Mader Group Limited (MAD) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Mader Group Half Year Results. [Operator Instructions] I'd now like to hand the conference over to Mr. Justin Nuich, Executive Director and Chief Executive Officer. Please go ahead.

Yes. Thanks for that, Darcy, and good morning, everyone, and welcome to Mader Group's First Half Financial Results Presentation. With me today, I've got our CFO, Paul Hegarty; and our General Manager of Marketing and Investor Relations, Natasha Marti. We're really pleased with our performance this year-to-date. I think it speaks to the depth of the talent that we have across our entire team. And without them, we wouldn't be here today, diversifying globally, exceeding guidance and launching multiple organic start-ups in new markets. So thank you to all of our team in the field and in the office for your dedication and efforts throughout what has been an exceptional half year-to-date. I'll just begin by giving you a brief overview of who we are as a business before we jump into the financial results. We're a global provider of specialist technical services across multiple industries. Having started in 2005 with Luke Mader conducting field service out of his vehicle in the Kimberley region of Western Australia, we now operate across the globe. And during the half year, we exceeded 2,500 employees globally, which was a big milestone for us. And with over 1,000 field service vehicles, we have collectively supported over 335 customers in over 500 different locations around the world. As you can see on this slide, we really have become a truly diversified global services business across multiple industries and multiple geographies. Looking at the graph below, you can see that through the years we've continued to deliver compounding growth as we replicate our proven business model in new industries and large addressable markets. With our latest ventures Mader Canada and Mader Energy now added into the mix, our growth strategy is delivering to plan. We're now providing technical services across a range of industries, including heavy mobile equipment, fixed infrastructure, transport and logistics, power generation and marine and the energy sector. As you can see, just over half of our business consists of specialist heavy-duty diesel mechanics, but we also have a diverse range of other qualified trades, auto and high-voltage electricians, light vehicle and road transport mechanics to name a few. Although there are options for everyone, you'll notice that our specialized workforce consists predominantly of trades people between the ages of 25 and 35. And I think this really speaks to our company culture and the top-of-lifestyle we're proud to offer our employees. At the core of our employment offering is our ability to provide global career pathways for our workforce at all stages of our life. We invest in our people heavily, building careers that offer massive opportunities, including site and location variety, roster flexibility and equipment flexibility. We also have developed a Global Pathways Program, which gives our workforce the opportunity to work around the globe while maintaining -- while remaining a major employee. This unparalleled program has expanded significantly over the past year and is a key pillar in our ability to attract and retain the best technicians. You'll hear a little more about this initiative later on. As always, safety is a core focus for the business, and we're really pleased that our TRIFR has continued to improve significantly over this half year, reporting a record low of 3.23 injuries per million man hours worked. The improved figure is a testament to the operational leadership, safety systems, technology and processes the whole business has worked so hard to implement. Digital connectivity and safety-focused technology is a key focus for the business, and we're improving safety through the continual enhancement of our in-vehicle monitoring system across our global fleet. Our work is never done in this space however, and there's always room for improvement. So we'll continue to strive hard towards our goal of zero harm with further investment in safety. Okay. So moving on to Slide 4. Moving into the operational review. So the highlights for the first half FY '23 include $280.3 million in revenue, which is an increase of 51% from the first half FY '22. We increased EBITDA, delivering $33.8 million, which was an increase of 60% on the prior corresponding period. Our net debt increased to $50.9 million, representative of the company's continued investment and increased working capital, in line with growth rates as we expand. We continue to deliver fantastic results for our shareholders, realizing compounding returns and positive growth outlook for the rest of FY '23, with demand for our products remaining strong around the globe. So moving into the segment performance. In Australia, we delivered $218.5 million in revenue, an increase of 36% versus PCP. Demand for our 2 key growth drivers, infrastructure maintenance and ancillary both experienced impressive growth, increasing 92% and 104% respectively. We also have 159 apprentices active in training programs across the business through our tailored Mader Trade Upgrade initiative and traditional apprenticeship programs. I'll just touch quickly on the Rest of the World segment before talking about North America. So we did experience a 21% decline in revenue for the Rest of the World segment over the first half, having operated in 5 countries across Africa, Asia and Oceania over the half year. It's proven more difficult to reenter post-COVID, but we consider it still a very important pillar of our employment offering to our workforce, and we'll continue to invest in this pillar. Last but certainly not least, is our North American segment, delivering $57.4 million in revenue, up 198% from the first half '22, as I'm sure you can all agree, an excellent result. We finished the year having provided support across 25 states and provinces across the U.S. and Canada. United States continues to perform well. As the business new matures we'll focus on diversifying service offerings across different commodities and industries. Our Canadian business unit made substantial progress, reaching a milestone of circa 100 skilled technicians now mobilized into the region. With significant unmet demand in the region, we can really see that this segment is going to grow further, supported by Mader's Global Pathways Program, as I mentioned earlier. To date, we have around 60 technicians still pipelined for deployment into North America from Australia in the coming months. The organic startup Mader Energy, which is based in Fort Worth, Texas, is continuing to focus on developing customer relationships and enhancing its geographical footprint across a variety of shale formations. Incremental headcount growth in addition to multiple new customers will position the business unit well for the second half of this financial year. I'll now hand over to Paul for an overview of our financial results.

