the finalization of the sale of assets of the Boungou site in Burkina Faso. We have previously impaired these assets to the value of the 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 has now occurred. The last of the material adjustments relate to the impairment assets held in Ghana, Senegal and Burkina Faso to deliver recoverable value based on external valuations executions during the half. The final element of the final adjustment relates to redundancies and other costs associated with the implementation of this 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 $36.1 million during the half; redemption premium and borrowing costs of $22 million, including the $8.1 million I referred to earlier. Capital spend is $119.4 million for the half, with the second to the last bullet point providing some detail, which includes $73 million of the spend related to growth CapEx primarily at Zone 5. Finally, dividends for the half were up due to the effective payment of 2 dividends during the period, with the FY ’20 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 ’20 dividend. All up, net cash flow for the half was negative for the reasons I just ran through. On to my last slide, Slide 20. Although it now seems like a distant memory, we completed a successful debt refinance of our U.S. high yield bonds in October of last year. The placement was circa 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 USD 350 million to USD 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% at the final placement. We secured a reduction in our coupon rate, which now sits at 6.5%. And importantly, we have in place a long-term 5-year core debt facility that is effectively covenant-free. We also held leverage constant at 1.3x, a number we are comfortable with, but a number we are targeting to bring down to circa 1x in the near term. Thank you again for your interest. I’ll now hand you back to Mark to close out. ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– 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 2 years, so 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 to Slide 23. As I mentioned, the 2025 strategy has now been in place for 2 years. So 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 given the excellent returns. We have called out AMS underperformance, and we are actively working to transform this business. We have expanded the business in the 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 novel business, functions and novel jurisdictions. For example, our people data is currently managed across 2 systems and 17 spreadsheets. By June, we will have one system. In addition, we previously had 2 safety reporting systems, and we are currently moving to one. Last year, we were operating 3 ERPs. We now operate 2, and over the next couple of years, we will transition to 1. 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 $5.5 billion of work in hand, including $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 mine 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 and Hemlo doesn’t mean it’s fairly lost; rather, just value that will be realized in future periods. Slide 26. This slide details the bridge from our work in hand at 30 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 $8.8 billion at 30th of June to $9.2 billion at 31 December. However, it would have been $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 30 June, we had 63% of our pipeline focused on Australia, Botswana, Canada and U.S.A., and now we have that at 76%, reflecting our increased appetite to operate in top-tier mining jurisdictions and operationally friendly jurisdictions. Perenti will not just bid on anything. We are very conscious of counterparty, geography and commodity risks. Therefore, we have strict tendering disciplines in place. The North American opportunity is very real. We have increased the pipeline to $2.1 billion across 14 projects compared with $1.8 billion at 30th of June. And 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, is 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. On to the general outlook. We have a very strong order book with $900 million of committed revenue for the second half of FY ’21. 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 activities. The resources 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 ’21, understandably, COVID-19, are expected to persist through the calendar year with ramp-up of growth projects and award of pipeline opportunities delayed. This does not mean the value is lost. We will deliver on these contracts but rather pushed out into FY ’22 and beyond. I’m very pleased with how our business and people have responded to and navigated these charges. As we move forward, Perenti remains in a very strong position. And factoring in a continued impact of COVID to our business, we expect Perenti to deliver second half FY ’21 revenue and margins consistent with the results achieved in the first half of FY ’21. Thank you for your time, and we’ll now move into Q&A. ================================================================================ Questions and Answers ——————————————————————————– Operator  ——————————————————————————– (Operator Instructions) Your first question comes from Ben Brownette from CLSA. ——————————————————————————– Ben Brownette, CLSA Limited, Research Division – Research Analyst  ——————————————————————————– Just can I start on Slide 13 with AMS? Can I just understand that a little better? So is that chart there, is that the EBIT result of the whole of AMS? So it looks like about negative $6 million, $7 million, something like that. Is that correct? ——————————————————————————– Peter John Bryant, Perenti Global Limited – Group CFO  ——————————————————————————– Ben, it’s Peter. That chart on 13, I’ll just say, is an indicative chart which just shows the redeployment