Monadelphous Group Limited (8MP.F) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to the 2020 half year results analysts and investor briefing. Presenting this morning from Perth are Monadelphous' Managing Director, Rob Velletri; and Chief Financial Officer, Phil Trueman. Copies of this morning's presentation and associated materials are available on our website at monadelphous.com.au. Throughout this presentation, speakers will guide you on when to click through to the next slide. I will now hand over to our first presenter this morning, Mr. Rob Velletri, who will start on Slide 2. Please go ahead, Rob.

Thanks, Kristy, and welcome to our 2020 half year results briefing. Today, Phil and I will take you through our financial and operational performance for the period ending 31 December 2019 as well as for the outlook for the business moving forward before answering any questions you might have. So moving now to Slide #3. In line with guidance provided at our AGM in November, Monadelphous recorded revenue of $852 million for the half year. This represents a 2.6% increase on the prior corresponding period and a 9.5% increase on the second half of the 2019 financial year. Our maintenance division achieved record half year revenue performance of $584.5 million, up 16% on the back of an increase in shutdown and maintenance work across the resources sector and a ramp-up in offshore oil and gas activity. Overall, Engineering Construction experienced a dip in revenue of 18% compared to the same period last year impacted by delays in the commencement of a number of resource construction projects. Net profit after-tax attributable to members was $28.5 million and earnings per share was $0.302. The Board declared an interim dividend of $0.22 per share fully franked. Since the beginning of the financial year, we've secured an additional $850 million of new contracts and contracts extensions. In addition, we completed a number of strategic acquisitions valued at just over $14 million, enabling us to expand our service offering in the coal seam gas and rail sectors and also into South America. Moving now to Slide 4, Engineering Construction. As I mentioned, our Engineering Construction division was impacted by delays in the commencement of a number of construction projects with revenue reduced to $273.4 million. Consistent with an improved outlook and confidence in the resources sector, the division has secured major construction contracts totaling approximately $500 million so far this financial year, including Rio Tinto's West Angelas iron ore project and Albemarle's Kemerton lithium hydroxide plant, both in Western Australia. In January this year, our EPC joint venture, Mondium, was awarded its largest contract to date, a $400 million contract with Rio Tinto at its Western Turner Syncline Phase 2 iron ore project in the Pilbara. During the period, Mondium also commenced work on its contract with Talison Lithium for the design and construction of a new tailings retreatment processing plant at its Greenbushes mine site in the southwest of WA. Work on 2 major construction contracts at BHP South Flank Project continued to progress, and work also continued on a number of their projects across the Pilbara under our long-term BHP construction panel agreement. After 2 years on-site and with an outstanding safety performance, our 2 Pilbara work at Rio Tinto's Oyu Tolgoi Underground Project in Mongolia approached completion. Additional packages of work for this project are expected to provide further opportunities in 2020 and beyond. Our renewable energy joint venture, Zenviron, recorded a 20% increase in revenue compared to the same time last year, successfully completing work on the Moorabool North, Moorabool South and Cherry Tree wind farms and progressing work on the Crudine Ridge and Dundonnell wind farms. In water, we advanced our first package of work under the Hunter Water Corporation Design and Construct Panel program at the Dungog Water Treatment Plant. Work also continued on Sydney Water's Network and Facilities Renewable Program, the Kawana Sewerage Treatment Plant in Queensland and the Kurow Duntroon Irrigation project in New Zealand. Finally, the company's fabrication business, SinoStruct, continued to support the delivery of a number of our key construction projects, in addition to completing work associated with the Oyu Tolgoi project in Mongolia and continuing the supply and fabrication of coal seam gas wellhead skids for Australia Pacific LNG. Looking now at our maintenance division, Slide 5. As I mentioned earlier, our maintenance division achieved