Lycopodium Limited (LYL) Earnings Call Transcript & Summary

Thank you for joining us and welcome to our investor conference where we will present our results for the full 2023 financial year. It's been a fantastic year for the company, and I'm pleased to go over to run you through some of the highlights here at Lycopodium. I intend to run through the presentation this morning as we walk through this, and we'll give you a good overview, I believe, of the financial results, but also what we've been able to achieve operationally and provide some outlook for the coming period. From a financial overview perspective, we had a record year, reflecting the level of activity in the business and the success that we've had in delivering our work. Earnings per share this year was significantly up at $1.177 per share, and we've resolved to pay a final dividend of $0.45, which will bring the full year dividend to $0.81 per share, which is a tremendous outcome. This is towards the top end of our range that we have in our dividend policy at the top end -- towards the top end. In terms of our register, it remains fairly constant in terms of the split between internal institutional and retail investors. In terms of the company, Lycopodium has not changed in the last 12 months. We continue to evolve and to grow, of course, a 31-year-old business, but we remain active in the same sectors, and we remain active in providing the same services. As I said, we just continue to evolve as a business. So the services that we provide project evaluation, process engineering, project delivery, project optimization across the 3 sectors in the resources, infrastructure -- rail infrastructure and industrial process remains the same. Geographically, and I do have a little bit of news in that respect. Obviously, this is at year's end, our offices, our areas of operation remain the same as last year. We are at this point in time opening -- in the process of opening, in fact, this week, we have a team in town opening an office in Lima. We expect to be fully operational in Lima again on a stage basis by the start of October. So that's promising in terms of our geographic reach. This slide basically gives you in a snapshot, the financial forwards and some larger side of the business. As I said, high set of revenue and profit and high set of return to shareholders after 31 years we've been in business. We're a little over 1,100 staff globally. And of course, that is just the people that we employ. It doesn't include, for example, the people who are in [indiscernible], it doesn't include people in [indiscernible], the 2 businesses, in which we have a stake in, and it doesn't include the people that we manage across all our various sites. So it's a large organization, doing lots of things across the globe. We continue to have a very high-quality team of high caliber people across the business, which include South Africa, Brisbane, Newcastle, Melbourne, Manila, Toronto and Accra. So our teams are, I believe, our differentiator. We've got some fantastic teams and some fantastic people [indiscernible]. The value of capital projects we're currently managing is over AUD 4 billion, and that doesn't include -- I want talk about managing that businesses -- so that's projects that we're actually having in delivery. That doesn't include the capital value basically [indiscernible]. We're currently delivering over 35 different resource projects, over 40 resource studies. We continue to invest in our people, and I'll talk a little bit more about that later on and as well, we continue to invest in our systems and platforms as well as I mentioned earlier, in terms of geographic diversification in the opening of Lima. We're also investing in sector diversification. And I'll talk a little bit more about that later as well. But again, a continuation of the theme that I've spoken about previously in terms of our energy and the energy participation and the energy transition. Again, financials. We recorded a record revenue of $327.6 million and record NPAT of $46.8 million. We're retaining a very strong balance sheet with cash at the end of June in $82 million in the bank and negligible debt. Of note, and as you can see on this slide, our -- in fact, our PPE as a closing price -- share price yesterday was $8.5, which in reality is well below our -- many of our peers or other participants in the engineering and construction realm with the likes of our Delphi at 24.8%, SRG at 14.4% and [indiscernible] Engineering at [indiscernible]. I consider our business, I think -- our board consider our business a quantity business with a long-standing track record. And so obviously, it's demonstrating great value from an investment perspective as well. Growth has been consistent. So obviously, growth is up this year in terms of personnel, revenue, general business activity. But it's been consistent across 3 sectors. But from a revenue split perspective, it remains at around 90% of Mineral Resources. 6% of [indiscernible] returning the smallest or the lowest revenue of those [indiscernible]. It remains very important in its own traditional areas that business that we have in [indiscernible] remains very important in its traditional areas, but is also typically leading the company's efforts in the energy transition work I spoke about earlier. So important for us, the important business, the important part of the piece of the puzzle, if you like. Geographically, as forecast last year, we have seen a rebounce between the Australian domestic and international work, and that really reflects the higher level activity we have here in Australia, particularly on a number of lithium projects, which I'll talk a little bit more about later on. But as well as just the general activity in Australia. Again, it doesn't mean that the level activity in the other areas has been lower. It's just from a split perspective. In terms of balance sheet, I spoke earlier, again, very strong balance sheet. We have the ability to obviously fund our own working capital, to fund our growth and fund the growth that we continue to see, the ability to [indiscernible] when we have to on various contracts that we have going from anyone at any given time. And we also have the ability to pursue our strategic objectives, and we can do this all off our own balance sheet. Again, this is not something that occurred overnight. This is something that just reflects the business that's been steadily but surely building and steadily but surely building on the strong foundations and to strong financial foundations. From an operational perspective, in front of you see there is actually cover our Panama at night time. Lovely photo of the -- it's now 100 million tonnes for a copper cost trade for the first quarter. But from an operational perspective, the general theme across the year has been that all businesses have been busy. And you can see on that slide that I won't read through that slide you can see on that slide, the work that we've started, it started to mobilize the engineering that we continue to do the projects have been completed. The studies that are moving into the next phase, et cetera. So I won't go through in detail. But suffice to say that all the businesses have been busy and have delivered