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

Hello, and welcome to the Monadelphous 2022 Full Year Results and Analyst Briefing. Presenting from Perth are: Monadelphous's Managing Director, Rob Velletri; and Chief Financial Officer, Phil Trueman. The structure of today's presentation is similar to previous results briefing. Rob and Phil will first take you through the company's financial and operational performance for the year ended 30 June 2022 as well as the outlook before answering any questions you may have. Some further details are provided as appendices in the slide deck. Copies of today'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 today, Mr. Rob Velletri, who will start on Slide 2. Please go ahead, Rob.

Thanks, Kristy, and welcome to everyone to our 2022 full year results briefing. And during the past 5 decades, I'm proud to say that Monadelphous has built a reputation as a contractor or partner of choice, delivering high-quality, safe and cost-effective service solutions to our customers. This reputation has helped us to make our 50th year in operation, an extremely busy year so far, with high volumes of construction and maintenance work carried out across resources, energy and infrastructure sectors. Today, we have more than 7,500 employees operating across 6 countries. On Slide 3, you can see a handful of our dedicated and loyal people. Although we've grown significantly over the years, our people and our values remain at the heart of our business. I want to take this opportunity to thank our team who've contributed to the growth and success of Monadelphous -- some for more than 30 years. It's this team of people who'll help to shape the future of Monadelphous, a future that will see us continue to grow from strength to strength. So, moving now just to Slide 4 and the performance -- group performance for 2022 and some highlights. And you can see we recorded strong sales revenue of $1.93 billion for the year, which was a very similar result to the previous year. Our Maintenance and Industrial Services division reported record revenue of $1.17 billion, which is up 19.4% on last year. The result reflects strong demand across the board, with increased activity in the oil and gas sector as well as in Chile and Papua New Guinea. Our Engineering Construction division reported revenue of $774 million, which was down 21% from the previous corresponding period. As we forecast earlier in the year, following a busy first half, construction revenue declined in the second half due to a number of major resource projects reaching completion, and the timing of award and commencement of new projects. Net profit after tax was $52.2 million, which is an increase of 11%, and representing earnings per share of $0.549, which was up a similar amount. The Board declared a dividend of $0.25 per share -- total dividend, taking the total full year dividend of $0.49 per share fully franked, which is up from $0.45 last year. Strong demand for labor across the industry as well as into state travel restrictions, hindered our ability to efficiently recruit and mobilize people, and impacted labor cost productivity and employee retention. Nevertheless, we did see an improvement in our EBITDA margin around 20 basis points from last year. Importantly, we secured approximately $1.45 billion of new contracts and contract extensions since the beginning of last financial year, which I'll talk more about on the next couple of slides. Moving to Slide 5, contracts secured in Australia. You can see our contracts spread across a broad range of sectors and geographies. Within our core markets, we secured around $400 million of new work in the iron ore sector, with long-term customers, BHP and Rio Tinto, as well as with Fortescue Metals Group and Roy Hill. In addition, we were awarded $500 million of new contracts and contract extensions in the oil and gas sector with Woodside, Origin and Shell. Also, in Australia, you can see that large are on stock in New South Wales, which represents our joint ventures with Zenviron, $250 million contract for the balance of plant work at the Rye Park Wind Farm, which is the biggest wind farm which we -- to be constructed in New South Wales. On the next slide, Slide 6, you can see our contracts overseas. We secured around $175 million of new work overseas since the start of last financial year. This includes a number of contracts in Chile, particularly in the copper sector via our maintenance and construction services business, Buildtek, as well as new work in the gold sector in Papua New Guinea. After the year-end, so early this financial year, we were also awarded a contract for the construction of surface infrastructure at the Oyu Tolgoi Underground copper project in Mongolia. So, moving now to Slide 7, our safety performance. Our 12-month Total Recordable Injury Frequency Rate ended the year at 3.07 incidents per million hours worked, which was slightly up on last year, with our performance impacted by high levels of operational activity on a large number of new employees onboarded during the period. In response, we rolled out a series of targeted safety campaigns to address common risks, such as hand and finger injuries. We increased our focus on the frontline safety programs to promote the support infield safety leadership. I'm pleased to report, though, that our serious incident frequency rate improved by around 55% over the course of the year as a result of our sustained focus on fatal risk hazards and continued application of our fatal risk control standards. I'm also pleased to report, we continue to be recognized for our efforts in the area of safety and innovation, and were named as a finalist in 3 industry safety innovation awards during the year. Moving now to Slide 8, our people. We finished the year with a workforce including subcontractors of around 8,000 people, which is up 2.4% of last year, with growth in our operations in Chile and Papua New Guinea, offset partially by the demobilization of employees following some of our major construction projects finishing up. High levels of industry activity and interstate travel restrictions that were imposed to reduce the spread of COVID-19, significantly impacted our ability to source and retain talent. With strong demand expected to persist us, skilled labor shortages are likely to continue to constrain our capacity, which means, efforts around people retention and attraction will become even more important. During the year, we spent a significant amount of time reviewing and refreshing our code of conduct, supporting policies to reinforce acceptable workplace behavior in our organization. As part of this, we run our It's Up To Us campaign, which highlights important role every employee of Monadelphous plays in creating a safe, respectful and inclusive work environment. To support the retention talent, we implemented an employee retention plan, which provides a