Downer EDI Limited (DOW) Earnings Call Transcript & Summary

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

Well, good morning, everyone. My name is Grant Fenn, and I'm the Chief Executive Officer of Downer. And with me is Michael Ferguson, and Michael is our Chief Financial Officer. So I'll begin with an overview of the 2021 full 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. Now hopefully, you have the presentation pack in front of you. If not, it's on the ASX and also on the Downer website. And what I'll do as we go through, I'll reference the relevant pages. So let's move to Slide 2, titled FY '21 highlights, and it shows the financial performance for the 12 months to 30 June '21. Now these are very pleasing numbers, I think, and achieved in a year of COVID disruption. And I just want to take this time to acknowledge the outstanding efforts of our people as we've continued delivering for our customers over this period. It's been very, very good. Now our focus on critical Urban Services has meant that demand has remained strong throughout the year, and that's resulted in the very resilient performance that you see. Underlying NPATA was $261 million, up 21.4% when compared with the prior corresponding year. Underlying EBITA increased by 12.3% to $467 million, and the group's EBITA margin rose by 0.7 percentage points. Our cash flow performance was excellent. If we adjust for $79 million of cash outflows from individually significant items recognized as expenses in the prior period, then our cash conversion was 101%. Now without that adjustment, it was 92%. So either way, it was a terrific result. Following our capital raising asset sales and strong operating cash performance, our net debt-to-EBITDA was 1.5 at 30 June, and our gearing was down to 19%. Perhaps right now is not a bad time to have a very strong balance sheet, but we do intend to lift our net debt to between 2 and 2.5x EBITDA, in line with expectations for a BBB investment-grade credit. And the $400 million share buyback, which we commenced in April, will help with that. And of course, we'll continue to invest in the business and look for accretive opportunities to grow. Earnings per share was up 3.5% from the previous year to $0.366, and the Board declared a final dividend of $0.12 per share, taking the full year dividend payout to $0.21 and 57% of underlying NPATA. If we now move to the next slide, Slide 3, talking about our priorities. Now we have delivered on the priorities that we set out in February at our half year results. We said we needed to deliver strong FY '21 earnings and cash. Well, earnings were up 21%. Cash is 101% of EBITDA. Margins are up 0.7 percentage points, and all in all, a pretty solid financial performance for the year. We said, we needed to complete the sale of our noncore assets, and we've made very good progress with $628 million in sale proceeds so far with $510 million in the bank. We continue to work on the sale of our Open Cut East mining business and its 4 profitable contracts. Whether, ultimately, we sell Open Cut East or run the contracts out to expire, we're very confident that appropriate value will be received by shareholders. We also highlighted that we'd make changes to our corporate structure and improved market focus and reduced costs. The Spotless operations are now fully integrated into Downer, and we've merged our major projects and rollingstock businesses to create rail and transit systems. We've also reduced management layers and consolidated functions for better performance. On the capital management front, we've recapitalized the business, reset our target capital structure, commenced our promised $400 million on-market share buyback and lifted the dividend payout ratio to 60% for the second half, and our intention is to build the dividend cents per share over time. Our sustainability reporting and performance has continued to improve, as have our external ratings, in what's become a very important area. Now this isn't a stretch for Downer. We're a good corporate citizen, and we're getting better at demonstrating that to investors. We also told you that we'd focus on the implementation of The Downer Standard, and I'm very pleased to report we've achieved single quality certification across the group. Having consistent and effective standards across the delivery aspects of our business is very key to improve project performance and higher margins. Now this is a significant cultural change program as much as anything else and if well executed, will hold Downer in very good stead into the future. So I'll now turn to Slide 4, Urban Services transformation. As most of you know, our Urban Services strategy is leveraged to the long-term macroeconomic trends of expanding population, urbanization, bigger government and government outsourcing. The government is getting bigger every day, and service expectations from citizens are always rising. As shown in the pie chart at the bottom of the slide, 90% of our work-in-hand now comes from contracts with governments in Australia and New Zealand or regulated critical infrastructure, and this compares with 56% 5 years ago. So it's quite a significant change. Our portfolio is now less cyclical with lower capital requirements and strong cash conversion. But really importantly, we've got scale, we've got diversity in our earnings and we've got financial strength. So we'll move now to Slide 5, strength through market position and diversity. Now transport's long been the powerhouse of the Downer Group, and you can see in here that it contributes a fraction over half of Downer's revenue and it's in a very strong position in both Australia and New Zealand. A few things that are very, very key here. We've been very successful in developing new green products that use a high level of recycled or repurposed materials, from roads, road sweepings, glass, toner and other wastes that otherwise would go straight to landfill. Our local government customers, in particular, really can't get enough of these, what we would