Downer EDI Limited (DOW) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Downer Group Half Year 2021 Investor Briefing Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Grant Fenn, CEO. Please go ahead.

Well, thanks very much, and good morning, everyone. My name is Grant Fenn, and I'm the Chief Executive Officer of Downer. With me is Michael Ferguson, and he's our Chief Financial Officer. So I'll begin with an overview of our '21 half year results, and then Michael will go through the financials in a bit more detail, and we'll then open up the call for your questions. These results for the 6 months to 31 December '20 are very pleasing, particularly under the circumstances in which they have been delivered. I believe they are a great testament to the dedication and agility of our staff and our customers, too. So well done, and thank you to all of those people for an amazing effort. Despite most parts of the group being affected by COVID-19 restrictions and their impact, the essential nature of what we do means demand for almost all of our services has remained strong and resulted in a very resilient performance. Our concentration on critical Urban Services is proving to be the right strategy. Underlying NPATA was up 19 -- was $119 million, up 3.1% when compared with the prior corresponding half. Underlying EBITA increased by 2.9% to $221 million. And the group's EBITA margin lifted 0.5 percentage point to 3.6%. And work-in-hand for our core Urban Services remains at a very healthy $36.2 billion. Our cash flow performance was good. If we adjust for $60 million of cash outflows from individually significant items recognized last year, our cash conversion was 97%. And it was still 84% without that adjustment. And with that performance, the group's gearing reduced from 35.5% to 28.2%. And we've made good progress on our key initiatives. We've moved to 100% ownership of Spotless and are on track to deliver over this calendar year the $10 million to $15 million in synergies promised at the time. We completed the refinancing of the group's debt platform with a $1.4 billion syndicated sustainability-linked loan. That's the largest of that type of loan in Australia. We've made significant progress exiting noncore businesses with around $526 million in proceeds. The sales of Open Cut West, Snowden and RTL have already been completed. And we expect Laundries, Blasting and Underground to complete by the end of March. We also have strong interest from buyers in Otraco. That's our tire management business and our Open Cut East mining business with sale processes currently in train. We're also on track in our efforts to rightsize the corporate and divisional cost base, and operating model is promised to match our Urban Services portfolio. And very importantly, we've resumed paying dividends, as we said we would. The strong performance of the business has allowed the Downer Board to declare an interim dividend of $0.09 per share, which is a 54% payout ratio on underlying earnings. Slide 3 provides an overview of the numbers for the 6 months. I won't go through those in detail. Michael will go through more of the financials in detail later. And we'll now take a look at each of the Urban Services business starting with transport. The Transport Services line includes Road services, Rollingstock services and Projects across Australia and New Zealand. Earnings were up in Roads again. This is a great business, and it keeps powering on in both Australia and New Zealand. It's growing its footprint in its traditional markets but also in recycling and waste management. Earnings were lower in Rollingstock due to reduced project profit recognition of $16.2 million from lower Waratah bogie overhaul costs in the period and just under $9 million from reduced patronage on Melbourne trams due to COVID. Now unfortunately, project accounting, which recognizes profit over the project in line with the cost profile, doesn't deal particularly well with lumpy cost programs like bogie overhauls. You recognize more profit when costs are high and lower profit when costs are low despite the opposite impact on cash. In late December, we delivered into service the first of the High Capacity Metro Trains in Melbourne. And as of Monday just gone, we're now at 3. They're performing well. This is a significant milestone, and we've now begun through-life-support for the fleet, which will last at least 30 years. This new generation train is the future of the network in Melbourne. And if it performs as we expect, we look forward to more sets being ordered as the state looks to replace the current outdated fleet. The Projects business has also performed well during the period, with Parramatta Light Rail coming along nicely, along with the TAP program of station upgrades and our extensive Urban project work in Auckland. The business is concentrating on a higher proportion of alliance-style contracts that are currently in the market, reducing risk and improving outcomes. The Transport Service line had a work in hand of $16.8 billion at 31 December '20, and we expect demand for our services to stay strong as governments continue to invest in roads, rail and the broader transport sector. We'll now move on to utilities, and that includes our telecommunications, water, power and gas businesses across Australia and New Zealand. And you can see from the slide that EBITA for utilities increased when compared with the second half of the 2020 financial year, from $51.6 million to $54.1 million, and the EBITA margin also improved from 4.1% to 5.3%. The fall in revenue during the period is due to the roll-off of NBN and UFB construction work. Given that drop-off in NBN construction work, in particular, we're very pleased with the result. We're successfully rebuilding our telecommunications contract book with additional construction and maintenance work with NBN and Telstra in Australia, and Chorus, Vodafone and Spark in New Zealand. We're growing our water businesses in both Australia and New Zealand with increased panel participation and term maintenance contracts. And in power and gas, we're seeing the benefits of expanded scope with AusNet and Powerco in New Zealand and with others. Utilities had work in hand of $5.2 billion at 31 December '20, and we expect