Thanks, Justin. Good morning to everyone that has joined us on the call. Thank you for taking the time out of your day to follow our story in what is a very busy results season, especially today. Okay, on to the financial performance. Justin has already stolen some of my thunder on this slide, but we are very pleased with the results, so they are worth repeating. At the group level, we delivered $280.3 million in revenue, up 51% versus the PCP. That result was delivered with very strong growth from our most mature segment in the group, Australia, which was up 36% on the PCP, which was very pleasing to see. North America continued its compounding growth year-on-year, delivering 198% versus the PCP or 173% growth when excluding the impact of foreign exchange rates. Whichever one of those growth rates you consider, it was another solid half year of growth in a market that is still very much in its infancy for us. The Rest of World segment declined by 21% versus the PCP. This has proven more difficult to reenter post COVID, but we consider it an important pillar of our employment offering to our workforce. And we'll continue to invest in it. Importantly, all of this revenue growth has been delivered with improved margins versus the PCP with EBITDA and EBIT margins increasing. This is a testament to the team's dedicated focus on efficient operational delivery. Also of note is that the revenue contribution from North America has increased to 20%, up from 10% in the PCP. Given the strength of the Australian segment during the half year to be able to deliver continued diversification into North America at an increasing rate is something we are all very pleased with. It also underscores our transition to a diversified services business. From a shareholder perspective, EPS was up 45%. Our profit payout ratio close to 30%. And our total dividend payments increased by 20% versus the PCP. Moving on to the financial position. As you can see, our asset base primarily consists of cash on hand, trade receivables and property, plant and equipment. We don't have contract positions or any intangibles to be concerned about, and therefore we consider it a relatively simple balance sheet. Our trade receivables position is largely with Tier 1 owner miners and large mining contractors, and we generally touchwood, don't have any abnormal credit risk profiles in the debtor book. In fact, our DSO position improved during the half year period from June. Property, plant and equipment increased year-on-year as we invested in growth. We added over 100 service vehicles to our fleet, and we now have over 1,000 service vehicles deployed across multiple continents. All CapEx deployed in the first half was growth CapEx. And a large portion of this expenditure will fund growth into the second half of FY '23 and beyond. From a leverage perspective, we continue to view our business model as CapEx-light. And we closed out the year with net leverage at around 0.75x, an increase from 0.6x at 30 June. One of the main reasons for this is our investment in working capital to support the growth, and I'll talk about that more on the next slide. The group's net debt position closed out the half year period at $50.9 million, an increase of $24.2 million from the net debt level at 30 June. This increase is attributed to growth in working capital requirements due to 2 things. The first is the continued growth in group revenue. The increased working capital requirements stem from the difference in timing between the group's payroll, which is every 14 days and receipts from customers with a DSO of currently 65 days. This element of growth required an additional $9.9 million to fund that timing difference. Our new organic start-ups and the expansion of our Mader Maintenance Center required an additional investment as these new revenue streams scaled significantly during the half year. Between Mader Canada, Mader Energy and the expanded Mader Maintenance Center, we invested $8.8 million in working capital to support the growth in these business units. All of which were much smaller in scale at 30 June. These factors have resulted in an increase in the level of working capital required to support the continued revenue growth of the group. Mader secured long-term finance facilities in the United States in addition to increasing existing facilities in Australia during the quarter and half year. These facility limit increases in addition to the regimented deployment of working and growth capital provides Mader with the confidence to marginally increase leverage in line with growth in revenue and earnings. That's all for me. I'll hand back to you, Justin.