strong returns to shareholders. Each of the businesses has done this in an effective manner and in line with the culture and the approach of which like a [indiscernible] recognized. And what I mean by that is they've done it safely. I don't expect to look at officially. They've done with a focus on the project and with a focus on the client's needs, but at the same time, making sure that we continue to build our own very strong teams and support our teams. In the Resources arena, we've had projects completed. As alluded on the slide, the likes of the Séguéla project in Côte d’Ivoire, Roxgold, the Motheo project, the copper concentrator in Botswana, Bomboré project, Talison MSA, et cetera. So there's a lot of work that's been completed. The pleasing thing is that there is a lot of work is continuing to run. There's a lot of work to continue to flow through the project pipeline. And again, one of the things that I think is a feature of this last 12 months is we've mobilized a lot of sites. And for us, as an organization, when we have a lot of site activity, it tends to indicate more profitable time and that's been the -- one of the key drivers to our success in the past 12 months. And as I mentioned, really, we've got a healthy workload or load of studies across the business to make sure that happens and continues into FY '24. Also outside of the rail infrastructure, we are also seeing a strong uptake of our services in industrial processes and in rail infrastructure as well as kicking off, I think one of the [indiscernible] landmark projects, which we've kicked off in the last 12 months is the Reko Diq, Advanced Feasibility Study and Basic Engineering for Barrick in Pakistan. That project is world-scale copper concentrator in the new province from an old infrastructure to support it. So it's certainly a very significant prospect for our business due in FY '24 and '25 and beyond. First and foremost, and people often ask us anything that is likely to keep your awake at night. And really, in terms of our business, I think we're running really well. I think that the entire business is ticking on beautifully. And we want to obviously keep it that way. The one thing that is always of concern given that we have our own 1,100 people and a further 2,500 people who manage across sites is making sure that they're safe, making sure they have had no material environmental incidents, [indiscernible] or the like. And I think the team has done an exceptional job to ensure that they're doing things such as fact basics, a high level of audits and have Lycopodium safety for us is one of our key values -- their core values. And it's fundamental everything we do. It's not something we necessarily put up in high, especially because it's what we do to move within and trying to find our place in the energy transition. And of course, we're already very, very active in factory minerals. We're already very active in renewables and in other industrial processes are the platform for the energy transition. We're also working on how can we continue to do the engineering project delivery services in what is a version of growing sector. So we are doing lots of things but it's a healthy level of studies -- over 40 studies in the business, and this is just in resources. A healthy level of projects in engineering and exchanges, home site delivery progressing and delivered. And you can see that there's a good order book of projects. And I can assure you there's fantastic studies and working on that should point to a good year -- this financial year and beyond. We are participating in, but also considering having [indiscernible] going to say that previously, so it's something we continue to do. We continue to see strong demand for commodities in which we're involved. And we believe that's in a favor for business moving forward in our rail infrastructure business. That's quite a niche business, but certain assets on the market that are particularly strong, and we think we're going to go over that business. And domestic manufacturing and those things that were in sunset for a long period of time have been quite transformed change and kicked off with COVID seeing the themes continue. And we continue to see our process industries business is really growing, but also been able to leverage that expertise across the broader business, which is really, really pleasing. In terms of strategy for the next 12 months, as I mentioned is kicking off Lima, so we're continuing to focus on achieving geographical reach, not only in Lima and Latin America, but also with a number of projects in our company starting at the moment, we expect it to be a lot stronger in Asia as well. Generally, we will continue to look to deliver a balanced portfolio of projects from EPCM, [indiscernible] perhaps EPC basis. Again, it's in some regards, business as usual, but it's continuing to evolve our knowledge and continue to provide our skills and expertise in project execution, planning and in delivery that we'll see us participate in a bunch of different projects. We really continue to work our people plan. It's really important. We're putting a normal amount of energy into it across the last 3, 4 years. And whilst we've borne a lot of that fruit, there's still ought to come, and we'll continue to do that. Knowledge of management for investing in platforms, investment assistance, drive efficiency work, innovation. We've got the digital engineering task force of the business, continuing to work with engaging with industry as well as with the PICC and CSIRO as mentioned earlier, had also, as I mentioned already, really, the energy transition, we will be playing an important part in that. We are very significantly equipped. We have high caliber engineers and project people, and there's a strong demand for what we have been delivering and what we will continue to deliver. So that's the full presentation. I would also like to say as per this morning of this full year announcement that Mick Caratti, Mick is in the room with us, one of the founders of the business and of course, Chairman of the business has advised to be stepping down from the position of chair at this year's AGM. So still [indiscernible] not hot seat for a few months. And then we hand you over to Rodney. And of course, Rodney was previously the Director of the business. On behalf of the company, on behalf of shareholders, and on behalf of our clients that are onshore, I'd just like to thank Mick for his vision, his dedication in building such a highly respected company. I'm also pleased to advise that Mick will remain on the Board. So we continue to have the benefit of his experience, knowledge and sage words, his sage advice. But also, of course, want to congratulate Rod on his upcoming appointment. And finally, I just want to thank all our staff for their tireless work and commitment across the year and continue to demonstrate Lycopodium's values, Lycopodium's approach, and they delivered a fantastic outcome for our clients, and I believe that delivered exception may come for our shareholders. So I think this is something which continues to reflect a very positive for the company. So that's it from -- by the way, the full presentation. I will hand over [indiscernible] to take some questions.