demand for our utility services, again, to remain strong. Facilities includes the services we provide to health, education, defense and other government sectors. It also includes the Hawkins business in New Zealand. The result was up 11% on the prior half with improved margins, which were pleasing. But as expected, revenue in the core facilities business was down against pcp as we've reduced our exposure to construction to focus on industrial FM and technical service opportunities. Despite the drop-off in revenue, the business performed well, and it has turned the corner. We've made great progress in addressing the various contract issues that have plagued the business to the point where we're very confident moving forward. We are winning new business with quality service and innovation, and this should now be a stable and growing business. The Facilities business had work in hand of a little under $13 billion at 31 December '20. And then to our Asset Services business. This business has been impacted during the period by 3 significant factors: low oil and gas prices leading to the deferral of nonessential maintenance and capital works in the LNG and coal seam gas sectors; the deferral of nonessential maintenance and capital works in coal power generation; and COVID-19 restricting the movement of skilled resources across state borders to support maintenance and capital works, particularly in the resources sector. Well, you can see that revenue, EBITA and margin all improved from the performance in the second half of the '20 financial year. Revenue increased from $261 million to $267.5 million, EBITA from $4.7 million to $11.6 million, and EBITA margin from 1.8% to 4.3%. And while the deferrals have lasted longer than we originally expected, this work will need to be done, and we expect significantly increased demand for our services in the '22 financial year. Asset services has work in hand of $1.5 billion at the end of December. Now most of you are familiar with this slide, which we introduced into our investor presentations around 18 months ago. It looks to show how we're managing the business to drive shareholder value, and it's been updated to reflect recent developments. Our proposition is this. If we generate reliable earnings growth into the future while deploying our capital efficiently, and we do these 2 things in a way that supports our people and our communities, then we'll drive superior shareholder value. Our Urban Services strategy ensures that we're aligned to critical service markets while serving quality customers. More than 88% of our revenue now comes from government and regulated assets. The markets in which we operate are benefiting from government investment. Our decision to exit our Mining and Laundries businesses is driven by our strategy to focus on low-capital, service-oriented businesses, and we'll continue to examine acquisitions that will enhance our offering. We've returned to a strong operating cash position with a high level of cash conversion. We expect this to continue into the future as our business is increasingly predictable, and we know our government and blue-chip customers pay us on time. Our strengthened balance sheet and Fitch BBB stable rating mean we're well placed to consider capital management initiatives. We have a strong Zero Harm culture at Downer, and we're a sustainability leader in our sector. We invest in our people and our communities. And we are seen as an employer of choice. The combination of these things will drive growth in earnings and dividends per share. Downer has always been a company interested in how its operations impact the world. We are a good employer, and we care about our communities and the environment. The relatively recent investment focus on sustainability has never been a stretch for Downer. And we've got very good things to talk about in this area. First, a number of months ago, we committed to a 45% to 50% reduction in Scope 1 and 2 emissions by 2035 and net 0 emissions by 2050. By exiting Mining and Laundries, we'll reduce our Scope 1 and 2 emissions by 206,000 tonnes or 35%. We've recently completed the finance of the Downer and Spotless debt, as I said, through a $1.4 billion syndicated sustainability-linked loan. If we hit our targets, our interest costs will reduce. And as I said previously, the largest sustainability loan completed in Australia thus far. We've been ranked at the 82nd percentile in the Dow Jones Sustainability Index, and that's up from 62 in 2019. And we improved across all 3 categories and are seen as a real mover in this area. Our employee engagement scores are up 4 points. And our safety culture and mental health and well-being programs are industry leading. And I'm pleased to say our first modern slavery statement was released yesterday. We've achieved a lot in the first half of the '21 financial year, and we have a clear set of priorities going forward. We'll continue to execute our strategy of divesting noncore businesses, completing those sales already announced and the 2 remaining businesses, Open Cut East and Otraco. We'll set our optimal capital structure to between 2 and 2.5x net debt-to-EBITDA to ensure we retain our BBB rating, and we'll look to return capital to shareholders following completion of the asset sales. We'll meet our '21 earnings and cash targets, returning to higher cash conversion and dividends with reliability and predictability. We'll continue to refine our portfolio, corporate structure and property footprint, ensuring that we reduce overheads to match our new earnings profile. At the same time, we must invest in capability and resilience across the business to manage risk and volatility. This includes increased investment in cloud technology, cybersecurity and business continuity. The Downer standard is already playing an important role in driving consistent performance and quality across the business through common processes, single quality certification and IP capture, and we'll continue its rollout and adoption. And we'll focus our attention to growth, mostly organic, but also acquisitive in strategic core markets where we see it appropriate. I'll now hand over to Michael, and he'll take you through the numbers in more detail, and I'll come back later. Thanks, Michael.