Thanks, Paul. So we'll move on to Slide 9 and have a look at our geographical footprint. So as you can see, a large portion of our group revenue continues to come from our Australian business segment. We continue to experience strong macroeconomic conditions. And it's great to see that year-on-year we've increased the revenue generated in an addressable market that we've operated in for close to 2 decades. We've got a very loyal customer base that will continue to support with a range of new service lines and our core mechanical offerings which are still experiencing a high demand. In North America, we have seen an increase in revenue to the $57.4 million in North America, which is now making up around 20% of our group revenue base. This increase is predominantly due to the expansion of our services and customer base and associated headcount across North America. The rest of the world, as we mentioned before, did experience a decline, but we'll continue to invest in this as we move forward. Our Global Pathways Program connects skilled technicians with incredible opportunities around the world. A significant number of Mader employees have signed up to overseas adventures to expand their skills and expertise. Work to support 2-way transfers between North America and Australia are underway, with transfers from Australia to Canada already commenced. And it's a very exciting tool for the business, and it's allowing us to access international talent pools and some of the best technicians worldwide. Heading over to the growth opportunities and addressable market slide. This really shows the exciting opportunities we have in front of us as a business. As you can see, our current sites engaged in North America is relatively small with around 75 sites engaged out of over 300 operating sites. This is a huge addressable market for the group with massive opportunity for expansion. Again, the United States energy market is another enormous addressable market for us and the world's largest shale gas producing region. As a business, we seek to improve the strength of our revenue base with a dedicated focus on geographic service line and sector diversification in existing and new markets. Our global expansion strategy is based on establishing multiple growth drivers across diverse industries that are in different stages of maturity. This allows the business to grow on a compounding base as new talent pools are accessed and recruited from using the group's culture-led business model. Okay. So now the slide you've all been waiting for. We are pleased to announce that the current market conditions have provided us with the confidence to upgrade again our FY '23 guidance of revenue of at least $580 million and an NPAT of at least $37 million. Our compounding annual growth rate is around 30%, and we are diligently working to further refine our service offerings to deliver future compounding growth and impressive returns for our shareholders. It's a very exciting time in the journey of Mader. For current and prospective investors Mader presents a robust investment opportunity with many prospects ahead. We have clear targets and a disciplined approach to operational service delivery. This is an outstanding effort since the listing on the Australian Stock Exchange in October 2019, pardon me. Thank you to everyone who has supported us from day 1, and for those of you who have jumped on board along the way. On behalf of the entire Mader group, I would like to extend our sincerest gratitude to our team, our shareholders, our customers and suppliers. Thank you very much, and we'd be happy to take some questions at this time.

Okay. Thanks, Justin. We've got a few questions rolling through. So we'll start with organic startups. So questions from [ Frank ]. Good morning, Frank. Thanks for joining us on the call. "Just a comment around the contribution of the organic startups, if positive or negative, how they're tracking and how it compares with last year."

Yes. Good one. Hi, Frank, thanks for joining us. Look, I guess the organic startups, we've had a fair view, I guess, and I suppose mostly of note would be energy in the U.S. and Canada. We found both of those have really broken even in about the first 6 to 9 months and thereafter contributing positive at that NPAT line. Canada, we've certainly seen grow a lot quicker than Energy, but Energy has really taken a foothold and starting to really get after it now. But yes, we like to see these things break even sort of the first year, but really push for that sort of 6- to 9-month mark, Frank.