call, high-quality green products. We're also investing in state-of-the-art manufacturing and recycling plants that are energy efficient and can blend high levels of recycled material into our product mix. Not only is this more sustainable environmentally, but it's cost effective against virgin materials dug out of the ground. The best quarry is the existing road, but you must have a manufacturing plant able to use it and the technical capability to produce products to specification. Our strength across the value chain, from network management to bitumen importation, gives this business significant advantages as does its network of contracts and facilities in strategic locations, and we will continue to invest in this position. We're also the market leader in passenger rollingstock in Australia with scale franchise positions in Sydney, Melbourne and Perth passenger fleets. In Sydney, we maintain and overhaul 136 eight-car trains with a contract term of around 25 years remaining. And in Melbourne, once manufacturing is complete with the new trains down there, we'll maintain 65 seven-car trains for the next 30 years with options for the Victorian government to increase that to 125 trains. These are infrastructure-like positions in critical state government assets. We've also extended our service offering into public transport operations. As you would know, through Keolis Downer, we operate the largest light-rail network in the world in Melbourne, light-rail on the Gold Coast and Newcastle, heavy rail on the newly privatized Adelaide network and bus networks around most of Australia's major cities. And there's now an unprecedented level of government investment across our 3 transport businesses. Utilities contributes 21% -- 20% of group revenue, and we've got a very well-balanced portfolio across power and gas, water and telecommunications. We're the market leader in all 3 in both Australia and New Zealand, and that's based on strong long-term relationships with our customers. Over 80% of our work-in-hand is with government or government-backed contracts. And a topic is often raised across the investment community in any case around the impending issues related to the reduction in NBN and UFB construction volumes as those rollouts have been completed. I'm really pleased with this business, that those contracts have rolled off, that we've won significant long-term contracts in each of our businesses in both Australia and New Zealand. So our success in gaining positions on a number of major city water panels has been very pleasing, and our wastewater treatment technology is proving popular as utility owners look to upgrade their facilities. And there's an emerging opportunity to apply our knowledge and skills to help existing customers transition to new energy sources. Increasingly, we're designing and installing renewable power generation on our customers' buildings and estates. Our diverse capabilities are providing increased value to our customers as they look to deal with government and investor pressure to decarbonize. As with transport, we've made successful bolt-on acquisitions in the utility sector, and we'll continue to invest where we see opportunity. We're now managing facilities and asset services as one business, and you can see that this service line contributes just under 30% of revenue in 2021. We're the largest integrated facilities provider -- services provider in Australia and New Zealand with strong positions in a number of government areas, including health, education, defense and social housing. We're the leading provider of asset management and specialist services to Australia's critical economic infrastructure, including the oil and gas, power generation and industrial sectors. Our strong relationship in these sectors and our investment in capability means we will also be well positioned to participate in the hydrogen economy. Our technology partnership with Mitsubishi Power Systems does give us a technical edge. If we now move to Slide 6, strong macro outlook. This slide reinforces the points that we've been making about our strategy, and that is we're in the right spot given the macroeconomic outlook and the unprecedented government expenditure in the sectors we're strong in. I'm not going to go through all of what's -- the future for the things that we're in. You can read on those slides, and there's lots of other things that you can look to support that. We'll now move to work-in-hand on Slide 7. Work-in-hand in our core business is a very substantial $35.4 billion with a long tail. 90% of the work is government-related, split 80-20 between Australia and New Zealand. 91% of our work-in-hand relates to services contracts with just 9% attributable to building and construction, and only 1% of our $35.4 billion of work-in-hand relates to competitive, fixed price, lump sum construction contracts. Our risk controls across work type and contract model are working to significantly reduce construction risk. In both Australia and New Zealand, we are seeing an increase in governments using more collaborative risk-sharing contract models, such as alliances and early contractor involvement processes. Now this is increasing Downer's addressable market due to substantially reduced risk. Now another issue that's arisen lately in Australia is how companies are managing the risk of labor cost escalation, and that takes us to the next slide. There was a piece of analysis put out recently suggesting that Downer was heavily exposed to labor price increases, and we thought it would be helpful for investors if I address this. And we do that on this slide, Slide 8. Now across Downer, longer-term contracts typically include mechanisms to mitigate the risk of cost escalation, including labor. Now as you can understand, this is a critical area of focus for bid teams and management review for bid and contract approvals. It gets a lot of attention. Short-term contracts generally involve minimal risk, precisely because they are short term and prices are current. We just run through the