of capital and how we can generate better returns from it. It’s really based on the Yanfolila exit and Boungou, just the Boungou and Yanfolila, not the full AMS. ——————————————————————————– Ben Brownette, CLSA Limited, Research Division – Research Analyst  ——————————————————————————– 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? ——————————————————————————– Peter John Bryant, Perenti Global Limited – Group CFO  ——————————————————————————– Ben, we — I haven’t — I’ve got those numbers. I’m not going to give them on this call. You can possibly back calculate in Aussie dollars what the contribution would’ve been by looking at the slide that deals with the Surface business and by just backing out the $3.8 million Yanfolila — $3.4 million Yanfolila adjustment that we called out. ——————————————————————————– Ben Brownette, CLSA Limited, Research Division – Research Analyst  ——————————————————————————– Okay. And can you give us some idea then of how many — what dollar value of assets is left in AMS post selling the assets? So post the $80 million to $90 million, what the asset base left in that business is. ——————————————————————————– Peter John Bryant, Perenti Global Limited – Group CFO  ——————————————————————————– It’s about $300 million. ——————————————————————————– Ben Brownette, CLSA Limited, Research Division – Research Analyst  ——————————————————————————– And that’s Aussie? ——————————————————————————– Peter John Bryant, Perenti Global Limited – Group CFO  ——————————————————————————– That’s Aussie, mate. Yes, everything I say will be Aussie unless I call out otherwise. ——————————————————————————– Ben Brownette, CLSA Limited, Research Division – Research Analyst  ——————————————————————————– Okay. Okay. Understood. And then with respect to the COVID cost, is that — should we be looking at that corporate line for the majority of those costs? Or are they as well in the Underground business? ——————————————————————————– Peter John Bryant, Perenti Global Limited – Group CFO  ——————————————————————————– The bulk of them actually [sit] in the projects to which they relate to. Ben, I would say though, it’s 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 free to travel. So that productivity impact is very hard to [quantify]. ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– And also, Ben, it’s Mark here. We just cut off the operation costs, which 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. ——————————————————————————– Ben Brownette, CLSA Limited, Research Division – Research Analyst  ——————————————————————————– Right. Right. So — okay. Okay. So then — I mean, 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? ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– Yes, I guess the 2 parts or probably 3 parts there have been, one is the sort of direct cost associated with moving people globally, plus the direct cost for any quarantining sort of particularly within the countries they operate and those costs generally are covered through the clients. So that’s sort of one sort of category. Another category is around the productivity impact that Peter has spoken about, and they are hard to quantify. And I guess if you think about sort of reduced coverage of expats on-site leading to productivity impacts, if you look through sort of the last 12 months, we’ve had isolated periods of [significant — both] in isolation on-site more from a precautionary aspect given sort of contact tracing. They are hard to quantify. And then the third category is what I called out before, which is the team dedicated to managing COVID. And that’s, in reality, there have been — there’s probably about 5 people sort of full-time dedicated to managing COVID. ——————————————————————————– Ben Brownette, CLSA Limited, Research Division – Research Analyst  ——————————————————————————– Yes. Okay. And then with respect to the Underground business itself, it looks like there was some pretty good growth in Australia. So can you talk about that? And then 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, kind of where you are happy with that EBITDA margin that was sort of 15.1%? Would you expect then in a normal environment that to be sort of back where it was, say, call it, first half ’20 aren’t impacted? Or are there some mix changes there? ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– Yes. 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 [new sale] predominantly through just some ramp-up with some of the projects that we have and obviously, the ramp-up internationally on the back of Zone 5 and also the Hemlo project. So good growth. As far as the margins, look we’re always looking to improve those margins where we can. We did have an improvement on this half compared to the prior. But the half that you called out at 15.6, we’re obviously slightly down. That would be our objective. But I won’t be actually sort of placing too much sort of weight on that just given the headwinds. So ideally, we do get back to that point quickly, but I think we just need to sort of keep navigating and keep the consistency. Our main focus there, Ben, is to keep the job running and generate strong returns and manage it safely. So in time, we’re going to get back there, but not in the short term. ——————————————————————————– Ben Brownette, CLSA Limited, Research Division – Research Analyst  ——————————————————————————– Okay. And just lastly, so on those 2 AMS contracts where the miners, I guess, have announced and you’ve announced that a new contractor’s coming in and buying the equipment, do you expect that to be paid relatively soon after they take delivery of that equipment? Or will there be some other adjustment to suggest that, that might be over a longer period of time? So that $80 million to $90 million less the $14 million, is that an expectation for the second half? Or should we expect that to be spaced out? ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– Yes, Ben, we’re going to have that through — during the half. I guess the (inaudible) Boungou is that that’s up and operating now. So the Boungou mine is generating income again on the back of that restart, and the Yanfolila contract and mine continues to operate. So we are expecting when they take delivery, particularly Yanfolila, and looking for a handover in March. And that’s got to be finalized with some of the [Ts and Cs] over the next couple of weeks. We expect the cash coming through this half. And Peter, any update on that? ——————————————————————————– Peter John Bryant, Perenti Global Limited – Group CFO  ——————————————————————————– Yes. Ben, I might just add, whilst — literally whilst we’ve been doing this call, we received [another $6 million] that came through last night from Boungou, which is a tranche of the payment this year. So we’ve now received [$20 million]. ——————————————————————————– Operator  ——————————————————————————– Your next question comes from Josh Kannourakis from UBS. ——————————————————————————– Josh Charles Kannourakis, UBS Investment Bank, Research Division – Research Analyst  ——————————————————————————– 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. And then also just in terms of with the Hemlo and Botswana contracts, just how much sort of profit from those contracts, or if you can maybe give us a feel for how far through maybe in terms of percentage terms are you from achieving the revenue and sort of profit from those contracts. ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– Josh, it’s Mark. In terms of, I guess, the COVID impacts surface versus underground, we see a greater — generally a greater impact operationally on underground due to the additional expats. So it’s a high percentage of expats we run in our Underground business internationally, and that’s due to the, I guess, the technical sort of know-how required in underground, which is a key differentiator. So greater impact there. Having said that, the contracts in underground generally are better from a commercial acumen point of view for recovery [and service], which we have called out in terms of one of the legacy issues within AMS. So that’s impacted. And the other thing I would say is the review of AMS is it’s a very strong brand, well-recognized sort of quality delivery. That’s not the issue. It’s more about sort of the commercial management and cost management side. I guess less impact, but less ability to recover. In terms of the ramp-up of Zone 5 and of Hemlo, in terms of the update I provided just prior to the Q&A, we called out that the timing of that, we’re still sort of working through. Obviously, the impacts of COVID and sort of the international travel and the South African strain and the U.K. strain sort of have put further restrictions on. So we’re still just assessing when we’ll get to a steady run rate. We don’t expect that to be in this half. We expect that to be through into FY ’22. So as far as percentage, Josh, I won’t be able to sort of provide that to you. But the positive is it continues to ramp up, and we’ll continue to see increasing earnings for those 2 jobs throughout the next 6 to 18 months. ——————————————————————————– Josh Charles Kannourakis, UBS Investment Bank, Research Division – Research Analyst  ——————————————————————————– Got it. And then just in terms of surface, I mean, you’ve obviously outlined your plans and strategy moving forward then. I mean what are the sort of major next steps? Like when you sort of look at the projects within there, are there any that are also concerning you? And are there any other sort of further exit options or renewal options [or change] in terms of repricing options across the book into this sort of second half? ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– Yes. So I guess one item I’ll sort of call out and we — I did touch on it, sort of [the drive]. The Sanbrado project, which was a competitive tender over the last couple of years, struck on, I guess, I’ll call it, a new sort of commercial disciplines and hurdles, performs very well. So meeting our expectations, meeting our client expectations. So I guess that’s an example that with the right disciplines, the AMS business could still generate positive returns from good contracts. So it can clearly be done. To your point, Josh, regarding sort of other challenged contracts, the Mako contract is another contract that is a loss-making project for AMS. And you’d probably be (inaudible), Josh, but just for the benefit of other people on the call, back in 2017, 3 projects were struck [in — or won] in quick succession for AMS, Boungou, Yanfolila and Mako. And those 3 jobs have all been loss-making projects. So we’re obviously out of Boungou. We’re close to exiting Yanfolila, and we’re working through Mako. What our focus with Mako is, 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 2-year period thereafter, but our focus is to actually find cost savings and improve the profitability of the Mako project. So that’s the main sort of overhang around operations within AMS, Josh. ——————————————————————————– Josh Charles Kannourakis, UBS Investment Bank, Research Division – Research Analyst  ——————————————————————————– Yes. Got it. And just maybe one just for Pete, just around the currency paid into — the currency is 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 sort of impact you’re seeing there and how we should maybe look at sensitivity of currency moving forward, please? ——————————————————————————– Peter John Bryant, Perenti Global Limited – Group CFO  ——————————————————————————– Yes. So we’ve called out that we’re pegging our guidance on a rate of $0.76. If it holds at $0.76 against the prior year, the impact is around $8 million at the EBIT line. ——————————————————————————– Operator  ——————————————————————————– (Operator Instructions) Your next question comes from Michael Aspinall from Jefferies. ——————————————————————————– Michael R. Aspinall, Jefferies LLC, Research Division – Equity Analyst  ——————————————————————————– A couple for me. I’ll just start one more on kind of the Surface business. You’ve talked a bit about new contracts in AMS. Can we take that the Australian service contracts should be performing to your expectations? ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– Yes, Michael, the Australian Surface business is performing well. The — very happy with the performance there in both the exploration and drill and blast. Different nature of contracts in terms of, I guess, the [Ts and Cs that we’re] more comfortable with, and the performance is strong. So yes, comfortable with where we are with Surface Australia. ——————————————————————————– Michael R. Aspinall, Jefferies LLC, Research Division – Equity Analyst  ——————————————————————————– Okay. Great. And then one on the pipeline. Pipeline is up to $9.2 billion. Can you give us any indication of how much of that is re-contracting mines early on and then the timing of that as well? ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– Yes. So in terms of the pipeline, it does have some numbers associated with renewals and existing jobs. So for example, we’ve got Iduapriem, which is a job in Ghana. We’ve got, I’ll just call that, sort of the main ones. We’ve got with AGA Nyankanga and Geita in Tanzania. And we’ve got Sukari, which is a project with Centamin, is in Egypt. They are the main ones that, I guess, make up the bulk of that. We have already extended a couple of projects linked to that value. It’s $1.4 billion of the $9.2 billion. So quite a [portion] with existing clients. ——————————————————————————– Michael R. Aspinall, Jefferies LLC, Research Division – Equity Analyst  ——————————————————————————– Okay. So $1.4 billion is extensions and the remaining is new contracts? ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– Yes. ——————————————————————————– Michael R. Aspinall, Jefferies LLC, Research Division – Equity Analyst  ——————————————————————————– Got it. Okay. And you used to have a slide on kind of the phasing of that pipeline. Can you kind of give us any indication of do you expect much of that to fall in the second half and into FY ’22? ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– Yes. That — well, I’ll explain that in 2 parts, Michael. We expect that a number of contracts will be awarded in the second half of ’21, but the actual revenue associated with those awards will come through into FY ’22. And a number of the large jobs that we’re currently targeting would be in the second half of FY ’22. ——————————————————————————– Michael R. Aspinall, Jefferies LLC, Research Division – Equity Analyst  ——————————————————————————– Okay. Great. And then 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? ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– Yes, it is. So Michael, for North America, we’re already targeting underground services in North America. We see our underground offering as having, I guess, significant differentiation to the North American market. And so therefore, we’re only targeting jobs that are underground specific. ——————————————————————————– Michael R. Aspinall, Jefferies LLC, Research Division – Equity Analyst  ——————————————————————————– Okay. Great. That’s very useful. On BTP, have you started to see the East Coast rental market improve and kind of have higher coal prices started to flow through operationally or not yet? ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– Yes. We did see some slight improvement in January in terms of coal. I guess 2 parts of the business obviously. There’s the sort of [softening] coal, but (inaudible) joint ventures and change of control, which did sort of flow-through into December. And we have seen that sort of pick up a bit into the new year. So look, early sort of signs of positive there, Michael. But I guess given the sort of volatility we’ve seen, it would be interesting to see how it goes for the half. ——————————————————————————– Michael R. Aspinall, Jefferies LLC, Research Division – Equity Analyst  ——————————————————————————– Great. And last one for me. Thanks for your comments on the kind of the corporate charge and what’s driving that. Can we further the similar number should be expected in the second half and into FY ’22 as well given the change in accruing for [LDRs]? ——————————————————————————– Peter John Bryant, Perenti Global Limited – Group CFO  ——————————————————————————– Yes, it should be similar, sort of stable. ——————————————————————————– Operator  ——————————————————————————– There are no further questions at this time. I will now hand back to Mr. Norwell for closing remarks. ——————————————————————————– Mark Alexander John Norwell, Perenti Global Limited – Group MD, CEO & Director  ——————————————————————————– Well, thank you, everyone, for taking the time for joining our call this morning. This has been (inaudible) for an early start. So we’ll be running through further discussions over the next couple of days. But I guess just rounding out, given the headwinds I’ve called out and particularly the ForEx and if you sort of back out the $6 million impact, we’re back up to $100 million EBIT for the half, which is comparable to the previous half at , which we have called out to be consistent with the period. Strong performance. The business is in sort of fantastic shape to continue to grow into ’22 and beyond. So we’re well positioned, and we look forward to further discussions. Thank you. ——————————————————————————– Operator  ——————————————————————————– Thank you. That does conclude the conference for today. Thank you for participating. You may now disconnect.