Lycopodium Limited (LYL) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the Lycopodium Full Year FY '26 Results Call. I'm Sam Wells from NWR Communications, and joining me from the company today is Managing Director and CEO, Peter De Leo; as well as CFO, Justine Campbell. Following the summary of the results released to the market this morning, investors and research analysts will have an opportunity to ask questions throughout the call duration today. [Operator Instructions] We'll endeavor to get to the majority of questions asked, in some cases, combining questions on the same or similar topic. And for the analysts asking verbal questions, we kindly ask that you limit yourself to 2 questions on today's live call. Thank you. And over to you, Peter and Justine.

Thanks very much, Sam, and welcome to Lycopodium's investor presentation for the full financial year 2026. We've just completed a highly successful year where we've delivered on our commitments to clients and shareholders alike. I thank staff and management for their outstanding efforts and really look forward to running you through some of the detail of what constituted a landmark year for Lycopodium. In the next 30 minutes or so, we will be providing you an update on the company, running through FY '26 financial highlights, providing you some insight into our operational highlights for the year and providing some commentary on the outlook for our business as well as providing financial guidance for FY '27. In the past year, Lycopodium has enhanced its reputation as being one of the world's leading engineering and project delivery groups working globally across the mineral resources, industrial processes and rail infrastructure and asset management sectors. At the end of June, we had over 1,400 people. And at this time, as we speak today, we have 1,500 people in the business as we grow to meet the opportunities that we're seeing. We retain our 18 offices globally, and I'll talk a little bit more about those later. We have a broad and diverse client base, including the emerging majors and globally diversified companies and really is a fantastic suite of clients for whom we work. In terms of our capabilities and core services, we continue to work across all phases of projects from very early-stage evaluation, scoping and concept creation through to the detailed engineering and project delivery as well as being highly considered for our ability to provide optimization and expansion services for existing facilities. Each part of our business focuses on delivering and creating value and remains part of our ethos to focus on delivering high-quality services to help our clients succeed in unlocking the maximum potential in their projects. We continue to grow our global scale. In the past year, we've managed and controlled over 9 million man hours for the delivery of over 50 resource projects and 90 studies. Importantly, these metrics demonstrate both the growth, but also the potential for the business as our level of committed contracts is up 59% from 6 months ago. Revenue opportunity pipeline is up 8% from 6 months ago, managed CapEx up 32% from 6 months ago and number of studies we are currently managing up twofold from 6 months ago. And again, for those of you that have heard us present previously, you know that's a very important metric for our business. I'll now hand over to Justine to present FY '26 financial highlights.

Thanks, Peter. Lycopodium has had another successful financial year, delivering results within the guidance range for FY '26. Revenue was $377.5 million, up 11% on the prior year, representing record revenue for the company. EBITDA of $59.5 million or 15.7% with a profit before tax of $52.5 million. NPAT of $40.2 million at 10.6% of revenue reflects the company's long-term goal of a plus 10% NPAT margin target. NPAT is also at the top end of guidance given earlier this year. Equity increased 13% to $170.7 million with return on equity achieved of 25%. The net tangible assets are $3.92 per share. The company again had strong operating cash flows, ending the financial year with a very healthy cash balance of $106.2 million with minimal debt maintained on the balance sheet. Earnings per share for FY '26 were $1.01 per share. In line with the company's dividend policy, the Board has declared a final dividend of $0.37 per share, which together with the first half dividend takes the full year dividends to $0.59 per share. The business has continued in FY '26 to have a diversified portfolio of projects across geographies, commodities and clients. Based on project location, 58% of the company's revenue was generated from projects in Africa, 24% from the APAC region and 11% in the Americas. Lycopodium is considered a market leader in the delivery of gold processing plants, which is reflected in the number of gold studies and projects the company is completing. In addition, the business is working on copper, lithium, uranium and other rare earth studies and projects.

