Lycopodium Limited (LYL) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Lycopodium Limited First Half Financial Year 2024 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Peter De Leo, Managing Director. Please go ahead.

Thank you very much. Thank you for calling today to our first half results presentation. For those on the call, I'm sure you're very familiar with our company, Lycopodium, our approach and our focus -- areas of focus remain unchanged certainly across this last year. So we're known for our consistent approach, and our Board and key management certainly remain unchanged across the last 6 months, last year. We have a very stable Board, very stable group of key managers of the business, heading up all the subsidiary businesses in Lycopodium, and I'm very pleased to say that there's been no change in any of that. Our earnings per share in terms of some of the fundamental metrics, I'll talk more about that later, but our earnings per share is up 51% from corresponding period last year. And we've declared a half year dividend of $0.37, reflecting broadly in line with our -- the dividend policy. We have seen some movement in the register in the last 6 months. However, the split between Board and Management, Institutions and Retail remains very similar to look to -- at this time a year ago. Our breadth of service delivery across the sectors we serves, continues to be a key strength of the organization. Our early involvement in feasibility study work and in project evaluation and our reputation that we've built in project delivery really continues to underpin high level of repeat business and a high level of sole sourcing in Lycopodium. And that's, I think, been fundamental to our sort of ongoing success but a very broad series of services that we provide across the 3 sectors of mineral Resources, Industrial Processes and Rail Infrastructure. We -- our strategic and steady approach to increasing our geographic markets, has seen us open an office in Lima just in December. That office -- the initial phase of that office is to provide another value engineering center, similar to what we have in Manila, which we've built across the last 15 years. Future phases of Lima, however, is for its development into a full-service office, and of course, that will take time. This is an organic growth initiative, but early days in Lima and early signs are extremely positive, not only for supporting the engineering and design part of what we're doing in the Minerals Americas geography, but also enabling us to source skilled people and labor markets across the world remain for us, remain tight. But Lima is another market for us to be able to secure people not only for the site that doing design, there's project control, project services and also to support on our sites across the globe. So again, we see that as a very positive thing. In terms of current snapshot, we have reaffirmed our previously provided guidance of revenue of around $345 million for the year, an NPAT between $46 million to $50 million for the year, full year, obviously, reflecting a continued strong year. We currently have over 1,300 staff, so it's just ticked over 1,300 staff in the business. As I mentioned earlier, we're known for longevity and long-standing service of our key team members, and our key teams and that hasn't changed. We're managing over $4 billion worth of capital projects as we speak. And I'll touch on the projects and studies in Resources, that we're delivering over 35 projects and in excess of 40 major studies in Resources across our various offices. I'll talk a little bit more about the investment we're making in some of the strategic initiatives being people, investment in system and platform, to geographic diversification little later, that is a long-standing strategy within the business, again, which I think is really both -- and support very, very positively the operational side of the business over the last 12 months. We've maintained our strong record of delivering our work safely and responsibly. But I do note that this remains -- or demands continue to focus and diligent on our part or part of our the contractors are working on our various sites. Current total rolling 12 months, we're managing -- we managed over 14-million manhours and for a very, very low industry -- capacity industry standards LTIFR and total incident frequency rates. So we're very pleased with what we've been able to achieve, but it does take enormous amount effort and I'm very proud of the work the team has done across the globe. I've mentioned the number of projects we're working on. Obviously, it doesn't come without a lot of hard work and diligence and the team continues to follow exceptionally well in that area. So in terms of financials. So revenue is up by 11% this time last year to $177.8 million. EBIT is up 35%, this time last year to $43.6 million and profit -- sorry, NPAT is up 50% this time -- at the moment against this time last year, we there got the $30 million. And that really reflects the mining of some provisions for the fix liability, specifically on the Seguela Gold Project, which you're seeing on the screen there. That project has come out of the fix liability. We'll come out of the fix liability over this financial year. We've unwound a significant portion of that in the first half, reflecting the diminishing sort of exposure there. We're down in terms of cash in bank. I guess that's down 28%. That really is, I guess, 2 things -- a point in time at the 31st of December. It also reflects the higher working capital rate within the business, really reflecting the increased activity in EPCM and just the increased workload in the business. So it's not unexpected. Sector-ly, again, we've seen growth in, obviously, resources that has further exacerbated the sort of the SKU resources within the business. We haven't seen the same level of growth in Rail Infrastructure and Industrial Processes. So we're doing 94% of our revenue in mineral resources. But the work that we're doing in the Rail Infrastructure and particularly in the Industrial Processes, particularly with the view to the energy transition and it is important to the business and represents some meaningful and material opportunities for business moving forward. Our revenue by geography. Again, we are very still sort of skewed towards Africa. We're working on 14 -- in 14 different countries in Africa. But we have seen a growth or a shift to more work in other geographies across the last 12 months, and we're going to see that