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

Good morning, everyone, and welcome to the Monadelphous 2021 Half Year Results Investor and Analyst 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, the 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 2021 half year results briefing. So Phil and I will talk you through our financial and operational performance for the period as well as cover off on our outlook going forward. We'll then answer any questions you might have. The structure of this morning's presentation is similar to the previous results presentations with some further detail provided as appendices. So I'm on Slide 3, group performance and highlights. I'm pleased to report that our sales revenue was up 11% on the prior corresponding period to $947.8 million. The result was an increase of 18.7% on the previous 6 months as the company and the industry more broadly continued to recover from the initial impact of COVID-19 experienced in the second half of last financial year. Our Engineering Construction division reported revenue of $460.3 million, an increase of 68%, with work progressing strongly on a number of major resource construction projects which had experienced COVID-19-related delays in the previous 6 months. The Maintenance and Industrial Services division reported revenue of $491.5 million, which was down 15.9%. The lower-than-usual maintenance activity was experienced early in the period as the industry steadily regained momentum as well as from reduced demand from within the oil and gas sector. Activity levels in iron ore -- in the iron ore sector ramped up significantly through the period due to the large volume of iron ore project developments in execution phase, the resumption of work scopes that were deferred earlier in 2020, and a strong appetite from our customers to maximize production. Skilled labor market in Western Australia progressively tightened during the period as labor demand increased and border restrictions limited supply. Since the beginning of the period, Monadelphous secured approximately $360 million of new contracts and extensions, most of them in the iron ore sector. Pleasingly, we've seen a substantial improvement in our safety performance with a number of health and safety initiatives implemented over recent times positively impacting our performance in this critical area, and I'll talk a bit more about them later. Net profit after tax for the half was $31.6 million, which resulted in an earnings per share of $0.334. Earnings were lower than normal in the first few months of the period as the industry regained momentum post the initial COVID-19 impacts. Now included in the NPAT is the reversal of a one-off provision of $6.5 million made in the 2019 financial year relating to our research and development tax incentives, and Phil will give you a bit more detail about that later. The company continued to adopt its long-standing dividend payout policy of 80% to 100% of annual profits. And the Board has declared an interim dividend of $0.24 per share fully franked. We ended the period with a strong cash balance of around $170 million, and the half saw increasing levels of working capital as a result of the rapid recovery and ramp-up in revenues post COVID-19. As previously announced, Monadelphous was notified during the period that Rio Tinto had filed a Writ of Summons in the Supreme Court of Western Australia against one of our wholly owned subsidiaries in respect of a fire at Rio Tinto's iron ore facility at Cape Lambert in January 2019. Now we continue to work effectively with Rio Tinto towards reaching a satisfactory outcome in this matter. Moving now to Slide 4, the Engineering Construction highlights. As I said, revenues were up 68% to $460 million for the period. The division secured about $175 million in new contracts, including 4 new work -- packages of work with BHP under an existing West Australian iron ore panel agreement for work across a number of sites in the Pilbara, and a contract with BHP was also secured for multidisciplinary construction services at Olympic Dam operations in South Australia. Now good progress was made during the period on a number of major resource construction projects at BHP's South Flank project. Substantial progress was made on our work scopes for the project's inflow and outflow infrastructure as well as construction of the world's largest rail-mounted stockyard machines for thyssenkrupp. Work continued at Rio Tinto's West Angelas Deposits C and D project with fabrication support provided by SinoStruct. And we successfully progressed our construction package at Albemarle's lithium hydroxide plant in Kemerton in the southwest of WA. Also, at Mondium, our EPC joint venture with Lycopodium, also progressed the construction phase of the $400 million EPC contract we have with Rio Tinto for this Western Turner Syncline Phase 2 mine. SinoStruct, our Chinese -- China-based fabrication business, secured a number of new contracts and also established its own fabrication facility in Tianjin in China to self-perform fabrication work and to provide improved modularization services. Business also continued to deliver work for customers in Australia, Mongolia and PNG. Now despite the renewable energy sector experiencing a lull in activity, Zenviron continued to secure new work with a contract to deliver the Murra Warra Stage 2 wind farm in regional Victoria. So moving now to our maintenance division. Now we see our maintenance division recorded revenue of $491 million for the 6 months, which was down around 16% on the prior corresponding period. As I said earlier, maintenance activity levels steadily regained momentum during the period after the initial impact of the pandemic. The division retained all its term contracts and secured $185 million in new contracts and extensions, which added to its contracted forward workload. In the Pilbara, several new contracts were secured with BHP under an existing WA iron ore panel agreement. And the division also secured three 3-year master services contracts with Rio Tinto for the delivery of sustaining capital projects across their iron ore mine sites and port operations. High activity levels were experienced in the iron ore sector during the period, with the division successfully completing a number of maintenance shutdowns of BHP and Rio Tinto across the Pilbara. And despite the challenges of COVID-19, Buildtek, which is our maintenance and construction business in Chile, continued to perform well and was awarded several new contracts. Those contracts included a strategically significant contract at GNL Quintero's operations in Valparaiso, which leverages our core capability in the LNG sector. The division continued to also broaden its service offering, integrating its rail services business acquired last year and investing in specialist equipment to support existing rail contracts and enable further growth. It also strengthened its marine civil CSG pipeline and corrosion management capabilities during the period. I'll move now to Slide 6, which is contracts secured. As I mentioned earlier, we won work valued approximately $360 million since the beginning of the year, financial year. This slide shows the location and values with a large proportion, as you can see, in the WA iron ore sector. In other sectors, we secured a 3-year maintenance contract at Rio Tinto's Gove operations in the Northern Territory, a major dragline shutdown for BMA at its Saraji coal mine in Queensland, and a 12-month extension to our existing maintenance contract across BHP's WA nickel operations. Subsequent to the end of the period, we were also awarded a multidisciplinary contract with AGL Macquarie at the Bayswater power station in New South Wales. And also, in addition to the contract we already mentioned in Chile, Buildtek secured 2 contracts with Minera Escondida BHP for the construction of a communications tower at the Escondida copper mine and a conveyor system upgrade at Coloso Port. Looking at Slide 7 now, safety performance. As I said, pleasingly, our 12-month recordable injury frequency rate improved by 16% from 30th of June 2020 to 3.12 incidents per million hours worked. Now the period saw a number of system improvements and a new fatal risk standard to reinforce line-of-fire fatal risk controls. And other health and safety initiatives implemented included a revised frontline safety leadership program and the continued rollout of the Delivering the Safe Way behavior framework. Also, in these challenging times, we focused on mental health awareness, rolling out specific training programs and participating in national health and well-being initiatives, such as Movember and RU O K? Day. Moving to Slide 8, our people. And with activity levels rising across our operations during the period, we saw our employee numbers jump 22% during the period in the last 6 months. A comment there, the retention and development of our key talent is really central to our long-term sustainability and success. And during the period, we increased participation in our employee equity scheme, and we made improvements to our performance management practices. We also focused on a number of initiatives to improve our traction and recruitment in a tight labor market. These included detailed Australian labor market analysis for future workforce planning. We launched our award-winning workforce engagement app MonaWork. And we kicked off the Monadelphous' Make it Yours employer branding program. We also commenced the implementation of a new, upgraded recruitment and talent management system. Slide 9, social value. At Monadelphous, we're committed to making a positive contribution to the communities in which we operate. Our efforts are focused around key areas of diversity, community support and education. And during the period, we worked on the development of our fourth Reconciliation Action Plan, consulting with key stakeholders, including our indigenous workforce. This will be our second Stretch RAP, which -- and it's planned to be released in the -- in this half during National Reconciliation Week. We continue to make progress on achieving our objectives in the important area of gender diversity and inclusion. And a major highlight during the period was the appointment of our first female operational General Manager, Lorna Rechichi, to head up our heavy lift business. And Lorna has been with the business for a number of years now. We participated in several other social value initiatives, including a partnership with the Graham (Polly) Farmer's Foundation's Follow the Dream and Living the Dream programs, which provide education and career pathways for indigenous students. We also supported various initiatives in the education sector and employee volunteering opportunities at community events. And finally, in October last year, our Newman after-school program, Monadelphous Mechanical Mob, was announced as a finalist for the Indigenous Engagement Award for the Australian Mining 2020 Prospect Awards. So I'll hand over to Phil now, who will give you a bit more detail on our financial performance.