Thank you, Justine. I'll now just touch on some operational highlights for the past 12 months. So across the last year, we've refined our operating model to focus on our regional approach to the delivery of our services, supporting our One Lycopodium ethos, where whether a client is being serviced from Cape Town, Perth, Brisbane or Toronto, they receive the same high-quality outcome for which Lycopodium is known. This approach enables us to engage more effectively with clients, access new market opportunities, support structured growth across our identified key markets and to leverage local expertise, and we've got great examples of that across all of those regions. We're organized around our 3 hubs being APAC, Africa and the Americas, and our efforts across the year have seen the first signs of our endeavor to achieve a balance of quality business across these 3 regions. Based on our current and highly prospective workload, we believe we'll see a significant advance in this endeavor across the next 12 months, building on what was achieved in FY '26. In terms of project highlights, we only yesterday advised the market of the award of our first material full EPCM in South America with the award of the Minera San Cristobal S.A. project in Bolivia. But our other recent awards, including the Doropo project for Resolute, the Pilgangoora Plant Expansion for PLS Group and Early Works for Havieron, Greatland Resources and Katanning Gold project, of course, Ausgold Oceania, demonstrate our commitment and success in achieving a balanced and suitably blended style of contracting model across our project portfolio. We're also delighted to be ramping up on the Blackwater Phase 2 expansion project, continuing the work we've been undertaking at that operation, helping Artemis improve and debottleneck their Phase 1 project. Other work, which continues to ramp up includes the Tulu Kapi project, for which we're doing an engineering supply and labor hire contract and the Winu Copper Integrated Management Team, again, which continues to grow within our facilities here in Perth. All this on top of the continued successful work Lycopodium is doing on major projects, including Kone project in Côte d’Ivoire, Twin Hills in Namibia, Baomahun in Sierra Leone, Yanqul in Oman, Nyanzaga in Tanzania, but more on the project pipeline later. Further to our previously advised focus of building our business in the Americas, we continue to take a disciplined and staged approach to expansion in this key geography, providing a key growth pillar to the organization. Our presence in the Americas started some 15 years ago with the establishment of our first American office in Toronto. But in the past few years, in particular, we have seen steady but significant growth with the acquisition of SAXUM as well as the opening of our client-facing studies focused office in Vancouver and our value engineering and regional office in Lima. Our focus in the past year and heading into FY '27 is to convert a suitable and sustainable pipeline of quality work. And we will see the offices in Toronto, Lima and Vancouver all increase in size in the next 12 months with additional floor space being taken in Toronto, a new office being sought in Vancouver and a new office being sought at Lima to accommodate that expansion. I'll run you through, this is a slide that we've presented over the last couple of years, just to demonstrate the project pipeline and where we're at in the various phases of project. I'll note that, as I mentioned earlier, we have a very, very healthy level of studies, plus 90 studies through the business at the moment. But I also note the commodity blend in the new work as well as the excellent work being done in the -- in that work under the green block. I mentioned some of these projects already. But not only that work that we've done, but that work that we've completed. So in the last 12 months, we completed work at Greenbushes on Talison's CGP3 project, the work for Bomboré for Orezone on the Bomboré project, Newmont Ahafo North project and Managem's Boto project. Again, of importance is if I look at the work we've done in the last 12 months for Talison, Orezone, Newmont and Managem, those 4 projects that I've spoken about, we've completed, we've got continued and ongoing work with all those clients and Managem's case, they've seen fit to award us or have us lined up to be awarded additional EPCM and study projects, study phase projects in the next 12 months. So again, it's an excellent testament to the quality of the work that was completed during that period of time. Lycopodium remains focused on attracting and developing high-quality individuals into our organization. We now have a very well-established approach to inducting, training and developing people at all levels and we seek in the main to grow our own Lycopods with a very strong graduate development program and induction of more junior-level people. But we also like to graft them on to our organization in the case of later career stage individuals. This supports our approach to ongoing development of the individuals, but also ongoing growth of the business. We're also committed to providing our staff high-quality systems and tools of trade to enable them to deliver their work effectively and efficiently. We have, in the last 12 months, continued to roll out our new ERP to improve the functionality of that ERP, to focus on the standardization of our platforms across the business to work on the engineering and project delivery tools for the business and all done very, very successfully as well as mapping out our digital pathway. All of this is to support our One Lycopodium approach. We continue to support the communities within which we work and live by the Lycopodium Foundation. Our efforts in this regard are focused on the key pillars of social development, education, innovative thinking and environmental sustainability. And I'm very proud of the work the team has done. Most recently, a highlight has been a raising of over $110,000 at our annual Jeans for Genes event for the Children's Medical Research Institute. That brings in total from Lycopodium over the past 20-plus years in excess of $600,000 raised for that very important cause. Outlook and guidance. The overall demand drivers for our services remains very strong. At this time, demand outweighs capacity in the market for quality engineering and project delivery services. Lycopodium's excellent track record and reputation and the ability to work globally across a broad range of commodities provides us with a growing list of opportunities, which bodes well for our pipeline of work. We have, at this time, a record level of committed work and an excellent view on the potential pipeline across not only FY '27, but into FY '28. We're established and our strategies in the past few years have really laid the foundations for us to be able to maximally support what is a very, very busy and enduring market. The growing volume of work underpins future earnings. And considering the FY '27 outlook, we've seen fit to bring forward our guidance this year. Ordinarily, we provide our first guidance at the AGM. But given that FY '27 looks a little different to FY '26, we've decided to see fit to talk about it at this point in time and give guidance of revenue between AUD 540 million to AUD 580 million with a net profit after tax range of $54 million to $58 million, again, typically in line with our plus or minus 10% NPAT target for the business. We will, of course, continue to update shareholders as the financial year progresses. So in summary, Lycopodium remains a secure, stable and sustainable business with deep engineering expertise, a disciplined approach to risk management, an exceptionally strong history of execution, a capital-light approach to our business. We maintain a list of blue-chip clients. We have good commodity diversification, and we are geographically diversified as a business. And it's something which we've been focusing on, as I've said earlier in the presentation, but is really starting to see the delivery of real value to the organization. Before I invite questions, I'd just like to again thank on behalf of the Board of Lycopodium, thank our staff and management for their excellent efforts and hard work this year. And I'll also invite you to peruse the full presentation, which includes, amongst other things, an overview of Lycopodium's strategic approach, approach to risk management and innovation as well as a host of other relevant information. But now I'll hand over to Sam, who can manage any questions that you may have.