[ Jona ]. Good morning, Jona. Thanks again for your joining us and for your support. A couple of questions from Jona actually. "Similar theme North American EBITDA margins 3.5. Canada has become profitable, as you talked about, not at the full levels that we wanted to see, but it did break even in June and now turning a profit. And I think as both those Mader Canada and Mader Energy service lines reach their run rate, that'll contribute as expectations. But what about Canada margins? What are we seeing in the first 6 months of true post breakeven margin levels?"

Yes. Good question, Jona. I guess with Canada, we always thought it would be somewhere between sort of U.S. margins and Australian margins. What we've seen so far to date is that they are closer to those U.S. margins than Australian margin. So we are seeing very good margin from our Canadian business. We are only a year in, so hard to sort of say if that's going to be sustained long term, but all indications at this point are pointing in a very positive direction, Jona.

Another question from Joha, "Strategic acquisition opportunities. Talk to us about what we're thinking."

Yes, good question as well. I guess for a company that talks about strategic acquisitions a lot, we don't do too many. But yes, we are constantly looking. There's not a -- there's probably a dozen sort of acquisition opportunities that we are looking at, at any one time. And as we look to go into these new markets and new areas and new industries, we definitely have M&A as part of our focus. That said, we do have to sort of weigh that up against what it would cost to buy something and pay multiples for it versus build it ourselves with our own sort of culture-led business model and all the rest of it. Look, so far, it has made sense to go organic. That said, M&A is always on the table and will continue to be considered as we look to next our sort of opportunities.

Thanks, Justin. Another one from Jona. "Infrastructure maintenance and how that looks or how that unfolded in the first half and how it looks moving forward. I want to talk broadly about that."

Yes, no worries. Yes, look, infrastructure maintenance, again, we work on a lot of mining operations and sort of civil areas, most of which have got some form of crushing or processing plant attached to it. So of those 500 locations, there would probably be at least 400 of them with some sort of fixed infrastructure component to it. Similar skill shortages, addressable sort of recruiting market outside of diesel mechanics and core business type opportunities. So look, we saw that grow at nearly 100% half-on-half or PCP. Hard to say expecting that again, but it is continuing to deliver quite well, infrastructure maintenance, and we see that addressable market, even just in Australia as an absolute manner for us before we even take that sort of offshore as well.

Awesome. Thanks. Couple of questions here, one from [ Mac ] from [ Maven ]. Good morning, Mac. And another one from [ Raymond ] at [ CCZ ]. Maybe just talk through the headcount breakdown between Australia, U.S.A. and Canada and in the U.S.A. one, would that be grouped between energy and the minerals business?

Yes, no worries. I guess the headcount -- I mean, total head count is up over 2,500 at the moment. If you look at North America, it'd be sort of breaking 300, maybe a little over 300. We came up over 100 in Canada in the first half. Yes, as we said in the presentation there, there's another 60 already pipeline for the next few months sort of just finalizing visas before they jump on planes to go and support that part of the business. The U.S.A side of things is close to sort of 200 at the moment. But we continue to see that addressable market there in North America. And we'll continue feeding that from sort of multiple angles being sort of our Global Pathways Program from Australia and other places as well as internal recruitment inside Canada and the U.S.

Thanks. Question from another one for Mac from Maven. I'll take this. So you can have a break. This one was around the EBIT margin improving, but NPAT margin slightly down and sort of what caused that. It wasn't the employee incentive scheme, Matt. It was really around the quantum of borrowing and the incremental cost of funds increase on the PCP. So debt levels are a bit higher, and as everyone knows, interest rates are a bit higher in the last sort of 6 months or so. And that's really what's contributed to that NPAT decline as the interest bill on that. Question from Frank and sort of focus back on the Mader Maintenance Center. "Comment on the impact of half 1 FY '23, how that facility sort of ramped up to nameplate. And then how will it look in the second half? Was it 2 months worth of facilities in the first half versus 6 months in the second half? And just generally, how is that looking? What does that look like for revenue going forward, revenue capacity, et cetera, et cetera?"