record revenue for the half year of $584.5 million, up 16%, driven by strong demand for its broadening range of services right across the resources and energy sectors. The division experienced a significant increase in maintenance and shutdown activity in the iron ore sector across the Pilbara. We secured a 5-year contract with Rio Tinto for fixed plant maintenance and shutdown services at its coastal iron ore operations, which is valued at more than $100 million as well as securing further sustaining capital works, contracts for both Rio Tinto and BHP. Work also grew significantly across the eastern region, where we completed major shutdown works at BHP's Hay Point Coal Terminal in Mackay, secured a 3-year contract for rope access and inspection services at Rio Tinto's Yarwun alumina refinery near Gladstone and we're awarded a 3-year contract for maintenance service as part of Incitec Pivot's scheduled turnarounds at its Queensland operations. In the oil and gas sector, following the completion of hookup and commissioning activities on Shell's Prelude FLNG facility and the INPEX Ichthys LNG offshore processing facilities, our offshore oil and gas maintenance services work continued to grow. We completed 2 major shutdowns at the Woodside-operated North West Shelf Project and enhanced our plant and equipment preservation services work in Darwin. We also established a stand-alone industrial services team to provide fabric maintenance and ultra-high pressure blasting services. Overseas, we acquired Chile-based maintenance and construction services contractor, Buildtek. And the acquisition enabled us to enter the Chilean market through an established, well-recognized operator, which has strong relationships with major mining companies. The services provided by Buildtek are similar to those provided by Monadelphous and give us a foundation for growth in Latin America. In addition, the division further expanded its service offering in the coal seam gas sector with the acquisition early in the period of iPipe Services, a specialist provider of CSG pipeline, maintenance and construction solutions. And finally, we strengthened our position in the rail sector with the award of a rail maintenance contract with Rio Tinto on its rail network in the Pilbara. Contract is valued at approximately $60 million over 3 years with further 2-, 3-year extension options. And subsequent to the period, in January, the division added further rail capability with the acquisition of the assets of New South Wales-based regional rail maintenance services provider, Harbinger Infrastructure. Moving now to Slide 6, contracts secured. In total, we've secured new contracts and additional work, as I said previously, valued at approximately $850 million since the beginning of the financial year. This slide summarizes the location and values of each of these contracts. And you'll see a large portion of work secured is made up of several major contracts across both construction and maintenance in the iron ore sector throughout the Pilbara region of WA with our long-term customers, Rio Tinto and BHP. Moving now to Slide 7, safety performance. You see our 12-month total case injury -- recordable injury frequency rate increased slightly to 4.28 incidents per million man-hours. During the period, we undertook a comprehensive review of actual and potential safety incidents that occurred in the business to identify emerging trends and common contributing factors in order to return performance to an improving trend. As a consequence, we're implementing a range of improvement actions, including a targeted campaign to prevent hand and finger injuries, improvements in our subcontractor management, advancing our safety leadership development program and rolling out -- continuing to roll out our safety behavioral standard framework. If we look at our people slide on 8. You can see whilst our overall workforce numbers were similar, we experienced a 10% increase in employee numbers during the period due largely to the acquisition of Buildtek. We also saw a reduction in subcontractor numbers as our construction work in Mongolia approached completion. Over the coming period, we expect our construction employee numbers to increase substantially as resource construction projects ramp up. With the labor market tightening, we're continuing to implement a number of retention, strategic sourcing and development initiatives aimed at maintaining and strengthening our position as an employer of choice in the industry. I'll hand over now to Phil who'll provide you with a more in-depth look at our financial performance.