Thanks, Grant. Good morning, everyone. I'll pick up from Slide 17. On a consolidated basis, the group reported total revenue of $6.1 billion for the 6 months to 31 December 2020, 10.6% lower than the prior corresponding period. Transport revenue was 13% higher, driven by a strong performance from our roads and projects business, while utilities, facilities and asset services all delivered lower revenue. Depreciation and amortization was 8.9% higher at $233.5 million, primarily due to increased right-of-use leased asset amortization reflecting the group's increased use of operating leases during the mining divestment process. Underlying EBITA rose 2.9% to $221 million. And EBITA lifted 0.5 percentage points to 3.6%. The effective tax rate of 29.5% remains slightly below the Australian statutory rate of 30% due to nontaxable distributions from joint ventures and a lower corporate tax rate in New Zealand. Net interest expenses reduced 3% due to lower average debt levels during the period, combined with some small savings from the refinance completed on 3rd of December. Downer delivered an underlying NPATA of $119 million, which is 3.1% higher than the prior corresponding period. As Grant mentioned earlier, we are pleased that the earnings and cash performance supports the resumption of ordinary dividends with the Downer Board declaring an unfranked interim dividend of $0.09 per share. Slide 18 lists the 4 items that reconcile Downer's statutory result with the underlying result. The first item relates to the noncash fair value movement on the Downer contingent share obligation liability arising from the options issued as part of the Spotless minority acquisition. These options, $7.5 million in total with a 4-year vesting period, were granted as part of the acquisition of the remaining 12.2% interest in Spotless, with 2.5 million options each vesting when the Downer share price reaches $6.38, $6.87 and $7.36. Whilst, in essence, an equity issue, the fair value of these options are required to be recognized as a financial liability at issue date, with the future movements being mark-to-market through earnings. This is consistent with the accounting treatment outlined in Downer's takeover booklet. The initial liability was recognized as $16.7 million with an average option price at the time of issue of $2.23. As Downer's share price has risen from $4.30 at the time of issue to $5.33 at 31 December, the fair value has increased by an average of $1.86 per option. This has resulted in a noncash mark-to-market charge of $14 million being recognized in the half. The second item relates to the noncash write-off of deferred financing costs relating to the termination of Spotless' stand-alone financing arrangements as a result of the recent refinancing. The third item relates to the transaction costs and stamp duty incurred on the divestment of Laundries, whilst the final item relates to costs and net asset write-downs on the divestment of Open Cut West, offset by the gains on sale for Snowden and RTL. This does not include the expected gain on the sale of DBS of circa $5 million, which will be recognized at the expected completion date of 1 March. I will now move on to operating cash flow on Slide 19. I'm very pleased to report an underlying cash conversion of 97.4% and a statutory conversion of 84.1%. Cash performance was good across the portfolio and reflects the increasing shift to a higher proportion of service-based revenues with stable recurring cash flows. As we flagged during the July capital raising, first half '21 has seen the cash outflow of some of the items as flagged as uses of the equity proceeds. During the period, we incurred cash outflows of $60.3 million in relation to portfolio restructuring and exit costs, payroll remediation costs and the settlement of the Spotless shareholder class action. Receivables factoring at 31 December 2020 was $104.7 million, down from $113.7 million at 31 December 2019. Turning to overall cash flow on Slide 20. Net capital expenditure for the core Urban Services business was relatively stable at $66.6 million. This relates predominantly to roads in Australia and New Zealand. Noncore capital expenditure reduced by 60% to $40.8 million. Part of this reduction is offset by the increase in the payment of principal lease liabilities for the mining business as we reduced mining capital deployed and opted for more flexible leasing during the divestment process. Other items of note in the investing and financing cash flows include: the funding of the cash component of the Spotless minority acquisition of $134.5 million; continued