businesses. So within transport, our longer-term maintenance contracts have monthly rise and fall mechanisms, based on appropriate indices for count for movements in costs, but most importantly, in bitumen and labor. Servicing jobs on major road builds also have rise in formats in things like this. Within Utilities, our maintenance contracts are scheduled -- of what schedule of rates or panel-based with labor and other costs reviewed annually or covered by escalation mechanisms. And for facilities, PPPs make up a substantial proportion of the portfolio, and these all have specific labor escalation provisions and major reset opportunities, typically each 5 years. Our non-PPP facilities contracts with governments include specific labor adjustment mechanisms, and our asset services contracts are usually shorter term and cost reimbursable, so the risk is minimal. To ensure the risk and input cost escalation isn't 0, but it's limited, our contract prices adjust, and we manage the potential for mismatches very closely. Slide 9 summarizes the impact of the latest COVID-19 restrictions on the group. And while we certainly not been immune, you can see the impact has been relatively limited. The biggest issue for us and industry in general has been the restrictions on mobility for our skilled labor and management due to the closure of the national and most importantly, the state and even local government bandage. Now this has resulted in pockets of industry skills shortage. And where that's happening, increasing competition for experienced blue- and white-collar employees. This has been particularly acute in Western Australia, and I'm sure you understand that from all of the people you're talking to. And for us, that's most acute in our Asset Services business. For our Road Services business, July and August is relatively quiet. So the impact on the shutdowns in Sydney hasn't been that great. There's been a limited impact for rail and transit systems, and while reductions have affected progress on a few projects listed on the slide, that's the extent of it in transport. It's important that we have got contractual protections in place to extend completion dates and recover the cost of delay. There's been no material impact on utilities and facilities except, of course, for hospitality. In summary, while COVID-19 restrictions have affected us in some areas, the impact has been limited. We might now turn to Slide 10 on our sustainability performance. So at Downer what a sustainability means, well, it's sustainable and profitable growth. It's providing value to our customers. It's delivering what we do in a safe and environmentally responsible manner. It's helping our people to do better on advancing the communities in which we operate. And we continue to improve our sustainability performance and reporting. And today, we published our 2021 sustainability report. Now I got to say that's not mean safe to get that out as quickly as we have the financial side of the scorecard, given the size and breadth of our business. And I would encourage you all to read the report, and it's got a lot of very good detail and really interesting information that you may not be aware of, and it's got a range of case studies in there. We just move to Slide 11, there is whole list of sustainability achievements for the year, and they're pretty substantial. I'm not going to go through all of those, but it's worth sitting down and going through them in your own time and couple those back to the sustainability report. If we flip over to Slide 12. It's an interesting slide here. And these are opportunities coming out of the sustainability area, and we think the increasing focus on sustainability by our customers and the capital providers is a real opportunity for us to differentiate ourselves. We believe we're a net winner in this spot. As we highlighted at our recent Investor Day, our Urban Services strategy delivers not only lower capital intensity, but also lower carbon usage. So the divestment of our mining and laundries assets will reduce our Scope 1 and 2 emissions by 35% or 206,000 tonnes of carbon dioxide equivalent. Slide 12 that you've got in front of you identify some of the sustainability opportunities for each of our businesses as well. So in transport, we expect more investments in recovery and repurposing of materials for road building and maintenance. We've already invested in Reconomy, Repurpose it and Reconophalt Services. And these offerings putting us in a very strong position. We're now a major player in waste. We'll continue to develop smart road and rail solutions, and we're already building new infrastructure required to support alternative fuel vehicles. All governments will look to reduce energy use on their transport fleet, and we're working on the production in trial of lower emission trains and locomotives as well as zero-emission buses. Our Utilities business will continue to play a role in renewable electricity generation and benefit from the network upgrades required to support higher renewable capacity, including transmission line, substations and associated connections. And there is also opportunities in energy storage systems, energy-efficient wastewater treatment facilities and smart meter technology. We'll continue to maintain and upgrade existing power generation assets, and we're well placed to play a role in delivering hydrogen-associated infrastructure as well as carbon capture and underground storage. In summary, and again, as extensive capabilities provide our customers with a range of sustainable services and solutions. These are at their doorstep, and they are inviting us in. More broadly, on the sustainability front, we are good corporate citizens, as I said, and our corporate culture is strong. Our workforce is diverse. We support and empower indigenous businesses, culture and education, and we work very hard to look after our people, including the mental health. I'll stop there now, and I'll hand it over to Michael to take you through the numbers in a bit more detail.