Thanks, Rob, and hi, everybody, on the call. So Slide 9 shows our financial performance for the half year, and we've compared that to the previous corresponding period. So we recorded revenue for the 6 months of $852 million, which is slightly up from the same period last year. Our earnings before interest, tax, depreciation and amortization was $59.1 million, giving an EBITDA margin of 6.9%. The adoption of the new leasing accounting standard from the 1st of July resulted in additional depreciation and interest expenses on other lease liabilities of $4.8 million for the period, and there was a corresponding $4.4 million reduction in operating lease expenses. Net profit after-tax for the period was $28.5 million, down to 7.4%. And the result was impacted by a lower revenue contribution from construction work and an increase in our plant and equipment depreciation and financing charges resulting from the fleet renewal process we've undertaken over recent years. Our earnings per share was $0.302, and the Board declared an interim dividend of $0.22 per share fully franked. We ended the period with a healthy cash balance of $163.3 million, and our cash flow from operations for the period was $38.6 million, and this resulted in a cash flow conversion rate of 78%. So in summary, our balance sheet remains strong and continues to provide us with capacity to invest in further suitable opportunities in the future. So that concludes our look at the financials, and I'll now hand back to Rob.

Thanks, Phil. Now Slide 10 shows relevant current and forecast market conditions in Australia for our business. As you can see, broadly, conditions are looking pretty positive in terms of CapEx, in resources and in oil and gas moving forward and also in maintenance and markets and infrastructure. Looking -- moving now to our outlook on the back of that and our business to date. As I've said throughout the morning's presentation, more favorable market conditions over the coming years are expected to provide a steady and solid pipeline of opportunities within both resources and energy sectors. Ongoing project development activity in iron ore particularly will support future construction prospects, and the outlook from renewed development in the LNG market is also positive. Strong demand for maintenance services is forecast to continue as production rates in the resources and oil and gas sectors remain at record levels. Operators will continue to focus on maintaining and improving productivity levels, which will provide ongoing opportunities for maintenance services and sustaining capital work. While investment in renewable energy is expected to be strong in the longer term, the rate of renewable energy projects in the short term is expected to slow as the industry focuses on development of improved grid access and transmission capacity. With activity levels expected to ramp up on secured resource construction projects in the second half and demand for maintenance services staying strong, we are expecting to see revenue growth of around 10% for the 2019/'20 financial year. And margins will continue to be challenged as competition levels remain high, and customers remain price-sensitive and focused on cost containment. Industry constraints resulting from global efforts to contain the coronavirus may potentially impact the business. Performance for the 2019/'20 financial year will be dependent on the extent and duration of project and supply chain delays resulting from these constraints. The retention and attraction of high-performing talent remains a key priority, with capacity and capability constraints forecast on the back of increasing demand for skilled labor. As an industry leader dedicated to the delivery of safe, reliable and cost-effective service solutions, we are well placed to capitalize on these opportunities and also deal with any challenges that may present over the coming time. Now before I finish today, I'd like to thank our team of loyal and talented people for their valuable contribution and our shareholders and other stakeholders for their ongoing support. Thank you, and I'll hand you over to the operator for any questions.

[Operator Instructions] Our first question comes from the line of Michael Aspinall from Jefferies.

Just a few for me. With the shutdown of Hay Point complete in 1H '20, is there much maintenance work expected in coal in the second half? And then how does that look into FY '21 and '22?

Well, the coal, that a significant shutdown for us at Hay Point, so you're probably going to call that a one-off. But otherwise, yes, I mean we're continuing to see a steady stream of maintenance work in the coal sector.

Okay. Steady stream but back from the levels you've had in 1H '20.

Yes. Look, I think you'd have to say, in terms of maintenance in coal, that was certainly heavily impacted by the work on that shutdown.

Okay. Great. And are you seeing much -- or have you seen much wage inflation come through in the maintenance division in the first half?

A little. Depends where and what market and which region, et cetera. But yes, certainly, there is -- we have seen and we are seeing pressures in terms of wages in the sector for the period. We'll continue to -- we expect to continue to see them going forward as well with the demand.

Okay. Just on the employee equity incentive schemes, are those based on win work, completing work at certain margins or mostly employee retainment targets?

We did issue some employee options during the period, which have EPS targets, growth targets attached to them.

Okay. And that's what you're referring to in the outlook or in the -- you mentioned equity in...

Yes, yes.

Okay. Cool. I have a last one, just maybe for, Phil. Revenue from JVs is up significantly in the half, but profit's down, just wondering what's driving that.

We had a -- I mean we had a very strong performance in the first half of the last year, and we still had a good performance in the second half of this year, but the -- it does sort of [indiscernible] through. As we go through a 6-month period, you have to look at the profitability of these JVs, the projects over extended periods of time.

Okay. So I shouldn't read too much into the profitability, but the revenue is continuing to grow in that area?