investment in IT systems and security of $17.4 million; net proceeds after loan repayments from the Snowden and RTL divestments of $17 million; and Downer's equity injection to Keolis Downer to support the mobilization of the operating Adelaide passenger rail network contract of $9.8 million. Downer also paid the deferred 2020 interim dividend during the period totaling $83.3 million. Cash held at 31 December was $550.4 million, which when combined with undrawn facilities of $1.3 billion provides us with significant liquidity of just under $1.9 billion. Turning to Slide 21. The Downer group balance sheet has strengthened. The equity raising and strong cash performance has enabled significant improvement in both the gearing metric, which reduced by 7.3% to 28.2%, and net debt-to-EBITDA on a post-AASB 16 basis, which reduced from 2.6x to 2.1x. Again, it was very pleasing that the business was able to delever from strong cash performance and reduced capital spend in addition to the equity raising and inclusive of the payment of the $83.3 million deferred dividend during the period. The balance sheet will further strengthen following the receipt of the proceeds from the divestments announced during the period, and I will cover this in a later slide. Downer continues to be rated BBB stable by Fitch ratings. Our new debt profile is set out on Slide 22. In December 2020, as Grant said, we successfully completed the refinancing of the group's debt platform with the establishment of a new $1.4 billion syndicated sustainability-linked loan. The new facility comprises 3-, 4-, 5- and 6-year tranches and was structured to enhance the debt maturity profile, extend overall debt duration and reduce interest costs following the full acquisition of Spotless. Facility is underpinned by KPI metrics relating to Downer's greenhouse gas emissions reductions and social sustainability, which involves cultural awareness and mental health and well-being training for Downer employees. As these KPIs are met, our borrowing costs will be further reduced. Following the refinancing, Downer's weighted average debt maturity has extended from 3.4 years at 30 June 2020 to 4.1 years, with no current maturities within the next 12 months. And with the diversity of our debt platform architecture, we retain flexibility to repay revolving debt as the divestment program progresses and proceeds are received. On Slide 23, we provide a pro forma overview of the impact of the divestments to date on our key metrics. As I mentioned earlier, gearing at 31 December 2020 was 28.2%. Adjusting for proceeds from announced divestments to be received in the second half of the year totaling $510 million, the pro forma gearing falls to 18.3%. As Grant indicated, Downer considers its optimal net debt-to-EBITDA ratio on a post-AASB 16 basis to be between 2 and 2.5x following the recent reshaping of the portfolio. At 31 December, we are comfortably within this range at 2.1x. And after considering the pro forma impact of the current divestments, net debt-to-EBITDA further reduces to 1.8x. The assumptions of these calculations are provided in the supplementary information section of this presentation. As these transactions reach financial close and proceeds are received, Downer will consider the most appropriate use of these proceeds. This could include further capital returns and growth in our core markets with these considerations always predicated on the maintenance of our investment-grade credit rating. Finally from me, Slide 24 provides an update on the individual divestments, including their FY '20 revenue contribution, proceeds and the estimated timing of completion. Total proceeds attached to the transactions announced in the reporting period amount to $526 million, with the majority of this $510 million to be collected in the second half of FY '21 when the transaction is complete. As you saw in the cash flow, the sale of Snowden and our share of the RTL joint venture completed in the reporting period, with Open Cut West recently completing on 1 February. We have completed all the necessary conditions precedent for the sale of Downer Blasting Services, and this is scheduled to complete on 1 March. We are progressing well with the necessary consents and novations for Laundries, and we expect this to complete by the end of March 2021. We remain in discussions with a number of interested parties in relation to the sale of the other 2 businesses within the mining portfolio, Open Cut East, which is now only 4 operating contracts, and the Otraco tire management business. Thanks very much. And I'll now hand back to Grant.