Yes. Good question, Frank. Yes, look, I guess there was sort of a couple of things with the Maintenance Center last year, and one was sort of winding down an old center to start up with a new center and I guess a bit of a disruption that sort of like moving house, you got to pack up all your boxes and take them down the road to the new place. We've successfully done that, and really that facility started really sort of October, November as we started winding down and a lot of the sort of project start-up work was completed. December was a great month, and the team had done a great job getting some BD work done there. And as we stand here today, that workshop is, it would be hard to swing a Cat there and not hit anything in that facility. So it is really firing. There's a great pipeline of work. We can see the capacity of that facility versus the last one is probably about 3x. And I guess the onus is on us to continue to keep that full and continue to keep the work pumping out, which is happening at the moment. So we expect to see a really good second half of the year in that Mader Maintenance Facility.

How is your base compared to the old facility versus the new facility?

Yes. Sort of major jobs you could fit 3 maybe 4 at a stretch in the old facility. This one here, if you stack them in quite tightly, you could have probably 10-plus jobs 10, 11 jobs going at any one time and actually starting to do some out in the yard where it makes sense as well. So a significant increase in capacity.

Thank you. Question now from [ Ari ] from Barrenjoey. Thanks for joining us this morning, Ari. I'll let you answer this question because I'm allowed to. "Guidance implied at least 40% year-on-year growth in the second half. But in the first half we did 45%. Given the momentum, is there anything that would stop us factoring in at least the same level of growth?"

Yes. Good question, Ari. Look, obviously, there's lots of things that can happen. But we would rather sort of under-promise and over-deliver, and not that we think that's a major under-promise. We did start this year at a 510 revenue target, which a lot of people before that was pretty optimistic and to be here today, say, on 580, we're pretty happy we can deliver on that and deliver on it well. I don't want to get sort of too overconfident and let people down.

Fair enough. Thanks for not throwing me under the bus on that one. Another question from Ari, "How many months of revenue visibility do we have at the moment and looking forward?"

I mean that can change day-on-day, Ari. But when I look at our rosters across the board, we would have a couple of months that are really solidly booked out, but that is sort of the nature of our business, that tap-on tap-off type maintenance that we provide. Yes, it's in many cases supposed to be quite reactive, but we're even seeing a lot of our reactive stores booked out for months in advance, which is as positive as it gets.

Thank you. "We've got 1,000 service vehicles or a little over 1,000 service vehicles at the first half. How many vehicles do you expect we'll have at the end of FY '23?"

Probably close to another 100 coming in there now, Ari. A lot of the bottleneck is really around the sort of bodies and accessories. So we've actually got those chassis secured really just waiting on the flow-through of the bodies and accessories to have them before those can go to work, but that isn't constraining our growth at the moment, but we expect to see the next 100 roll through in the next 6 months.

Thanks, Justin. Another one from Ari. I'll take this one. "North American EBITDA margins at 19.2%. It's down from 20% in FY '22. Is it the new baseline?" We don't think so. We are seeing Canada margins tracking closer to U.S. margins. But if that doesn't unfold the way it will, then, yes, North America margins will come backwards. But so far the early days are tracking quite well. We had a number of startups in the first half running. Whilst Canada and Energy turned to profit in June, they didn't reach full nameplate capacity as the rest the rest of the North American business for the entire duration of the first half. So that weighed on margins. And we also invested in our people as well. We spent a lot of time investing and training the next generation of our North American team. And that was a, not a large expense, but an expense nonetheless versus the PCP, which will pay dividends in the future for sure. Moving on to some other questions here. Jason Palmer from Taylor Collison. Good morning, Jason. Probably for you, Justin, we'll start with this one. "Can you talk about how you are resourcing dedicated management resources across some of the early-stage growth divisions?"

Yes. Good question. I guess with a lot of that, and to Paul's point there, investing in our people, and this happens from trades person level, to team leader, to coordinator, to manager. And a lot of the reason why we continue to go organic with our growth is the homegrown talent we sort of see from out in the field that comes through into the office into coordination and management lines. We've got very detailed and dedicated training programs that we run these people through as well as working under 10-year veterans in the business to really deeply understand the business model and how it works. So when those people are ready, we can pluck them out, so to speak, put them into a different addressable market. They can follow the script and which is why we can sort of see this compounding growth across sort of multiple service lines and industries. So we're constantly laser-focused on that next generation of sort of coordination management, general managers within the business, and that will really keep us sort of growing at the rate that we've seen.