continue to be the case with the ramp-up of certain projects, forecast occurring in the next 12 months in areas of -- geographic areas other than Africa. We're very happy with the split and very happy with the work that we're doing to maintain a balance in that regard. In terms of balance sheet, I guess, the key thing here for me is the total equity is up 8% this time last year. That's obviously our current assets are down, but the liabilities are down. The total equity is up $121.7 million with an NTA per share of $2.90. I guess the consistent thing and something we've remain known for, a very, very strong balance sheet, minimal debt, then you see the $0.7 million to the $2.6 million really is just a reflection of our insurance program that will then normalize across the full year, it's just $2.6 million at 6 months. And we remain a strong, stable business in everything we do. So -- and the balance sheet is clearly a reflection of the business, it's prudent and appropriate management to financial risk, commercial risk contracting risk is embodied in this balance sheet. Just by way of operational highlights, I'll touch on some of the things we've been doing. So certainly, again, we remain very, very busy, and that's certainly been the constant in the last 12 months and forecast remain busy into the next 12 months and in the foreseeable future. Certain projects, which are transitioning from construction in commissioning phase, and we're very heavily in commissioning, number of projects at the moment, including LionTown's Kathleen Valley Project, where we start seeing the commissioning of the front end of that plant in course of next couple of months. And then by the end of this financial year, we expect them to be commissioning the full plant. The Sabodala-Massawa BIOX Expansion, the large gold project for Endeavour in Senegal, that's very early into commissioning. And again, a little bit more involved from a commissioning perspective, the traditional gold project being the BIOX plant. The Lafigué Project in Côte d'’Ivoire, again for Endeavour, that's in commissioning phase as we speak. Leo Lithium's, Goulamina Lithium Project in Mali, that's in commissioning and the Langer Heinrich, Uranium project in Namibia, that is at very tail end of construction and commissioning is well underway and going very well. So again, the highlight for me the fact that we're so heavily into commissioning with risks and hazards tend to change with construction and commissioning, and we have got teams that managed that very effectively and still performing extremely well from a -- not only delivery perspective, but from a safety perspective. Other key projects, which are well into construction, the Ahafo North Project, a large gold project for Newmont in Ghana, the CGP or Chemical Grade Processing Plant #3 Project for Talison in Greenbushes, Western Australia, Batu Hijau Expansion Project Copper-Gold in Indonesia for M&T. The Mutamba Mineral Sands Pilot Plant in Mozambique and the Kiaka Gold Project for West African Resources in Burkina Faso, are all heavily in construction -- with sort of heavy construction and sort of midstream construction. Some highlights with regard to our Industrial Processes and Rail Infrastructure businesses. In the last 6 months, we completed the detailed design CSL Seqirus' influenza vaccine facility in Melbourne. We're undertaking Pilbara Minerals' Midstream Project that are designed for the value-added lithium project in the Pilgangoora Operation in WA, and that's been done over our Melbourne office of Industrial Processes office. We're -- in terms of our Rail Infrastructure, one of the key things we undertake is ARTC's Southern Highlands Overtaking Opportunities Detailed Design package, quite material package done that in our Newcastle office, and we were awarded in July since the start of the 6 months, the 3-year contract to conduct rail infrastructure inspection at all Pacific National sites across Australia. And that business is continuing to grow. That Rail Infrastructure management businesses continue to grow on the back of the quality of work that we've been continuing to do. Some company highlights. First, as you can see, the image of our initial Lima team in the new office in Peru. As I mentioned, that is intended first phase. In fact, Phase 1 and Phase 2 is intended to provide the value engineering to our order business. And for that to steadily grow our footprint in Latin America, it's the first part of our plan that we have there. And the second thing is we've released our inaugural Sustainability Report in November '23. It's been very well received. I think it showcases what we do as an organization across the whole sustainability gamut of the ESG space, talks about the things that we have in place. It talks about the way that we conduct our business. And it talks about our aspirations by that we support our clients and their projects across the globe. So if you haven't had the chance to have a look at it, I encourage you to do so. It's on our website. Focusing in on Resources, mineral resources. Again, this is a slide that we've included in the last couple of years. Just to give people an understanding of the project -- our study and project pipeline. As you all know the level of future activity, how busy we might be in 2025 is really very much indicated by the number of studies that we have at any given time. And I'm happy to say we maintain and continue to maintain a very healthy pipeline of studies, quality study work, try to be strategic in the work that we pursue and we take on because ultimately, we want to see -- we want to be delivering -- from those studies and delivering those projects that we studied. So this slide gives you an idea, in the orange that those projects that are in the engineering and early exchanges. In the red, those are the transition during construction, I've spoken about a lot of those already. I mean those are in the late stages of construction and commissioning. Again, I've spoken about those. And those have been completed for the last 12 months. So you can see it's a very broad base of clients, very broad base of commodities and geographies, which again talks to our long-standing strategic approach. And again, they're talking about commodities. We're talking about mineral resources. You can see the number of projects and studies that we're doing in some of those key commodities, which we have a high level of expertise. In terms of outlook and strategy. So notwithstanding, we've seen, of course, the last 12 months, some