Yes. Thanks, Michael. And now to the key messages. So I think this result is a good one. And we've made good progress consistent with the promises we made when we raised equity last July. As we stated then, this business has a bright future. Our Urban Services businesses have proven their resilience with solid earnings and work-in-hand. Transport, Utilities and Facilities' end markets are enjoying tailwinds from increased government expenditure. The scale, leading capabilities and fit-for-purpose, capital-light business model means Downer is well placed to secure a growing share of this pipeline. Our brand and relationships are strong. Our confidence for the future is reinforced by stable, underlying financial performance and greater than 80% cash conversion. We see opportunities to drive margin improvement through technology, simplified structures, operational synergies from complementary businesses and improved contract performance. We committed to consistent and reliable delivery into the future with no surprises. We plan to grow, evaluating opportunities to invest in our existing businesses, including acquisitions, with a disciplined focus on Urban Services. And now I'll hand back to the coordinator for questions. Thanks.

[Operator Instructions] Your first question comes from Alex Karpos from Goldman Sachs.

Can you hear me?

Yes, we can.

Perfect. Just a couple on my end. First one, I really want to focus in on capital return. You talked about the proceeds from the sales. You talked about potentially regearing the balance sheet post these capital-intensive businesses leaving. Can you just confirm, one, how you think about the dividend payout ratio and other alternative means of return and timing here as well?

Yes, sure. So we've been on record over the last number of months talking about, as we move the business to the Urban Services' lower capital model, that we would like to also increase the payout ratio. So as we get that in place, we would like to see that payout ratio move to somewhere between 60% and 70%. You'll see the payout ratio of this particular dividend is at 54%, but over time, we're looking to move to that level. Dividend is important to us, but at the same time, we took money off shareholders back in July, and that was really as a result of our sales of our businesses taking longer than we'd expected, overlapped with COVID. We're now starting to get those sales underway. So it's very clear what we said that we would -- what we would do should those sales be done. So as we look at the timing, a number of those will complete, as Michael was stating, sort of March. We've still got a couple of larger ones to do, being Open Cut East and Otraco. It's unlikely that we would see proceeds of that come in this financial year. But certainly, we'd be looking to for the next financial year. So we'll be thinking about this as we're rolling through to the full year.

Got it. And one more on my end, just on margins. How should we think about the run rate here going forward in 2 business in particular: for facilities management, where you showed a nice gain year-over-year; and transport, where there are some headwinds year-over-year? Like why should we think about the true run rate for both of those businesses into the second half in FY '22?

Yes. Transport, look, I tried to just highlight a couple of very specific things there, which, certainly, one of them won't sort of repeat there. We had a particular issue in -- well, not issue, but a profit recognition where the bogie overhaul was completed and we don't have as much cost going through that. But we would see in transport that those margins -- our historic margins would return. In Facilities, yes, it's good to see that margins are up. And I think, again, we'd like to see margins slowly progress and improve from where they are.

Your next question comes from Rohan Sundram from MST Financial.

I'll start with, Grant, you mentioned your confidence in hitting full year internal targets. Can I ask, are you able to share what portion of budgeted revenue is currently locked in at this point?

No, that's not something that we'll talk about here. But I -- it's not -- we're looking at this and we're saying, well, the first half performance is as we expected. It's not in terms of positioning with first half, second. It's not that out of the ordinary from what we're looking at. The real trick here is exactly when are the sales going to complete, what contribution is that going to be in for the full year. So it's a bit tricky, which is why we're not -- one of the reasons why we're not coming out with guidance particularly. But I would sort of advise you to go back and think about this. If the businesses hadn't been sold and you're looking at full contributions for the period, then I'll be saying there's not too much different in first half, second half splits than what we would normally expect. And then it's a question about when these businesses that we're selling are actually complete.

That's helpful. And a follow-up on the construction book and EPC. This time last year, there was a disclosure of around a $5 billion work-in-hand, of which $3.1 billion was EPC, schedule of rates, design and construct. In the absence of any disclosure, are you able to just provide a ballpark of just how much that has actually come off now that you've completed a number of these projects?

Yes. Look, it's come off, but there's also a lot of focus now on alliance-style contracts, and we're seeing a lot more of those in the market. I don't have the number exact with me. So perhaps we can talk to Michael later about that.

Yes. That's okay. Okay. Happy to take that off-line, but maybe...

Sorry. Just the point that's interesting here is that we're seeing a lot more collaborative efforts from customers in Australia than what we have in the past, right? So state governments are being much more collaborative in the way that they're contracting, which is helping us because we've been very clear that the risk management of this is key to us. So it's allowing us to participate where perhaps we wouldn't.