Okay. Thank you. Another one here from Jason at Taylor Collison. "Probably more broadly about our Global Pathways Program for from Aus into Canada with 60 in the pipeline. Talk to time frames around refocusing on building out this pipeline over the rest of this calendar year and probably more broadly how the business is leveraging global talent."

Yes. I mean, I guess post COVID, Jason, we've seen obviously the avenues to be able to travel internationally have freed up. And I guess the Global Pathways initiative was something that we've had on the sort of back boiler for quite some time, but unfortunately unable to execute through COVID. Yes, that said, that has opened up now. The first 100 from Australia were, I guess, through a couple of big campaigns. About 50% of that was internal Mader folk that wanted the opportunity to go overseas, and the other 50% was both from within Australia but external to the group, adding to that net headcount growth. That was really an open-cut sort of large ultra class project. Now as we move into underground, again, that sort of opens up for another talent pool that we can move into. Moving into energy on that as well. Again, there's some different service lines that we can also leverage that global pathways talent pool as well. And that is also a 2-way street. So the intent is as we sort of move through this year that we'll be finding Americans, Canadians and others to -- that want the opportunity to come and work down under with the teams down here. So again, contributing to that net headcount growth and again, providing our international personnel opportunities to work around the world as well.

Thanks, Justin. One more question from Jason from Taylor Collison. I'll grab this one. "Business spend, $24 million in CapEx in the first half. And how do we think about that going forward?" The first half was a large spend in the Australian segment from a CapEx perspective. We bought forward or secured supply, I should say, for the Australian HiLux and Land Cruiser fleet, which was difficult to obtain, tough. But we're seeing supply shore up a little bit, big as the first half. So we're still guiding the market to a CapEx of $35 million to $37 million, around that mark for FY '23 in total. Question here from [ Tony Shields ], one of our shareholders. "You probably need to take a step back and talk about infrastructure maintenance, what is the genesis of this division? Why is it such a bright future for us? Wouldn't this be a brownfield area and we're taking business of other contractors? Maybe talk about our value proposition there."

Yes. No worries. Yes. Thanks for the question, Tony. I think infrastructure maintenance same as sort of our core business in mobile equipment, Tony. I mean, we still see a serious skill shortage. The way we think we can contribute to this is really, again, that culture-led business. We have a lot of options for people. We pay people well. We give them sort of local and global opportunities and multiple sites. So again, we've got the ability to attract and retain the best people in the business. So really focusing on that quality piece, really in line with the traditional business model. We can go in there and put hit teams into sites that can get in there, work safely, diagnose, do great work and impress customers. So we see that as a bright future because of, I guess, how many customers we do already work with. We've got vendor numbers. We currently supply a great service in the mobile space. And to be able to supply that same business model with a trusted vendor is what that sales pitch really is for those folks. So to be able to move on to those 400-odd sites with process plants in the infrastructure space, it just shows how big that addressable market is. It would probably be at 30 to 40 as we stand today.

Thanks, Justin. All right. Switching over to questions from [ Oli Porter ] from Moelis Australia. First question from Oli. "Great growth in Australia in the first half. What's driving the Australian growth? And what does that look like for the second half?"

Yes. Thanks, Oli. I guess we've seen growth really across all stores within Australia. The core business is growing well, even the likes of the Pilbara, which is our most mature store in the business across the metro, the workshop ramping up and others. But also these diverse service lines, so we're starting -- we're starting to see rail grow into a reasonable size. The ancillary trades are growing into a significant store as is infrastructure maintenance. So this is that compounding effect that we talk about. We can continue to grow and feed people into these different industries and service lines where we're not sort of cannibalizing ourselves for the same sort of diesel mechanic labor, so to speak. So when you look at that, as these stores become 50 to 100 to 200 to 500 people all combating on top of each other, that's the runway we see ahead of us there as well as the traditional business still growing really nicely in its own right.