Great. Thank you very much, Peter and Justine. [Operator Instructions] We'll kick off with a few pre-submitted questions first. How is Lycopodium structurally mitigating increased sovereign and execution risks as its contract mix tilts heavily towards foreign jurisdictions? And additionally, is the company achieving higher project margins to compensate for these risks? Or does the complexity of international work erode any potential pricing premium?

Thank you, Sam. That's a good question. And I guess Lycopodium's approach to managing the risk of some of the jurisdictions in which we work is handled in a number of ways. The first one is that typically our contracts on the international projects are split contracts, where a large part of the portion of the work, of course, happens in our hubs or our spoke offices. And for those contracts, I'm talking there about the engineering and the procurement services and other things, study services goes without saying, happen in the hubs and those contracts are contracted with our APAC entity or our Americas entity or the South African-based entity. So that sees a lot of our revenues, a lot of our earnings and the jurisdiction of those earnings being outside of those international locations. The work that we do in country, obviously, is all contracted through typically our in-country entities, which, again, are fully compliant with the requirements of the country. And we have over 30 years track record of working in a lot of the jurisdictions or jurisdictions with lots of similar attributes. And so Lycopodium has established risk management approach to everything we do, whether it be contracts, legal, health and safety, logistics, whatever the case may be. Our skills and our ability, however, and our, call it, our strength in those niche markets enables us to deliver good returns and good margins. Now we always seek to deliver value to our clients. So I'm not going to suggest that we were looking to gauge our clients in difficult jurisdictions because we just we can't. We don't do that. We play the long game. But what we do, of course, is make sure we can price fully. And because of our skill and expertise in dealing with all the nuances of working in many of these jurisdictions, we're able to deliver very good returns. And in years gone by and forecast and years ahead, it's been supportive of delivering a very, very strong NPAT return or very strong return on our revenues, and that is our intention moving forward. So I hope I've answered the question. But I guess in summary, it's Lycopodium is well rig in terms of our approach to risk management, understanding of the subject matter and seeing good return for what we do in those jurisdictions.