[Operator Instructions] You have a question from Graham [indiscernible], Private Investor.

Great results, great results, great balance sheet, all good stuff. One thing I just noticed is the provision for warranties. Is that just a general provision? Or is it specifically related to some other projects?

Yes. Thanks, Graham. Thanks for the question. Yes, it's actually provision as we do each year for specific projects that may be in the fix liability period or warranty period or any other projects where we might due to the contracting nature feel the need to provide to offset the potential future liability. It's just general amount, it's tied to something which is consistent with approach, which is consistent with what we've done historically, things has been reviewed by area to make sure that it's consistent with the accounting standards, et cetera.

Okay. I was just going to say, it's not for a specific liability that we know about.

No, no. It's as we make allowances based on a risk-based assessment on what our contractual responsibilities are for a period time or during the period. So it's not as it's a mix points on that. It's not a specific [indiscernible].

Now, now, good conservative accounting from the shareholders' point of view. Just on that moving to Pakistan. I was there about 40 years ago. It's a different world. It was, they might look to [indiscernible] now. That is a pretty big project, I understand. In terms of [indiscernible] if you just give us a ballpark figure in terms of million or billions? What sort of size of -- what are you looking at in terms of copper and gold, I understand?

Yes. So the Reko Diq project is a very significant project. It's delivered on a number of stages. Its first phase is 40 million tons per annum and then the idea is that basically ducted but a lot of the infrastructure will need to go in up front, of course, as we talk on to the initial project in the expanded case. So yes, I mean it's -- I guess we're doing the feasibility study and we will determine CapEx for it, but it will be in the order of plus $7 billion total project -- U.S. dollar total project. So it's a big budget in a very remote part of the world. Hospital restructure that needs to come in. So there's lots of the things to happen between now and, I guess, in the full investment decision or final investment position by the Barrick Board. But it's very promising in the part is they're already making very positive moves in terms of how they're going to be funding this project. And we're engaged at a senior level with Barrick. In fact, Karl Cicanese, who is Managing Director of our Lycopodium Minerals APAC business, he is with us here in the room and Karl and myself are actually meeting Barrick Simulation next week at sponsor level with the likes of market to talk about exactly this thing. So I think we're going to have -- I guess the important thing there is, I think we're going to have a reasonable visibility as to how this project might develop, how it might be funded. And the relevance for us, of course, is it's big. We're a bit small in genetic 1100 people global. So [indiscernible] would require us to set up a little [indiscernible].

Okay. Cool. I know there's a comment in the report a strengthening of demand for iron ore from China. Is that redundant now and given the fact that if you believe the press, the China is actually going the other way.

Yes. It's interesting with iron ore and yes, [indiscernible] going the other way, but the important thing with iron ore is that in the [indiscernible], there's an enormous annual capacity that's produced and projects come into life. So there's a number of projects we actually in Rio Tinto of course -- good about bringing their projects that they said it wasn't going to be sort of kicked off until 2050, now they talk about it and started reconstruction back to 2026 just to do. So I guess the point is that even sustained production requires projects to be built. And whilst we may or may not be involved with them, certainly, I think you're going to see a number of large iron ore projects that still delivered across the next couple of years, not only here in West Australia, but of course, some [indiscernible] to happen there. But I don't think [indiscernible].

Okay. Cool. Again, great balance sheet, great results. Congratulations.

There are no further questions at this time. I'll hand back to Peter for any closing remarks.

All right. Look, if there's no further questions. I'd just again like to thank you for participating in today's call and your interest in our organization. As I said, I think it's been a really good year. Thanks to our people. Thanks for the management. And just thanks from me. Thank you very much for attending and just thank you.