Thanks, mate. "In your presentation we talk about new regions around the world." Sorry, that's questions from [ Indi ] from Bell Potter, I should have said. Good morning, Indi. "We talk about new regions around the world and potentially diversifying into new regions. But that's not just new regions, that's provinces and states and territories in the jurisdictions in which we operate. Any further color, timing on this? What are your thoughts on that?"

Yes. Thanks, Indi. Look, I guess, at the moment we've probably got our plate pretty full with our expansion into North America and a bunch of the new service lines that we're already getting involved in. And I think to Tony's point before, making sure that we've got really robust management horsepower to go and drop into these new opportunities. But now we've got a significant runway ahead of us in what we're already doing. There's a couple of sort of start-ups we're looking at, at the moment, but too early to sort of talk in more detail about those. But yes, we've got significant runway ahead of us.

Thanks. Take a break. I'll take this next question from [ Matt ] at Maven. "Gross margin increased to 20.7%, up from 19.2% a year ago. Any one-off factors in that?" Look, there were a multitude of factors there, Matt. Very hard to pick at the granular level. In the PCP, we still had that ugly word of COVID still firing up. We didn't have as efficient utilization of labor as we do now as a result of COVID-19 and the costs associated with workforce mobility challenges. We had 2 startups which are now profitable, but not as profitable as we'd like them to be, as they scale the Mader Maintenance Center, kind of tale of 2 halves really in that half year period, tale of 2 quarters really. So there's a multitude of reasons. We think that our gross margin north of 20% is sustainable as we move forward. Hopefully, that answers that question. A question from [ Tim Cross ], one of our favorite questions, "Wage inflation, how we manage it? How do we pass it on? How do we see that unfolding?"

Yes. Thanks, Tim. Yes, look, I don't think this is really a new thing for us, and it's really sort of business as usual as we sort of move throughout our contract negotiations with various customers. And as we said in the presentation, 335 customers there. At any given day, you're involved in some sort of timing of a negotiated contract. So yes, look, for us it's really just keeping in front of that wage inflation, making sure our people are paid at the right market rates as well as being able to recover with suitable margins. So, yes, that's really been business as usual for the last probably 5 to 7 years as we see it now.

Thank you. I'll take this one from Oli from Moelis Australia. "Working cap build in the first half to fund the growth, makes sense. But how do we see that for the second half?" It really will depend on how quickly Canada continues to grow. We went from almost 0 to 100 technicians in the first half. We've got an additional 60 Australians pipelined to add to that 100 in the second half, all things going well, plus local recruitment. So if Canada continues to scale, that will require additional working cap. Energy has kind of stabilized. And I think that will just build progressively over the second half. And the Mader Maintenance Center, that's kind of had a record revenue month in December, and we're starting to see that working cap normalize over the second half. So I think there still will be a small build in Canada, but it will depend on how quickly we ramp that division. Another question here from Raymond from [ CCZ Equities ]. "North American growth opportunity, 3,160 sites, 60-plus customers, and we've got 60-plus customers. So how do we expand the number of sites and our customer presence over there?"

Yes, great question. I think we sort of said this on a number of the calls. I think the headcount growth from 200 to 400 will be a whole lot easier than sort of 0 to 200. The U.S.A. was very much a cold organic startup, and that was Luke and his family and a couple of key managers going there and knocking on doors and introducing themselves and asking for the opportunity for some work. As it stands today, we're with a fair few customers. We're in all the major mining regions. So seeing those big trucks getting around is great advertising for us. Word of mouth between customers that have multiple sites is happening. So that -- the brand awareness and growth has been significant, particularly of late, and we continue to see that sort of groundswell continue. So I think the growth rates that we've seen in the U.S. and North America at 200%, I mean it's hard to sort of sit there and guarantee that. But we believe we'll continue to see really significant growth rates there given the groundswell that's happening at the moment.

Thanks, Justin. Switching gears a bit. Question here from [ Nick ] from [ Perpetual ]. Good morning, Nick. Thanks for joining the call. "The Aussie business, how do we feel about that in terms of headcount? Are we headcount-constrained? How are we addressing securing new talent?"