Thanks, Rob, and good morning, everyone. I'm on Slide 10 now, which shows our financial performance compared to that of the previous corresponding period. And as Rob's already mentioned, our revenue for the period increased to $947.8 million, and our earnings before interest, tax, depreciation and amortization was $57 million, a 3.5% reduction on the prior corresponding period. Earnings in the first few months of the period were lower than normal as the industry regained momentum following the initial impact of COVID-19. And during the period, we reversed a one-off provision of $6.5 million, which was made in the 2019 financial year. And this provision related to Notices of Amended Assessments, which were received from the ATO for R&D tax incentives claimed by the company, which was determined to be ineligible. Now at that time, we requested a review of the decision. And in December 2020, we were notified that the original findings have been set aside and the company was, in fact, eligible for the incentives. And we've commenced the process to obtain a refund for these amounts from the ATO. Our net profit after tax for the period was $31.6 million, which represents an earnings per share of $0.334. And the Board declared an interim dividend of $0.24 per share fully franked, and the Monadelphous Dividend Reinvestment Plan will apply to the interim dividend. The cash flow conversion rate for the 2020 calendar year was a healthy 91%. However, we experienced unusually different cash flow conversion rates in the first and second half of calendar 2020 as a result of the initial impact of COVID-19 and the subsequent recovery. The materially lower operating activity levels experienced in the months leading up to 30 June at the height of the pandemic significantly reduced the working capital requirements of the business at that time and delivered an unusually high cash flow conversion rate in excess of 300% for the first half of the 2020 calendar year. The progressive ramp-up in activity post 30 June drove a corresponding increase in working capital as our requirements returned back-to-normal levels, resulting in a negative cash flow for the period. Despite the large fluctuations we've seen in working capital during the period or during the year, our healthy cash position and the strength of our balance sheet provides us with capacity to invest in suitable opportunities as they arise. So I'll now hand you back to Rob, who will provide you with an overview of the outlook for the business.