Thanks, Grant, and good morning, everyone. I'll pick up from Slide 14, underlying financial performance. On a consolidated basis, the group reported total revenue of $12.2 billion for the 12 months to June 30, 2021. This was 8.8% lower than the prior corresponding period, predominantly due to the reduced contribution from the noncore and divested businesses. EBITDA on a consolidated basis increased 4.3% to $899 million with EBITDA margins increasing from 6% to 7%. Depreciation and amortization fell 3.2%, again, predominantly due to the reduced depreciation for Mining and Laundries. Consolidated underlying EBITA rose 12.3% to $467.3 million and EBITA margin lifted 0.7 percentage points to 3.8%. Net interest expense reduced by 10.2% due to lower debt levels and an improved average cost of funds. The effective tax rate of 28.5% remained slightly below the Australian statutory rate of 30% due to nontaxable distributions from joint ventures and a lower corporate tax rate in New Zealand. The statutory rate for the year of 20.1% reflects the nontaxable gains and capital losses recognized as part of our divestment program. Downer delivered an underlying NPATA of $261.2 million, which is 21.4% higher than the corresponding period. Return on funds employed increased almost 2% to 12.1%, reflecting the improved financial performance and the impacts of the capital raising and divestments. Our strong earnings and cash performance related -- resulted in the Downer board declaring an unfranked final dividend of $0.12 per share, taking full dividend to $0.21 per share for the year. As a result of the group's tax losses and the recognition of capital losses arising from the divestment program, Downer expects to return to unfranked dividends either for final FY '23 or interim FY '24. Moving now to Slide 15, outlining the business unit performance. Downer's core Urban Services businesses [indiscernible] $523.6 million, up $21 million or 4.3% on the prior year. Transport delivered EBITA of $250 million, with a strong performance in Roads, offsetting a reduction in Rail and Transit Systems brought about by the completion of the Waratah Bogie overhaul program. Whilst the Utilities result has only increased slightly, up 0.4%, it is pleasing that as the NBN construction nears completion, this has been offset by strong results in Power projects, Water and Telco in New Zealand. Facilities also performed well, increasing EBITA by 12.1% through good contract performance in Defense, Government Services, Health and Building in addition to cost reductions following the full acquisition of Spotless. Facilities margins have increased to 5.6% for the year. Asset Services EBITA of $18.3 million represents a 33% reduction on the prior year and arises from COVID-driven decisions to defer shutdown and maintenance work, in part, offset by strong performance in power maintenance. The EC&M result relates to the final cost of closing out legacy contracts, while the results for mining and laundries represents their earning contributions for the period, including the sub-contributions for those parts that have been sold. Corporate costs rose by 21% to $103 million. Whilst we have reduced our head office costs as part of the divestment program, the benefit of these reductions have been offset by increases in other costs, specifically insurance and IT security costs, which have led to a combined increase of $14 million. FY '21 also saw amounts recognized for short-term incentives that were not paid in FY '20. Included in corporate costs is $20 million related to fixed noncash amortization arising from the group's significant IT investment over the last 5 years. This all equates to total underlying EBITA of $467 million, an increase of 12.3%, with a corresponding EBITA margin of 3.8%, up 7 basis points. We've provided more information on the divisional performance as part of the supplementary information to this presentation. Slide 16 with the 5 items that reconcile Downer's statutory results with the underlying results, 4 of which are consistent with the first half. 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 were granted as part of the acquisition of the remaining 12.2% interest in Spotless with 2.5 million options each vesting when a Downer share price reaches $6.38, $6.87 and [ $7.36 ]. 