softening in some of the commodity prices, particularly around the energy transition and the transition to electrification of society, you may have view of -- might considered it's still a little bit of speed bump in terms of how that's reflected in the price of lithium, the prices of nickel, et cetera. However, the long-term outlook remains extremely strong. And certainly, the genie's out of the bottle with regard to the energy transition, and there's no really no stopping that. So we see that the strong long-term demand for the minerals and metals, we help to do produce and what we do. And this will continue to attract capital. And that's key. We're working across the battery minerals in lithium and copper and graphite and nickel and every else ever associated with that. So for us, we see it as a very positive thing. The other part, of course, Lycopodium started and continues to be possibly the preeminent engineer in the world for -- in the delivery gold projects. And certainly, value of gold remains high, driven by usual factors. And so we maintain a healthy pipeline of gold projects looking forward. We've talked about the -- our other sectors and Industrial Processes and Rail Infrastructure. Certainly, our Industrial Processes business is continuing to see a good market. And really, that's still a focus on the Western Australian manufacturing, and we're seeing good opportunities emerged there as well as the Industrial Processes business is really a good segue and the tie between what we do in mineral resources and the battery minerals and some of the more advanced industrial processes have gone to support the energy transition. And in Rail Infrastructure,, there has been probably a tightening of the market, the macro market in terms of the East Coast of Australia in terms of rail. I think that tends probably impact the larger rail-focused contractors than ourselves. We are finding that in some regards, we've got some of our clients such as ARTC's and others who are sort of pivoting and really focusing on trying to get maximum value out of their existing and future infrastructure, and that talks to what we provide in terms of the services that we provide to them. So I think we're seeing a reasonably strong market for our Rail Infrastructure business as well. So yes, we spoke about the energy transition and the like. But really, we're seeing as a macro environment. Our services remain highly sought-after, not only in Australia but across all of our operations across the world and across all our markets. So it's sort of a very good time to be in our business. In terms of strategies, you -- those of you that have been following us would see that this remains largely unchanged. We review -- we regularly review our strategic -- our strategy and our strategic approach to our business, but we're about tweaking around evolving and around improving on a steady path, and the steady path is geographic reach. We continue to look to how we might service existing and new clients who would value the services and the expertise that we can bring to the -- particularly to the resources sector. And certainly, we're seeing -- we've set up some new offices. Obviously, we've set up in new countries to support current and future projects. And we've spoken around how we're looking to try and tap into what is a very, very large market in the Americas on a steady and progressive approach. We continue to maintain a balanced portfolio of projects at the moment. Primarily our projects are EPCM, service-based delivery. Now we do have a number of irons in the fire to maintain that mix of EPCM and EPC-style project delivery. We think it's important that we maintain that availability. And certainly, we have a focus on pursuing a balanced portfolio of projects. In terms of people, we continue to look to attract, to develop and to retain the very best people. We've invested heavily in our people strategies. Everything from new HR, information system, development programs, e-learning, the staff reward programs. So we're very focused on making sure that we're attract the best people and keep the best people. We've just recently completed our second annual engagement survey across the business, and we've improved across all metrics. And more importantly, we've identified areas which we can focus on, which can help us continue to improve across the next 12 months. We continue to invest in our systems, our processes and the like. We are at very advanced stage of rolling out our new ERP across the business. Quite a number of the business units already have the new ERP in operation. And by the end of this calendar year, we expect to have a rollout across the business and early signs are very, very promising. This is really around making sure that we have one single source of truth in terms of financials and project delivery and the like across the entire business. So I think we've done very well in the past, but this is the view to making [indiscernible]. And we continue to focus on other systems and tools that make it easier for our staff to work efficiently and effectively and again, that -- in our most recent engagement survey, that was an area of very positive feedback from the staff that they feel very well supported in that regard. As an engineer and project delivery business, it is critically important for us to remain innovative. We have -- now we have the long-standing Lycopodium innovation award and program in place that continues to be well supported and well championed. People continue to submit very interesting, innovative -- innovation initiatives for consideration in the business, and it's something which I think is getting mixed from really an embedded culture perspective. And as I've mentioned earlier, really, the energy transition from a macro market perspective, continues to give us a really strong market for the services that we provide. So we're happy that we feel we're on the right track and remain on the right track. So that's it for the formal presentation. I'm happy to take any questions anyone might have.

[Operator Instructions] We are showing no questions at this time. I'll now hand back to Mr. De Leo for closing remarks.

Okay. Thank you very much. Look, as always, if you do have any questions or would like to make contact with us, please feel free to contact myself or Justine Campbell, our CFO, with any questions you may have. I thank you for listening in today. I hope you've got it informative, and thank you for your interest and ongoing support. Thank you very much.