Okay. Thanks, Phil. On Slide 11 shows the relevant current and forecast Australian market conditions for our business. And you can see sectors in which we operate are expected to provide a solid inventory of prospects and opportunities for growth. We go to Slide 12, summary of our -- of the outlook. While the global economic outlook in the wake of COVID-19 remains uncertain, the resources sector is expected to provide a steady flow of opportunities for Monadelphous over the coming years. With continued solid demand from China driving favorable iron ore prices, the outlook for Australian iron ore investment remains solid. An ongoing capital and operating expenditure would -- required to sustain the high levels of production in this sector will drive strong and steady demand for our engineering, construction and maintenance services. Developments in other resource sectors, particularly in lithium, gold, copper, nickel, are also expected to provide ongoing prospects for us in Australia as well as our international operations in South America, Mongolia and Papua New Guinea. Declining global demand in the oil and gas sector has resulted in delays, deferment and the development of new LNG projects, with customers reducing operating costs and deferring nonessential work in the short term. The outlook for -- the long-term outlook for the renewable energy sector is positive with the pipeline of new wind farm projects expected to come to market in the next few years particularly as electrical grid access improves in New South Wales and Victoria. Demand for maintenance services is expected to grow steadily on the back of aging assets and customers deferring nonessential work in prior periods. In the more immediate term, the resource activity -- sector activity in Western Australia is expected to remain strong in the second half of this financial year with increasing demand for skilled labor. Capacity constraints from the further tightening of an already stretched labor market, coupled with unpredictable interstate border restrictions, will be a key challenge for the business. Now following a solid first half result and subject to the timing of progress of projects, sales revenue for the full year is expected to see an increase of around 10% on the previous year. And while the outlook remains positive, the potential impacts of COVID-19 continue to create some level of uncertainty. Monadelphous' reputation as a leader in its markets and our long-standing commitment to the delivery of safe, reliable and competitive service solutions puts us in a strong position to capitalize on the opportunities and to deal with the challenges ahead. So I'll close now. And I'd -- in closing, I would like to thank our -- all our stakeholders for their ongoing support, including our shareholders and customers. And I commend our team on their commitment and efforts in -- under the circumstances in achieving a solid result. Thanks. I'll now hand over to the operator for any questions.

[Operator Instructions] Our first question comes from the line of Alex Karpos from Goldman Sachs.

Team, can you hear me?

Yes.

Perfect. First one I wanted to ask on is the maintenance side. I appreciate the color about demand growing steadily from here. Can you parse that out a little bit more by end market? How do you think about the different recovery profiles across iron ore and oil and gas for the second half and into FY '22?