Good question. I guess we're always headcount-constrained in just about every area of our operation. Australia, very much so headcount-constrained just about across all stores. A lot of that is our own doing. We are very quality-focused on the people we bring into the business. We could grow for growth's sake, but the dilution and the damage to the brand is -- would not be acceptable. So again, we really focus on making sure we get the right talent that meets our customers' needs, which again sort of slows us up. That said, that is intentional, that is making sure our brand remains strong and making sure our customers continue to get what they need. I guess the upside to that is the new service lines, divisions and industries are all new talent pools. So we are pretty good at recruiting and retaining people. And if we can do that across multiple industries, again, that compounding headcount growth will take effect.

Thanks, Justin. Question from Raymond from CCZ. "And probably along that same theme, as our global headcount grows, we've exceeded 2,500 in the first half. Is it becoming more competitive for employees to attain overseas opportunities within the group?"

Is it becoming more attainable?

Yes, more attainable, yes, yes.

Absolutely. Yes. I guess as a lot of this, Raymond, was -- I suppose it's a bit of a new project for us being Global Pathways. We've now got a couple of dedicated project recruitment teams that are really focused on doing that across the world. So we continue to see that becoming more and more attainable for our people across all the multiple industries that we work in. Those first 100 were really diesel mechanics into Canada. But again, when you look at the rail divisions, the energy divisions, the infrastructure maintenance and ancillary trades, again that whole compounding effect can run across all of those. So yes, we expect that to become much more attainable for more of our workforce.

And maybe just on Raymond's question, just to go back to that, "What is the selection process internally for us to send someone from Australia, whether there are any internal candidate or an external candidate to put them on a plane and send them to Canada for 2 years?"

Yes. Look, we go through quite a stringent process of analyzing skill set, cultural fit and ability to go to another country and sort of work. So we really focus on our best and broadest within the business that want those opportunities. If people aren't quite ready, we put development plans in place to give them the skills and experience that they need to work on the particular equipment that they're being bought over to work on. So early on, it has been quite specific around some of that ultra-class equipment that people need that experience on and obviously, not everybody in our business has that. But as we move into things like underground and road transport and others, that will open the field up to more and more people. But yes, if they're not quite ready for it or experienced for that, that customer wants, they will get that development plan to get those skills to be sort of considered in the next run.

Thanks, mate. Switching back to Jason from Taylor Collison. Question here around, "Is there any sales globally?" Hold on a second. "Any sales globally which include materials and parts? Or is it just all labor?"

The workshop, Jason, does. We're not in the business of sort of building or selling parts. But certainly, the Mader service center does. And Canada, there is an element of -- into a couple of those projects as well.

Thanks, mate. Couple more questions before we run out of time, one more for Jason. "Can you expand, please, on how we are diversifying your Canadian and U.S.A minerals business from oil sands and the key customers, respectively?"

Yes, absolutely. Yes, look, I guess oil sands sort of almost -- not so much fell into that, but I mean that was really where we did the first lot of BD. And obviously we're successful beyond our expectations as far as picking up work there. We are working with a couple of customers there that are not only involved in oil sands, but in all parts of mining across Canada, and we've already started expanding into different regions and territories. The oil sands was sort of just the first quarter call, I guess. But we're very aware that, that is a quite a cyclic commodity up there in Canada. So we're going to make sure that we're diversifying quickly and making sure we've got plenty of opportunities should something take a downturn.

Perfect, thanks. We've got time for one more question, so we'll sneak that in. Another question from Ari from Barrenjoey. Thanks again, Ari. "We've been adding circa 50 net employees per quarter. Should we assume a similar rate of net hiring for the second half?"

It'd probably be safe to assume that, Ari. Yes. Again, as we sort of bring these different service lines and industries online and grab a foothold, it's hard to sort of predict to a number, but we continue to see that getting better and better as we grow. But yes, that would probably be a safe bet for the second half.

Excellent. Well, we've got no more questions in the queue, so we'll end it there.

Great. Thanks very much. Darcy, are you there to wrap that up, please?

Yes. Thank you for joining today's conference. You may now disconnect.

Thanks, Dash, and thanks, everyone, for joining us.