We've said in the outlook statement around -- we've made a comment around renewables and in the Mondium. Mondium was awarded a very big contract during the period. And so I think that project is due for execution over the next 2, 3 or 4 months. So yes, we expect that Mondium revenue to grow.

Your next question comes from James Byrne from Citi.

So look, I'm not going to ask you about the direct quantitative impact of coronavirus, I mean how long is a piece of string. But I wanted to look at it through a bit of a practical lens here, specifically with your fabrication business in China. And if you're unable to -- if you do have disruption in supply chain there, you're not able to fabricate, are you looking at higher cost fabrication elsewhere which may implicate your future margins to the extent that you see disruption out of China?

Yes. Well, I guess, as you rightly point out, very difficult to predict the impact in the long term to see what happens there. We do expect to be able to and have, in some form, already returned to work in China, but there will be delays definitely to getting back to work and that will impact the business, I guess, in the short term. And we are making contingency plans if there's extended period of constraints in China to look at alternative supplies. But too early to tell, I mean we do expect to return to work at some point.

Got it. Okay. If I follow on from that, anecdotally, I'm hearing that there's less confidence amongst your customers. I mean it feels like people are just waiting to know what their respective demand environment looks like before they go in to deploy capital. I'm wondering if that's a perception that you're getting as well that people are perhaps just sitting on their hands at the moment.

No, not really seeing that, but I guess maybe that will be the case going forward, not -- at the moment, it's just sort of dealing with more immediate issues as in supply of goods, et cetera, for projects that are underway.

Okay. Fine. Now renewables connections, which you've called out as something that's leading to a slowdown. Then your competitors pull away from that sector. Are you seeing renewables here as an opportunity or a threat? A threat in the context that the connections are increasing the risk.

Look, I think the grid congestion issues really are just limiting the number of projects in the short term coming to market. That's what we're saying. I think it's still an opportunity. The market is -- there's plenty of big projects around. I guess it's a case of when they become viable in terms of connection, et cetera, which I guess, I think will improve in the longer term. But I suspect the next 12 to 18 months will be quite a bit slower than it has been.

Your next question comes from Matthew Nicholas from Crédit Suisse.

Just a few from me. Just the first one on the margin. You guys have been pretty vocal in [ torquing ] down the margin in the first half. But I suppose if you back away the AASB impact, your margins are pretty comparable to where they were in the pcp despite the fact you've had a pretty significant mix shift away in terms of revenue, in terms of more maintenance and less construction. As you roll through to the next half, it feels like you'll get stronger growth in construction in the second half. Should we expect an increase in margin in that environment?

Okay. It's a question of how -- what your view is as to how we'll perform on some of these projects at the end of the day. I mean I do -- had made the statement about customers continuing to focus on cost. It's a key criteria for rewarding work. So I think it's -- we are saying that -- and the mix of work does matter, but the fact that we may have more construction going forward, it's -- hopefully, we can make margin out of that work. We'll have to wait and see.

And just as a general contract comment on the competitive environment, people come in, people come out. Just in terms of the conversations you're having now versus, say, 6 to 12 months ago, do you feel like the balance of power is a bit more in your favor? Or do you feel like it's pretty much status quo?

It's either no or status quo.

Okay. And just the last one for me, just a technical one. Just following on the JV question. You've given guidance, I suppose, at the headline level, which includes -- is an all-in number. I mean over the next couple of years, should we expect the JV proportion of the all-in revenue number to increase, as in the JV revenue will actually grow ahead of what the group has in its own right?

Well, probably because we're coming off a pretty low base, and we've secured a lot of work in Mondium. So if you, I guess, look at the work that's been secured, know what period it's likely to come, it's going to see a significant increase, yes.

Your next question comes from Ben Brownette from CLSA.

Rob, just on Mondium, the big contract that you won there. Can you give us an idea of how much is procurement and how much isn't? And is that the risk that you're talking about out of China that that procurement might be delayed?

Yes. I mean that procurement -- yes, there's significant planned equipment or proprietary equipment as part of that project, and fabrication is part of that project. So yes, a fair bit of that will be coming out of China. But the fabrication doesn't happen for quite a while. So I think it's just a question of -- it's not right now. It's a question of how long these restrictions last as to what the impact is. But yes, they're certainly subject to those restrictions.