Okay. So is it fair to say then if alliance style and collaborative was, say, 60% of the book 12 months ago, is it a lot higher now?

It would be higher, yes, absolutely, and possibly to go higher again if we're successful in those alliance contracts that are available out there.

Okay. And one last one for Michael. I take on board your commentary around -- or just the general commentary around cash conversion and cash flow. Do you expect second half cash conversion to be similar? And is second half -- is that typically a seasonally better conversion half? Or is that -- does that no longer apply?

No. I mean, we think it will continue to be strong. We're strong across the portfolio for the first half. We saw a little bit of continued unwind in utilities of NBN that we talked about previously, Rohan. But yes, I mean, historically, it's not always been stronger in the second half. But we've got a pretty good visibility of it now based off the portfolio and where we are, and we've got certainly less lockup with construction. So yes, we see it continuing through the second half.

Your next question comes from Scott Ryall from Rimor Equity Research.

I was wondering, the Slide 24 was very helpful in terms of giving us a few splits on some of the assets you've sold already. And if my calculations are correct, out of the mining-related businesses, that represents around about 53% of revenue from fiscal '20. Would that be ballpark? And I mean, nearest 10%, is that kind of in the order of magnitude of the EBITA contribution as well? I guess what I'm really going at is, do we expect something given you've built up mining EBITA, then that's something ballpark the total proceeds there would be what you'd expect for the second half of it?

Yes. It's about ballpark. I mean, it dropped off a little bit in '21. You just saw the earnings drop off '20 to '21. But yes, ballpark, as you said, that's about right.

Okay. In terms of your emissions strategy, Grant, you mentioned the targets that you'd set, which is good. I think more companies are going to set near-term targets. But you mentioned as you sell Laundries and Mining, you're going to be down 35%. But can you just explain to me your strategy in terms of your organic or your core businesses, what your strategy to reduce greenhouse gas emissions over that time? Do you only need 10% and you hit your target? Is that a big tick in the box?

No. You'll -- well, look, in an absolute sense, we've just given you the numbers there. But no, we continue to work on this, and we have done for a number of years. So we've got strategies here. When you put a net 0 emissions target out there by 2050, of course, in all cases, in every situation for every company and government in the world, you're also relying on technology to improve, which you don't quite have a full feel of yet. So that's got to be understood. But we have had strategies in here around our use of energy for a number of years, and they've increased in the last few. We have our bonus scheme focusing on this area for our senior management. Our fleets, historically, we've looked to use different fuels, what we do with our energy in the particular facilities we run, et cetera. So we've put, for argument's sake -- or, for example, we've put tracking devices and data gathering into our fleet of vehicles to see what we can do to reduce the use of fuels. We're looking at electric cars. So there's a full suite of things, which, I guess, if you want to, you can look through the sustainability report that we have. It's pretty extensive. But at the end of it, all of that still as yet doesn't add up to net 0, and we will require technology to come in, whether that be further use of renewables ourselves or hydrogen on vehicles, we will see.

Okay. Great. And then my last question was around some of the comments you made, particularly relevant to your transport business and use of recycled materials. We see a bit of action from the federal government in terms of their procurement strategy. But most of your revenue, as you said, historically, comes from state and municipal government. Have you noticed any major changes in procurement strategies from those counterparties that go towards your suite of products that you guys produce and probably a competitive advantage, I suspect?

Yes. Well, look, the short answer there is yes, we have. And you're right, most of the work that we do in that particular space is state and local government. Look, we've certainly seen moves, particularly in local government. The fact that we have a very -- or capable of having a very high level of recycled product into our various road mixes has meant that local government has been very attracted to that. And yes, that's giving us some competitive advantage. I believe it is. That's in -- that's across the country, but that's in Queensland, New South Wales, Victoria. We've also seen increased interest from state governments. And of course, you're always battling with change here around technical standards and the like. And we're at pains to demonstrate the technical capability of these particular pavements. It does take time for markets to change, engineering to change, but it is happening, right? So we are seeing it. And at the local government and the state governments, they're very interested in these products. And this is core business for us. The R&D that we put into this is substantial. It's the main game for us. We're not looking to sell product -- input products into what we do in the road space. So this is pretty important to us, and we're going to continue to invest. We've got Repurpose It in Melbourne. I think that's a clear indication that we are looking at this particular space, and we will invest in it, as I've said in the presentation.

Your next question comes from Nathan Reilly from UBS.