Yes. I guess it's -- I suppose the forecast is a sort of macro forecast across the whole of the resource in oil and gas sector. I guess the expectation, as we've said in our -- in the outlook, is that, one, there's probably been still significant deferment of maintenance and a sort of catch-up element. And we do -- and there is ongoing aging assets. I guess in the oil and gas sector, yes, we've got a number of large, major term contracts that are ongoing, although I guess volumes maybe slightly down in this -- have been slightly down in this period due to the oil price -- tightness in the oil price. Otherwise, I think pretty well right across the resource sector, there is an ongoing expectation of good volumes available for our maintenance business.

That's helpful. And maybe just staying on oil and gas. If we pivot to the E&C side, how have discussions with customers there, let's say, changed over the past 6 months? Is it still kind of a year delays? Or how are you thinking about the broader landscape into '22?

Look, I think it's still uncertain. I mean, I don't think any of these projects have been canceled. It's really a question of -- it's a question of -- with the -- a question for the majors to understand what the timing, I think, that these projects or some of these projects will come. It's just a question of when. We're certainly not factoring anything into the next 1 or 2 years in terms of Engineering Construction opportunities.

Got it. And one more, if I could. You mentioned tight labor markets out in WA. You're certainly not alone in calling that out. How should we think about potential for margin impacts from a kind of tighter labor market and also potential to raise prices on your end as a result?

Yes. I mean there's no question that there's -- there are risks that arise because of the tightness in the market, the ability to get the required numbers of people, the squeeze on rates of pay, et cetera. That's certainly the biggest challenge that we're seeing in front of us in the more immediate term. It is a considerable, I guess, challenge for us going forward.

Our next telephone question is from Michael Aspinall from Jefferies.

I might just ask a follow-up on the labor. Understandably a heavy focus on attracting and keeping talent. Have you seen any cost inflows in the first half that you've been successful in being reimbursed by customers? Or you haven't seen that across any of your projects yet?

Look, I think varied is probably the answer. Depending on contracts, customers, conditions in contracts and I guess the ability to recover COVID-related impacts, it varied across our contracts. I couldn't give you a sort of more definitive answer than that.

Okay. It sounds like there may have been some additional costs due to labor though that it sounds like there might be a bit...

No. There's no question there has been increase -- there have been increases in costs, some of which are recoverable, some of which are not.

Okay. And your EBITDA margin in the first half of 6%, which compares to about 5.9% in the second half of '20, ex the provision you took for the New Zealand water business, and your commentary into that second half was that margins were heavily impacted by COVID. It sounds like then that the first half margins are also impacted by lower levels in -- lower activity levels in the first half. Would that be kind of correct in characterizing your margin performance?

Yes. Well, I mean margins, there's a whole pile of different drivers there. But certainly COVID, in the early part, was the driver. And the ability to, I guess, recover sort of labor, COVID labor, extra costs or whatever is also a factor. And I guess it will continue to be a factor as we go forward.

Can you talk about maybe some of the drivers that you mentioned there, a whole pile of different drivers that kind of weren't COVID-related?

Well, if you put all of the labor restrictions on to COVID, then it's all COVID. But I wouldn't -- I mean you've got a restriction from COVID in terms of access to people, but you've also got a very large demand profile at the moment. So it's a significant overlap of demand for a lot of projects all happening at the same time.

Okay. And revenue guidance or the kind of outlook for revenue to be around plus 10% implies down in the second half on kind of the first half you've just reported. Is that being driven by some E&C work that's coming off that's coming to completion?

Well, yes. Look, it depends on how we go with the progress of construction work. But yes, some of those jobs will be tailing off in this half. So that will be a factor.

Okay. And last one from me and I'll turn it over. It looks like the results included a $5 million profit on sale of assets. Is that right? And what did you sell?

Yes, that is correct. And it was really just taking the opportunity to make sure we rationalize the fleet to the sites that we'll need for our future requirements.

Things like cranes?

There was requirement -- yes, look, a whole range of different equipment, nothing -- no one-off item.

Our next telephone question comes from Ben Brownette from CLSA.

Just wondering, when you look at the chart on construction and infrastructure and the decline, how much of that is driven by the exit of the water business and how much is underlying? And then going forward, do you expect -- when you talk about renewables, is that the part of the business that you see growing there? And will -- is there anything major that you're being on? Is it still just sort of wind farms?