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. As a result, we have recognized a noncash charge of $16.6 million for the full year. The second item relates to the noncash write-off of deferred financing costs relating to the termination of Spotless' standalone financing arrangements as a result of the refinancing undertaken during the year. The third item relates to the net result of the mining divestment program, including asset write-downs, transaction costs and redundancies. The fourth item relates to the Laundries divestment, including transaction costs and stamp duty. The Mining and Laundries divestments have also seen the recognition of capital losses and other tax benefits of $34 million. The final item relates to the impact of an accounting policy change in relation to the group's treatment of cloud-based software-as-a-service costs. Finally, decision by the IFRS Interpretations Committee, software configuration and customization costs, where the customer doesn't control the software, can no longer be capitalized as an intangible asset. This includes many applications used by Downer, including Microsoft Dynamics and Office 365. As a result of the decision, Downer has expensed [indiscernible] of costs in FY '21 that would otherwise have been capitalized with the comparative period and opening retained earnings also restated to reflect the historic impact. I will now move on to operating cash flow on Slide 17. It is pleasing to report an underlying cash conversion of 101% and a statutory conversion of 92%. Consistent with the half year, the statutory cash flow has been adjusted to reflect the impact of items recognized as part of Downer's restructure in FY '20, which were funded by the proceeds of the July '21 rights issue. These totaled $79 million for the year and include portfolio restructure and exit costs, payroll remediation costs and the settlement of the Spotless' shareholder class action. Cash performance was good across the portfolio and reflects an increasing shift to a high proportion of service-based revenues with stable recurring cash flows. Pleasingly also receivables factoring at June 30, '21 reduced to $63 million, down from $102 million this time last year at $105 million at the half. Turning to overall cash flow on Slide 18. The strong operating cash flow performance has resulted in funds from operations of $251.1 million. This also reflects reducing capital expenditure as part of the divestment program, which I'll cover in the next slide. Low funds from operations, dividends paid has increased as a result of the payment of the FY '20 deferred interim dividend in addition to the FY '21 interim dividend. Whilst the divestment and share issue proceeds have contributed to a strong cash and balance sheet position at June 30, '21. Cash held at June 30 was $811.4 million, which combined with undrawn facilities of $1.3 billion provides us with significant liquidity at $2.2 billion. Please now turn to Slide 19, capital expenditure. Core capital expenditure totaled $154 million, which included several growth projects, including our new Brendale road services facility in Queensland, equipment for the City Rail Link JV in Auckland and incremental investment in new equipment and fleet. Noncore net CapEx of $74.3 million relates to Mining and Laundries. IT security and upgrade CapEx relates predominantly to the fleet management system enhancements for the SGT and HCMT rail projects and IT security enhancement. In a climate of increasing cyber risk, Downer has committed to attaining ISO 27001 accreditation, which is the recognized standard in information security management systems. As a provider of services attached to critical infrastructure, Downer sees this as a competitive requirement. Turning to Slide 21 (sic) [ 20 ]. The Downer Group balance sheet has seen improved metrics in the past year. Net debt in absolute terms has reduced from just under $1.5 billion to $708 million, whilst net debt-to-EBITDA on a post-AASB 16 basis has reduced from 2.6x to 1.5x. Similarly, gearing has reduced to 19%. Data continues to be rated BBB stable by fixed ratings. Moving to Slide 21. Downer sustainability lead loan has extended our debt duration and achieved a more balanced debt maturity profile. Our weighted average debt duration is now 3.8 years compared with 3.4 years in the prior corresponding period. This is partly driven by current borrowings at 30 June of $296 million. This includes a $250 million Medium-Term Note issue maturing in March of '22, which will be repaid from our existing facilities and cash. Downer will also look at opportunities to refinance the maturities following due in FY '26 during the FY '22 year to provide a smoother refinancing symmetry. Downer's in compliance with all covenants at 30 June 2021. The next slide, Slide 22, provides a pro-forma overview of the impact of the divestments today on our key metrics. Downer continues to consider capital allocation in the context of its first priority being the maintenance of our BBB investment-grade credit rating. This includes targeting a net debt-to-EBITDA range of between 2 and 2.5x. At 30 June 2021, we are comfortably below this range. The Board has declared a total dividend of $0.21 per share, and we will continue beyond market share buyback announced in April. This sees us well positioned for growth. Thanks very much, and I'll now hand back to Grant.