And then I know you don't like answering questions on margins as there's obviously a lot of moving parts to them. But with respect to Mondium and the fact that that part of the business is getting bigger purely through the most recent contract, because of its EPC versus your traditional construction business where you might have your revenue on a margin, and that's easy to understand, with the EPC, given the -- I'm guessing like half of it at least is procurement, is the expectation there that on the revenue and the margin that the company makes is lower than a group margin?

No, I don't think so. We'd expect similar margins overall to the group margin.

And then with the -- I suppose the one thing that appears to have surprised some people is the extent of the maintenance revenue in the first half. You seem to have alluded a few times that some of these things might be a little more one-off in nature. So are you suggesting perhaps that moving into the second half maintenance may not be as strong and may not be as strong going forward? Or are those more one-off things likely to continue to happen?

No. I think you always -- I mean there's always pluses and minuses in periods. I think there was probably more one-off on the upside in that period. We did have a big shutdown at Hay Point. We had a couple of probably more than normal shutdowns in LNG a little bit. So I'm a bit -- yes, I would say there were more one-offs there than -- in the positive direction than normal.

Yes. Okay. All right. On the last call, you mentioned about $1 billion iron ore work that you were looking at that had not been awarded. Can you give us an update on that?

Well, the only one that's come through since that time that I think is -- has been awarded is the one we talked about, which is the Mondium WTS2 work. There's still no announcement as to the other work, which is Koodaideri and some Robe Valley work for Rio Tinto and/or North Star work as well. So that's still in the mix.

Your next question comes from the line of Sam Berridge from Perennial.

Just on that Mondium win, that's a pretty chunky project for something I would have thought that is largely in Monadelphous' sweet spot. I'm just sort of curious what expertise you guys saw within like a podium that you decided were best brought in-house via JV as opposed to just hiring them into the business directly and being able to bid on these things on a 100% basis?

No, the work is different to our core business. It is turnkey EPC work and, like us, have significant capability in the E bit of the E and the P. So our kind of core sweet spot is construction and a bit of P, and their core sweet spot is the engineering, the design that goes into -- that's required for the work. We have very little capability in that in-house.

Okay. All right. Yes. Yes, so design and engineering stuff that would have been too difficult to replicate otherwise.

Yes. Yes. [ Offshore ], for sure.

Your next question comes from the line of Alex Karpos from Goldman Sachs.

A couple of quick ones from me. You mentioned E&C project delays as impacting the engineering and construction side in the half. Have those projects commenced? Or are they still waiting to happen?

No, no. That's started. They just progressed much slower than we expected or that, I guess, the market had expected. So yes, no, there's no -- everything has started, and they're all underway. And so we're all ramping up on that work now. We -- probably, we expect it to ramp up earlier than we're now ramping up.

Got it. And just briefly on South America, could you maybe tell us a little more about what drew you to these assets specifically and the rationale to enter the market as well?

Yes. Look, I think we've been -- we're a big player in Australia in resources and energy, so we have been exploring opportunities in other countries. And I guess over a long period of time, we have come to the conclusion that Chile is, for many reasons, similar clients, similar operating models, as being prospective for us, large mining industry in Chile. So we have been tracking opportunities over there for a while and, I guess, arrived at a deal with someone who's, I guess, probably not first tier but, say, second tier operator who's got a good business and who we think we can add value and grow. And it positions us for growing what we do here in Australia, in South America in the -- for the longer term.

Our next question comes from Wei-Weng Chen from JPMorgan.

A couple of questions from myself. So just last week, we saw one of your competitors announce that they'd no longer participate in a range of different construction projects, specifically iron ore, coal and solar due to a bunch of varying risks. Can you please provide some commentary on how you're viewing risk in this space?

Well, we haven't done any solar either, so obviously, that's been far too risky to even touch. Iron ore and coal is our core business. It's really what our -- it's what we do. So maybe kind of way we manage the work there and resource for it and maybe we're in a better position to understand risks. We have a long, strong track record of performance with big customers who, I guess, provide a good pipeline of work for us. And we do a reasonable job at managing those risks in that sector.