Yes. Well, so the answer to that is yes, there -- we're doing less water work and expected to do less of that. So the majority is in wind farm market, the majority of the work going forward.

Okay. Cool. And then can you just sort of give us a bit of color around how you're going on those major projects in construction? Are they going to plan? I mean you've commented on labor being tight. Are there -- is there anything on the horizon that would lead you to suspect that your execution wouldn't be where you would normally have your execution?

Well, no. They're going fine. Yes. The real issue is that we still need -- we're actually still ramping up on some -- so the labor demand issue or squeeze on labor is the risk that -- yes, we'll have to see how that plays out over the next 6 months or so.

Okay. And then is there -- have you been -- given that -- is there -- has there been a reluctance over the last 6 months to bid? Or are you kind of happy with what you've won?

We're -- in a sort of more immediate term, we are capacity-constrained. There's no question. We can't -- there's another big job right there to start now. We just -- we'd be limited. It's really just around timing. That's the issue. On -- yes.

Okay. And then just going on to -- yes.

Sorry, I don't know if that answered your question.

Yes. No. That's fine. And then so you've noted the bounce back. I think you noted this before, that you expected to see a bounce back in maintenance in iron ore, and you did mention the potential for oil and gas to continue to be weak. I mean in terms of that oil and gas maintenance picking back up, do you have any kind of further visibility today than you did 6 months ago? Or are you just waiting to be called on site to do things?

No, no. We don't. I mean, yes, we've got a lot of -- there's not just one contract. There's a number of contracts. It's just volumes through them are down. They're not significantly down, but there is pressure on -- people are looking at much tighter with their allocation of operating expenditure in that sector. That's all -- whether that comes back or not will really -- or all of it comes back or that gets -- becomes -- grows back to where it was -- I'm not -- really, I'm not too sure.

Okay. And Phil, can I just -- can you just -- you mentioned the working capital in the last period. And then there was obviously the difference in this period. So can you just explain to us a little bit about what drove the big working capital swings? Obviously, net working capital was up, but obviously, receivables and payables were up a lot, too. So can you talk us through that and then talk about how that move is coming into the end of the year?

Sure. So the -- as we said, the activity levels picked up during the period. And we had costs going out of the business, significantly labor costs, which are paid on a week-by-week or fortnight-by-fortnight basis. And we don't collect that money back into the business again for a period of months afterwards. So that's the driver. In terms of the full year, we do have a few advances on construction jobs that are due to unwind as these big construction jobs come to an end. But really, it's going to come down to the collections around year-end. But I'd just like to reiterate that you just have to be cognizant of the fact that we did have 2 very unusually different halves, but the cash flow conversion over the 12-month period was sort of greater than 91%. You have to look at the 2 halves...

Together.

Together. Our net working capital position at the end of December is the same -- almost the same as it was at the end of December, the previous year, so returned to more normal levels.

Our next telephone question comes from John Purtell from Macquarie Group.

I just had a few questions if I can. Look, Rob, just in terms of staff numbers, so conscious of your comments there, but are you expecting your staff numbers to continue to grow through the second half?

We have a, yes, quite an intense period where we've got a number of projects all firing at the same time. So I think there's an expectation of numbers increasing through the period, but then they'll decrease again. So -- if you hear what I mean. It's -- it really is just a function of the progress of where we are at with the work that we've got on. So I would expect them to increase. It'd be nice for them to stay there, but it really depends on the workflow post year-end, I guess.

Look, coming back to margins, obviously, you delivered 6% in that first half EBITDA. Do you think there is the potential for second half margins to improve on that, noting that you still had COVID impacts in that September quarter? You've obviously also called out higher labor costs.

Yes. Well, I think really, the -- yes, the margin question is, again, a function of a whole pile of different drivers depending on where projects are at in terms of their progress and the issues around -- I guess the significant issue around labor. Yes, labor costs are going up. Recoverability is going to be a question. So very -- whilst I can say we'd love for them to go up, there's certainly a lot of pressure on those margins. So yes, I guess very, very hard for us to predict going forward.

And Rob, maybe just from an industry point of view, I mean the industry...

And by the way, sorry, just to -- I will expand a little bit more on that. And that's sort of more significantly -- and we're talking about labor and the pressure of costs, et cetera, or productivity, et cetera. It's generally not as acute in our maintenance business, where we -- most of those contracts are kind of cost-plus or there's rise and fall type arrangements. It is more on our construction business where some of those prices have been fixed.