Thanks very much, Michael. So the Downer business has again proved its resilience with solid earnings, strong cash conversion and high levels of work in hand. Our end markets are essential services in transport, utilities and facilities, and our position in those markets and their diversity gives us strength and reliability. Our brand and our relationships are strong. We expect our core Urban Services to continue to grow in financial year '22, both in revenue and earnings. But we are cautious of the changing nature of the COVID pandemics and the ongoing restrictions, and we'll not provide specific earnings guidance for financial year '22. We will have more to say at our AGM in November, and that will be with 4 months of operations under our belt. So thank you. That's the end of the formal presentation, and I'll now hand back to the operator for questions.

[Operator Instructions] Your first question comes from James Redfern with Bank of America.

Just I've got 3 questions, please. Maybe the first one, just in relation to the sale of Open Cut East. Just maybe if you could talk about the book value of the business. And so I guess the level of interest you had in that business in relation to divestment, please? And I've got 2 more.

Yes, we've got interest, certainly. Michael obviously, will just talk about the book value in a moment. We've got interest there, but it's -- coal assets aren't easy to sell at this point in time. But yes, we'll see where we go.

Is book value is about [ 180 ].

Yes.

Whilst we're still working on that, I wouldn't be concerned as investors because in our view, running those contracts out is also going to return value to shareholders. If we look at the 2 major contracts there finish in '22. And so I'll be cash positive in '22, be profitable, and then sold you so -- and then there's the smaller contracts roll on for a couple of years after that, but they're very small in comparison. So I wouldn't be too concerned about that, but we still work on the sale as well.

Okay. Perfect. Second question is in relation to the Royal Adelaide Hospital contract. As you talked about for a while, and I note that the contract will be reset in June next year. So maybe just wondering if you could please provide some commentary around the monthly cash flows from that contract, the scale or whether they scale and also whether they're positive or negative? And just thoughts around the reset next year in June, please?

Yes. So cash-wise, it's positive. And we've been, over the course of the last 6 months, working with [ sub-strong ] health on what's called the reviewable services there on the reset. And we're very hopeful that in relatively short term, that will be finalized, and that project will be profitable for us.

Okay. And just a last question for me. Just you're talking about potential further bolt-on acquisitions. I mean the core business for Downer is performing really well and the balance sheet is strong. It's great. So just wondering if you could please talk to where you think Downer should or could grow in terms of its core businesses, please?

Well, look, it is in the core. And we do a fair bet in the core. But it's in Transport, in Utilities and it's in Facility. So there's been transported. It's around facilities and geographic position. And in some cases, there might be a particular product in a particular area, and we'll pick our businesses. And we've been doing that over the last -- bidding utilities, it's been related to water, gas with particular technical skills that we can take national, and we continue to look at that. In facilities, similarly, it's talking with the businesses that might be able to give us a technical edge as we look forward into the future, sustainability-wise. But we're not under a long list here. This is -- but we're on the search for growth opportunities. That's for sure.