Yes. Okay. So you haven't actually seen any sort of changes in terms of just dynamics in that market there.

Any -- sorry, any changes...

Any changes in the dynamic of sort of contracts or how the clients are sort of looking at risk. And I guess...

No, not really. No. No, not really. I think some of these decisions are really strategic around where you want to focus your core around, and this is our core. So it may not be core for the [ leaders who've ] moved out of it.

Yes. Cool. And then just on the maintenance segment, just are you seeing increased win rates? Obviously, it was a very strong result. You flagged a couple of one-offs. But are you seeing increased win rates? Or is a lot of the growth just coming from the tailwind of the increased client activity?

Maybe a little bit of both. I mean certainly, there's a lot more opportunities out there. And I guess the opportunities, I guess, are more in our sweet spot. And hence, we've probably been successful a little more often. So yes, there's -- that's probably a reasonable answer to that question. I don't think there's been -- I think having said that, it is still very competitive. People are still very much -- clients are very, very focused on price, and so it takes quite a while to end up doing a deal.

Yes. And then in terms of revenue in the maintenance space. On the pcp, you guys were around $500 million. And now you're at about $585 million, so it's a [ swing of ] $85 million. Are you able to sort of speak to how much of that $85 million was what you might classify as one-off in nature?

No. It is really hard to -- it's hard to sort of pinpoint, but it'd be a few percent. I don't know, might be -- it could be $50 million or something? Maybe half of that. It's very hard to pin down, yes.

Okay. And then just last question was just on acquisitions. Can you maybe -- how should we -- first of all, how should we think about growth from the acquisitions that you've made? And then secondly, just margins of these businesses, are they similar to sort of the current group? And then what's the outlook in terms of M&A?

Yes. Look, I think the strategy in our maintenance business clearly is capitalized on the core customers that we have and the core services, but we've also over the last few years, been building more services and taking a broader range of services to our customers. And most of the acquisitions made in that respect are reasonably opportune in terms of building, I guess, businesses that we think is good value in terms of the price of the business and the investment versus the return. So they are smaller businesses that give us either synergy with our existing business to build a stronger position in a market like the CSG acquisition or they are to position ourselves, give us a position to be able to grow organically, such as a small -- we did do a very small acquisition of a rail services business in New South Wales, which just builds on our -- gives us a -- some more equipment and a contract, gives us potential to continue to grow the business on a number of fronts rather than just our normal like mechanical and electrical discipline front. So we've been doing that, and a little acquisition here and there will help us to continue to broaden those services and give us small platforms for ongoing growth and organic growth. I don't know if that answers your question.

Yes. Yes, that's fine.

Margin-wise, you asked the margin. I mean margin-wise, I guess, the expectation is very similar to the rest of our business.

Your next question comes from the line of John Purtell from Macquarie.

Just had a few questions if I can. Just in terms of the -- your Chinese fabrication business. Are you able to provide some sense of materiality and size of that business, obviously, with reference to your sort of outlook and sort of caveat there, sort of just to really try and get a sense of is it a decent sort of size in terms of your construction revenues?

Its scope would vary significantly from $50 million to $100 million, something like that. That's the sort of scale of the work which would vary depending on demand and numbers of projects, et cetera.

In total, Rob.

Yes. Of volume of work, yes.

Got you. And just to be clear, have you factored in some negative impact from that in your guidance?

A little bit. A little bit. There's been a bit of thought about around risk of that. And yes, we have. But it's very hard to -- obviously, just hard to -- we've taken a bit of a stab, but -- so there is a little bit factored in there, but not a lot.

And the main type of work, I think you mentioned Mondium before, just trying to get a sense of the main sectors that the Chinese fabrication business supports.

Well, there's fabrication that's tied up with that, but that's not necessarily -- we don't have to do that in China. We might like to, but it is also a proprietary equipment. Our clients, in some of our projects, are providing equipment to us. And they'll have restrictions, so they won't be able to provide necessarily when we need them or whatever when it's planned to get them for projects. It's not just supply, our own supply out of that area. It's also more -- much more broader than that. So it's supply that customers have an obligation to -- for our projects or engineers or whatever, people in the supply chain.