Great. And the next on the study pipeline. It's more than doubled since December. What's your historical conversion rate from study to project award? And how should we think about typical lead times? Also, how is the composition of these studies shifted, i.e., Americas-based majors versus emerging companies or those with multi-asset?

Yes. Maybe the second part first. And that is that, look, I'm really pleased with the composition of the studies. And as much as they demonstrate good geographic diversification, good commodity diversification, good clientele in terms of dealing with some of the globally diversified majors right way through mid-tiers and juniors. And I think it bodes well for the project pipeline moving forward. The other important thing is we're dealing with in that plus 90 mix of studies, we've got some good advanced stage, definitive feasibility, bankable feasibility studies, some good pre-feas work, some good scoping study work, concept level works, again, bodes well for that continuity of work through the various phases of the projects, call it, life cycle. In terms of conversion, it depends -- well, I guess, in terms of converting a study into a project, you're converting a definitive-feas or what they call a bankable feas or advanced feasibility study into projects. The early stuff obviously converts into a pre-feas and so on and so forth. But typically, if we're involved with a project and we continue to do good work for our clients, we get carried forward through the various study phases. So that percentage of sort of, call it, tenure or retention is very high. And then into execution, invariably, our clients need to bid work, bid the execution work. Obviously, it's difference between 1.5%, 2% of CapEx to 15% of CapEx. So it's an important often thing for them to be able to baseline before simply awarding us an EPCM. I think in pretty much every instance, an organization would like to carry forward the engineer who's done the study into execution, but that doesn't necessarily always work that way. But I would say that plus 70% of cases, we are able to convert our advanced stage studies into projects which we execute.

Okay. Great. And just one more question before we open up the line to the analysts. On the Americas, it's great to see tendering underway across a handful of countries. Can you just give us a sense of the tender pipeline quantum and realistic time frame to material project award in that region? And how does a project like the Blackwater expansion help credentialize that North American team in the region?

Yes. The time line of the projects is, again, quite good because again, we're working on sustaining work, working -- we're bidding some EPCM work. We're really targeting the size of projects such as San Cristobal, which really suits us, I think, better to enable us to build our Lima office, our Tucumán, our Buenos Aires offices and SAXUM's capabilities. And and even the stuff that we're doing in -- we're tendering in Canada. Blackwater is by far the biggest of those. Typically, the work that we're tendering certainly at an EPCM level is sort of, I'm going to say, a project with CapEx value somewhere between $500 million and $800 million, which, again, is very much in Lycopodium's sweet spot. But to your question with regards to Blackwater Phase 2 and our involvement with Artemis, I said we're delighted to be involved with Artemis. The Artemis team are made up of a group of individuals with whom Lycopodium has worked before. So we've got a unique opportunity to become involved with that project, which is a very, very significant project, certainly the largest thing we've undertaken in Canada from boots on the ground perspective. But it does credentialize. I mean, we've worked with them and are working with them on their Phase 1 expansion, the Phase 1 rectification, the Phase 2 expansion project, which is a very significant project in its own right and now starting to kick off work with them on their Phase III study, which is very much a forward-looking at this point in time concept study, but could see us involved if we do the right thing, working with that organization for well into the 2030s. But successful delivery of Phase 1, Phase 1a and successful delivery of Phase 2 will underscore our credentials in delivering an EPCM, full EPCM service in Canada. It gives -- it helps us credentialize ourselves in terms of cold weather engineering. So for us, it's a really key and important project. And we've assigned significant resources, not only from within Canada, but globally to support that team and the delivery of that project. And it won't be that's challenges. All these projects have got challenges, but going well. So very pleased to say.

Next question comes from Oli Porter at Euroz.

Just from me. So you obviously guiding to big growth in '27, which is fantastic. Beyond expanding the workforce, is there anything else you need to invest in internally to deliver at that elevated level? Or are the investments you've made over the last few years sufficient to prepare you for that?