Your next question comes from Rohan Sundram with MST Financial.

Just a few from me. I might start with the construction book in the working hand, which looks to be about $3.2 billion. Can I just confirm, is that comparable to the last disclosure in early '20 of around $5.7 billion, which -- and hence, a big reduction?

Yes. So that's right.

And same for the fixed price, which is to be about $350 million. How much -- maybe ballpark, how much of the reduction is then on last disclosure in early 2020?

A lot. Yes. It's -- we've dropped out of various markets here. So that is significant reduction.

It just reflects the decision changes that we made as part of the restructure that we announced.

Yes, we've not been building -- we're not in a neglect game in mining, building large pieces of mining infrastructure. We're very niche in what we do.

And we're focused, we concentrate very much on contract terms.

Sure. And last one for me is, thanks to your commentary around labor markets. Has it impact -- now to what extent has it impacted your ability to attract and retain labor during the last 6 months?

Look, Downer is a market leader. So people won't work for us, but that doesn't mean that we don't have a whole heap of competitors trying to pick up the best people in the market. For the next what we face. It's not that this is new, but where -- it's a little more acute where we've got issues around not being able to cross borders, right? So it can become acute in specific areas, [indiscernible].

Has it impacted your ability to start a new project? Or are you still able to find enough numbers to commence with?

No, it hasn't impacted our ability to start. But well, I just think, I won't know if, but of a particular case in Western Australia where it's very difficult for us to put the people on there that we need to put on and the skill-based decision there. I think in Asset Services, right, that's been the business that's been most affected. But even in rates, we've got a national -- or most of our business is national. And the great thing about that is that we're able to apply terrific skills and skill base across all of Australia and in fact across Australia and New Zealand. Now for the most part that works when you've got lockdown situations, which, again, for the most part, even over the last couple of years, have only been sporadic, it does impact us and right now it impact us, right, but that won't be there forever, and we get back to having a competitive advantage that we have.

Your next question comes from Wei-Weng Chen with JPMorgan.

Just a few from me on Transport. So the first one would, you made $150 million of EBITA in Transport in second half '21. So that was a big increase on the prior half. What was the reason for the increase? And then secondly, can this be sustained going forward? Is this a $300 million a year business now?

Look, it's -- that's a very good business. It's volumes, and it's across Roads, Rail and Transport projects. So there's a fair bit moving in there and -- but the Roads business has done very well for the period. It will continue to grow in our view.

Yes. Okay. There was a 50% half-on-half sort of increase there. So I was just wondering if you could give some additional color on, I guess, why there was that big increase?

It's a seasonal business, though, particularly in New Zealand. So it's not -- I wouldn't underwrite $150 million. So -- but it's certainly improved, and it's had a strong year. But particularly in New Zealand, that's second half SKU business.

And you've got a lot of stuff going on. Just think about what's going on in the infrastructure space when this business is tied straight toward, okay?

When I talk about money being spent, government spending a lot money, and this is a business that benefits off the back of that. That's a state government and local government.

Yes. Okay. And then just something I noticed. I'm not sure if it's coincidence or not, but every 2 years for the last 6 years, there seems to be a bit of a sharp increase in Transport margins. So second half '17, second half '19 and '21. I know there is an element of lumpiness when it comes to things like bogie overhauls, et cetera. Is there something going on that occurs every 2 years? Or is that just a coincidence?

I think it's a coincidence. Yes, I think it's a relative point. I could give us second half '20 was very COVID impact that's sort of between '20 to '21, but we've not done that by annual analysis. So I couldn't comment.

Yes. That's fine. And then just on labor pressures. I guess what we're doing out of [indiscernible] cost pressures are, I guess, one factor, but almost greater factor of the impact of slight turnover on productivity, et cetera. Can I maybe get you to speak on that perspective in terms of turnover, you seeing anything there?