And just a last one, just going back to the question around the pipeline, particularly in iron ore. I mean obviously, these big projects, as we've seen in recent years, tend to shift to the right. But are you able to provide, Rob, any color as to sort of expected outcomes on the likes of Koodaideri and Robe Valley, et cetera? Are you expecting outcomes this current half or in the second half of the calendar year?

No, I'd expect -- I'm surprised I haven't got -- we haven't got outcomes yet on some of that stuff. I think the Rio work would be this half for sure, this current half. The FMG work, I'm not sure. I think that that might be later than that.

Your next question comes from Steven Anastasiou from Bell Potter.

A few questions, if I may. First of all, sort of $850 million in contract awards sort of basically in the first 6 months of FY '20. Do you think -- obviously, it depends on win rates, which you don't know for sure, but is there enough in the pipeline to suggest that this sort of a run rate could continue over the next 6 months?

Well, it's a big number.

Yes, so do expect some moderation.

It's a big number because of how successful we are in the second half. I would -- I don't know, it'd be cool to say it's going to happen again in the second half that way.

Yes. And so Koodaideri, that work hasn't been awarded to Laing O'Rourke. Are you still bidding for some stuff on that?

I don't know if there's been an announcement about that.

Something of -- I think they've been awarded the process plant SMP. Is that right? Or...

I don't know. There's rumors around, but I don't know. No announcement, yes.

No announcement. Yes, on AASB 16, so the D&A up $4.8 million; operating expenditure, down $4.4 million. So it's correct to interpret that as just a $400,000 hit to NPAT?

It's actually profit before tax, but yes.

Yes. Yes. The contribution from joint ventures, you spoke a little bit how that has declined. Is most of that probably just coming from building out Mondium's capability to service some of the recent major work that it's won?

I -- really comes down to just the timing of the -- this profit recognition on the job that we've got.

Yes. Finally, with the slowdown in renewables projects, what's the plan for Zenviron once this batch of wind farm work is completed? Is there any opportunity to perhaps tender for work in upgrading or strengthening the energy grid?

Yes, there is. But I guess there's no kind of decision being made. There are -- there still are projects coming through, they're just slower. And yes, there is some potential there. I'm not sure to the extent yet.

Your next question comes from Nathan Reilly from UBS.

Just having a look at this maintenance revenue growth, 16%. I think you're sort of flagging that some one-off type work back in there in relation of increased shutdown activity would reduce the growth rate there by about half. We're talking about sort of 8% growth there. Can I just get a feel for -- so I think you've spoken to this previously, Rob, just in terms of the broadening of your services and offering sort of additional maintenance disciplines. Can I please get a sense for -- of that underlying growth, if you like, that sort of 8% revenue growth, how much of the upselling of new services is contributing to that growth rate?

It's really hard. You probably need to look at -- because some of these services have been integrated into the business over the last 2 or 3 years, so it's hard to -- there are -- some of them are now considered core. I mean if you looked at -- so it's hard to answer on a half-on-half basis. But if you looked at our last, I don't know, 2 or 3 years, we probably -- I think over 3 years, we probably doubled the revenue. And I'd say a good 1/3 of that would be different new services probably, something like that. I couldn't tell you on a half-to-half basis to be honest.

No. That's fine. I understand what's happening there. I'm curious also just in terms of the growth -- sorry, the new work, which you've been awarded, that 850 figure, is that -- can you just -- is that for 6 months? Or is that 6 months? Or is it year-to-date?

It's year-to-date.

Year-to-date.

Yes, year-to-date because Mondium was awarded mid-January.

Got it. And you're picking up your share of that, aren't you?

Yes. Yes. It's not the full $400 million, no.

Okay. Good. Can you talk to recent wet weather cyclone impacts, just how that may be sort of impacting your second half revenue outlook, either positive or negative?

Not really seeing any real impact there, Nathan.

Okay. Can we talk about the LNG outlook, please? You've highlighted that as an area of potential sort of medium-term growth just in terms of the prospects that you're pursuing at the moment.