Yes. And just to finish, which is sort of related to that. I mean just from an industry point of view, the industry is pretty full at the moment, Rob. I mean would you expect industry margins to improve from here as logically one would expect more rational bidding?

I hope so. I can only hope, yes.

Okay. And just the last one. You mentioned some of the jobs may be tailing off towards the end of the period in terms of construction, in terms of the bidding pipeline sort of the areas that you're sort of seeing are most prospective to sort of replace that or grow off that?

Yes. Look, I think iron ore has got a steady investment kind of pipeline of $5 billion to $6 billion year-on-year. So that will just provide us with an ongoing set of opportunities. It's a question of lumps and timing of that work and et cetera. Otherwise, yes, there are lithium projects in the pipeline. There's copper work for us in Mongolia as well as Olympic Dam. So it really is -- to me, it's a case of the timing of some of this work. But in terms of the macro view, there's plenty there.

Our next telephone question is from Wei-Weng Chen from JPMorgan.

Just a couple of questions from me. Just the first one to go back on first half guidance. You guided to the 10% half-on-half growth, which was provided in late November. If you kind of do the math from where you guys ended up, it kind of means that you guys had an extra $70-odd million of revenue in the last 5 weeks of the year. Just wondering if you could give some color on that. Was that revenue that you had expected in the second half? Or what was that?

So it's -- to me, it's just a combination of -- well, I mean sometimes, we just can't -- we can't necessarily predict demand on a month-to-month basis. It really is just the -- a case where we've had a ramp-up and everything is firing. So you've got all our projects firing. You've got customers wanting to accelerate completions on the basis of demands for production, et cetera. So when that happens, you -- that's really what we've seen there in terms of that spurt in the -- particularly in the latter part of the half, the last 3 months.

Yes. Okay. And then just a question in general on your contracts. How much revenue is typically generated from a new contract in the first year? And the other follow-up question was you coming off a period of two halves where, for obvious reasons, you've had below-average contract wins. Just wondering if that creates a headwind at some point for subsequent periods from a revenue perspective.

Yes. Look, the revenue flow is very variable. It's really variable on -- I mean our contracts, it's -- I can't answer the first question. There's no average contract. Our contracts can range from $10 million to $300 million or $400 million. So I can't really answer the question specifically. What I can say is that the sort of macro pipeline is good, and it's a case of then timing. Really, it's timing of work and when work comes off and when work comes on. So you're going to get quite a bit of variation because of that.

Yes. Not sure if I can -- yes.

Sorry. That's -- and to make sure -- and that is very much the case in the construction world, not so much in maintenance, which has a lot of fixed-term contracts with volumes that are just constant and consistent. So we get less variability in that part of the business, which is a part of the business and more variability in the other part of the business -- in the construction side of the business.

Great. And just a follow-up. I'm not sure if it helps you answer the question. But let's take the construction. I kind of meant in terms of civil contracts, like would you earn 15% of the contract value in the first year or sort of 30%? Or is that not really something like...

Construction -- our construction projects are normally a year or 18 months. So they're all done in that period.

Our next telephone question is from Steven from Bell Potter.

Just a couple of questions from me. So the 6% EBITDA margin was a decent result in light of the current operating conditions. But if we were to just assume for a minute that order impacts and COVID impacts would have normalized moving forward -- and I know it's obviously a fluid situation, but if we were to assume that they would have now normalized moving forward, is the return to that PCP margin of 6.9% or 7% realistic not for the current half but looking out to FY '22?

I think -- well, it's certainly realistic, yes, yes.

And then a second one. Just the nature of the current competitive environment. So I note there wasn't a lot of major FY '21 contract wins so far. That's in contrast to some of your competitors. Just if you can provide any color on how you're playing or seeing the current competitive environment. Are you deliberately not wanting to win too much work, imminent work given resourcing constraints? Do you also suspect that some competitors are tendering more aggressively to grow their order books?

Yes, both of those things. Yes. I mean we're bidding most things. But clearly, it depends on what our workload is and what we feel comfortable doing for the price that we're bidding. And others may be in a position where they don't have any work so they will be pricing more keenly.

So from your point of view, you're maintaining the contract discipline, you're confident in the macro outlook and you're just happy to maintain that discipline and you trust that the work will come through in time.