Well, I guess the WA ones are really what potentially may come out of Woodside, just Browse expansion or Scarborough expansion, Pluto 2, out of that investment. And now there's a bit of a [ spanner ] in the works in PNG in terms of developing more LNG production out of PNG. I think there's -- if we can get over the politics there, I think we'll certainly -- well, not over the politic, get over -- I guess, getting things approved there, there's certainly opportunity for us there. They're the 2 big kind of opportunities we see for ourselves. And I guess beyond that, there's just a sentiment around -- forecast around LNG demand driving more expansions, but I guess that's a bit more blue sky.

Okay. This fleet renewal, you've called it out there as having an impact to depreciation. What's happening there? Are you just repurposing the fleet for a high level of engineering activity?

No. It's more that we've resisted putting -- investing in there for a few years back. So it's probably a bit of a spike just to -- just because we haven't spent money there for a while. And there's probably a slight increase in the volume, but it -- there's also a substantial renewal maintenance overhaul -- not overhaul but major investments to bring the fleet up to scratch over the last 2 years, yes.

All right. I'm going to ask a question on cash. Phil, just in terms of that operating cash conversion, even when we adjust for the AASB 16 impact, we've seen significant growth in maintenance. Historically, when we've seen growth in maintenance, we've seen a negative impact on operating cash conversion. Can you talk through the improvement in cash conversion this half for us, please?

Really, Nathan, it comes down to what you've collected. I mean the biggest kicker comes down to what you've collected just before the 31st of December. So we -- just cash collections were pleasingly good. There's no one particular thing that I can put it down to.

I mean our working capital is still similar to what...

Similar to what it's been, yes.

Your next question comes from Tony Mitchell from Ord Minnett.

Rob and Phil, well done. I'd just like to ask you, can you give the EBIT or EBITDA breakdown between maintenance and construction for the half? And can you see any major changes for the second half?

Well, no, we don't provide that breakdown. In fact, we don't even do that internally because we run more on a sort of gross margin and overhead basis internally. So it's not even something we look at. But the construction margins are always much more variable than our maintenance margins. So I guess it's very hard to sort of answer the question directly. But I think what we -- the margin question, kind of historically, historically, historically, when you kind of look at the macro view for our business, generally, our construction work, certainly fits in our core business, can be slightly better margin than our maintenance business. So we've got more construction work, so hopefully, that comes through, but we'll have to wait and see because it is highly...

Yes. Just on the maintenance, are you able to work out what your market share in the various types of maintenance is? Or is that an impossible thing to measure?

It's difficult to measure on a sort of accurate basis or a basis that's accurate. But yes -- but I guess we've sort of positioned ourselves, 1 or 2, in both resources and energy. But in terms of share, I don't know what the percentage is.

But if you look at your major players, Rio and BHP, et cetera, you'd be in the top [ couple there ], wouldn't you, in terms of maintenance?

Definitely. Yes. Yes, we'd be 1 or 2 with all our major customer, yes, and markets.

Your next question comes from Rohan Sundram from MST.

Most of my questions have been answered. But I guess while I'm here, questions for Phil. Can I just ask around the cash conversion, following up on earlier. You benefited from a low cash tax paid in the first half. Do you expect that to continue in the second half? Or is that a one-off?

No, that's -- you can look at that as a one-off, Rohan.

Our final question will come from Oliver Stevens from Hartleys.

You mentioned risk of procurement delays out of China. Just wondering with Mondium being EPC, do you carry contractual risk around delays related to that? Or are you covered?

Look, I think the answer to that question is that this sort of impact would be considered a force majeure position contractually.

Yes. Cool. And just a question on -- Phil, with the AASB 16. You've called out there a $4.4 million reduction in operating lease expenses. So just on a like-for-like basis, if I -- we look at EBITDA of, say, $54.7 million, just simply subtracting that from your number.

Like-for-like, you have to subtract the $4.8 million.

That was our final question. So I'll pass back to Kristy for closing comments.

Thank you very much for your participation today. That now concludes our briefing.

Thanks, guys.

Thank you.