Yes. I mean -- correct. And we've got good relationships with clients that have pipelines of work. So that gives us a bit of confidence as well.

And the final question today is from Nathan Reilly from UBS.

I was going to ask about the order book in terms of work which you booked this half. So if I'm looking at it, it looks like you booked $360 million of new contracts for the half, but you've burned about $950 million of revenue from your order book in this half. Can you talk -- is -- that tender pipeline you mentioned earlier, is that at a level that would make you think you'd be able to sustain annual sales at that $1.8 billion level which you're guiding to this year?

Yes. No. I think so. Yes. I mean remember, our maintenance business, if we don't -- if a -- some of those contracts are like 3 to 5 years. So if it's not due for rebid, then you're going to lose a year of revenue as in the book until it comes up again down the track. So the $360 million of new or renewed contracts is not necessarily just the burn. That isn't all of it. There's already other things in train with -- particularly in maintenance, where we've got a 4- or 5-year contract. Do you hear what I'm saying? Is that clear or...

Yes, yes. I think that's...

I think it's more in the -- sorry, in the maintenance area, I mean, unless we'd lose contracts as in when they come up for rebid, we lose them, then that's the only negative. Otherwise, the rest of it is positive. If we win new ones, it's positive. And then if the volumes go up in existing ones, it's positive. And there's a whole range -- there's a range of sort of point-of-sale type work that we do, many and varied. So that volume doesn't really -- it's not highly variable. The revenue is not highly variable. It's really in the construction space where, yes, you've got all your jobs, finishing it all at one time and you need to wait another few months before you get an old pile of others, then you're going to have a lull, but that's generally not what happens. There's enough volume to maintain your -- some sort of ongoing work. It's -- but ultimately, it's a question of timing.

Yes, yes. And I guess as you sort of point out, with respect to the engineering business and the lumpiness there, it looks like you've won. I think it's $175 million in new contracts there but again, the burn rate, just shy of $0.5 billion. But in that business, your typical duration on the contracts are 12 to 18 months. So I'm just wondering, that iron ore construction revenue, you're run rating a very, very strong annual sort of revenue growth rate there, be near peak, not quite big but certainly a very good year. Does that -- I'm just trying to get a sense of where you're at in terms of peak activity levels for these mine replacement projects that you're working on at the moment. It's looking like the customers that you're working for are targeting first or later this year. So in terms of that second half revenue outlook, is that something that you think you can maintain based on current run rate?

Well, yes, most -- I think most of those iron ore jobs are due to be finished this calendar year. The case of how much gets finished this half versus next half, most of them will be finished -- pretty much finished this calendar year.

And I think you mentioned a pipeline in iron ore projects of about sort of $5 billion to $6 billion per annum in terms of the CapEx that needs to be spent in that space. Would you expect that your revenue generation or revenue pool from that pool of work would take a step down just based on what kind of sits in that pipeline relative to the mine replacement projects which you've been working on? Or can you sustain it around current levels?

I don't know. I think there's plenty there. It's a timing issue and that's what it is. I mean I think there are forecasts running around. I have seen forecasts in the iron ore expenditure over the next 8 years, which kind of averages -- is pretty well -- kind of peaky at the moment and then it drops off maybe $1 billion to $5 billion for the next 8 years. So -- and we're talking to customers about new work opportunities coming up in the next 1 or 2 years.

Okay. And finally, just back on the margin, I think you noted somewhere in your accounts, but there was the benefit from JobKeeper. I think about sort of $7 million in the first half. I'm guessing that was more than offset by additional costs that you encountered in the first half. But just in terms of how that rolls off in the second half, is that creating a bit of a headwind from a margin point of view as that rolls off in terms of the subsidies relative to the costs which might have crept into the business that you now have to deal with?

It's all rolled off. We're not getting any more. Like that's passed now. Do you know what I mean? So I understand you -- yes, I understand you put most -- all of that's being utilized in paying people for standing them down and a whole range of -- particularly early in the period. But yes, that's not there anymore. But...

Okay. I'm done.

But it's not there anymore. But we don't have the reason for it to be there now anyway if you hear what I mean. We got everybody employed. It's -- the COVID impacts are now much more about restrictions on getting people and therefore, productivity risks attached to that.

There are no further questions at this time. I would like to hand the call back to the speakers for closing remarks. Please continue.

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

Thank you.

Thank you.