one-off issue of Retention Rights to key employees vesting over a 3-year period subject to continued service conditions. And to help with employee attraction, we launched a new talent acquisition and performance management system. We enhanced our employee referral and our alumni programs, and we've recently reinvigorated our international sourcing strategy, placed on hold during the period of travel restrictions. Part of our strategic planning process, we undertook a review of our organizational structures to make sure we are appropriately set up to deliver against our strategic plans. And the review identified a number of structural improvements to enhance our approach to growth and diversification, and to optimize project delivery. Moving now on Slide 9, Engineering Construction division. As I stated earlier, reported revenue of $774 million after the completion -- successful completion of a number of large resource construction projects in the first half. In the second half, we had lower levels of activity due to the timing of award and commencement of new major projects. However, a new wave of resource projects is expected to contribute to a ramp-up in construction activity throughout the 2023 financial year. During the year, we completed work at BHP's South Flank project, Rio Tinto’s West Angelas Deposits C & D Project, and MARBL Lithium Joint Venture’s lithium hydroxide plant in the southwest of WA. Mondium, our engineering, procurement and construction joint venture, successfully completed the construction of Rio Tinto's Western Turner Syncline Phase 2 Iron Ore Project, as well as the tailings retreatment plant at Talison Lithium at the Greenbushes mine. In addition, we successfully delivered one of the largest shutdown campaigns we have undertaken at BHP's Olympic Dam mine in South Australia, and provided multidisciplinary services to assist Rio Tinto to complete the Gudai-Darri iron ore project in the Pilbara. In total, our Engineering and Construction division has secured around $325 million of additional work since the start of the year -- last financial year. And during the year, we established Alevro, which is a joint venture with global heavy lifting company, Fagioli, to provide turnkey heavy lift solutions to the Australian market. Alevro provides us with increased capability and capacity to deliver large-scale, heavy lift and logistics services for major projects. Moving now to our Maintenance division. As I mentioned earlier, our maintenance had a stellar year. They recorded annual revenue of $1.17 billion, up almost 20% over previous year. Result reflects strong demand for maintenance services across the resources and energy sectors, as our customers maintain high levels of production and capitalize on favorable commodity prices, both in Australia as well as overseas in Chile and Papua New Guinea. Since the beginning of the financial year, the Maintenance division has secured around $1.13 billion in new contracts and contract extensions, including a strategically important 5-year maintenance and shutdown services contract with Fortescue Metals group. To better support our customers in the Pilbara, we opened an expanded facility in Tom Price. We progressed the construction of a new facility in Port Hedland, and we approved the development of a new, larger facility in Karratha. In oil and gas, we secured a 2-year extension to our existing maintenance contract with Woodside at their onshore and offshore gas production facilities, as well as 2-year extension to our maintenance contract with Shell. In addition, we commenced early deep decommissioning work with Petrofac on the Northern Endeavour, FPSO facility, which we -- that will be the first of a growing number of decommissioning opportunities in the oil and gas sector in the years to come. Our Chile-based maintenance and construction services business, Buildtek, continued to grow, capitalizing on a strong copper market. Since the beginning of the financial year, Buildtek has secured approximately $80 million in new work, including several contracts with Codelco, which is the world's largest copper producer. And finally, the division acquired fabrication business, RTW Steel Fabrication and Construction, to complement its service offering in the south-west of Western Australia. Moving now to Slide 11, sustainability. So we remain committed to making a positive contribution to the communities in which we operate. Our efforts are focused around key areas of diversity, community and environment. And as part of this year's NAIDOC Week celebrations, we launched our latest Stretch Reconciliation Action Plan. This is our second stretch RAP aimed at continuing to advance our contribution to reconciliation for Aboriginal and Torres Strait Islander peoples. Our commitments include offering long-term employment opportunities and training programs for indigenous peoples and supporting First Nations' businesses through meaningful commercial partnerships. We continue to deliver our Indigenous Pathways program in partnership with Rio Tinto, which aims to increase the number of skilled and tertiary qualified Aboriginal and Torres Strait Islander peoples in the resources industry. Since it was launched in July last year, more than 20 participants have taken part in the program. We also renewed our partnership with the Polly Farmer foundation. In 2021, we launched our second 3-year gender diversity and inclusion plan, which focuses on ensuring a safe work environment for all employees, the removal of gender-based barriers and extending targets for female candidates in Vacation and Graduate Programs. And I'm pleased to confirm, during the year, we've reached or exceeded all the measurable targets which we outlined in our plan. To aid in our objective of increasing female participation through early career pathways, we extended our partnerships with the University of Western Australia's Girls in Engineering Program and the Queensland University of Technology's Gender Equity in Engineering Makes Sense program. In addition, across our operations, we participated in more than 100 community initiatives across 25 locations, contributed over $370,000 in funds and supported our employees who participated in 600 hours of voluntary work. And finally, during the year, we formalized our goal of achieving net 0 emissions by 2050, underlining our commitment to the sustainable management of the unique environments in which we work. Our environmental strategy is focused on decarbonization -- sorry, decarbonizing operational activities and includes objectives supporting the transition to renewable power and greening our fleet and offsetting carbon issues. I'll now hand over to Phil, who will give you a little bit more detail on our financial performance.

Thanks, Rob, and good morning to everybody. So, I'm on Slide 12 now. This slide shows our financial performance for the period compared to last year. And as Rob mentioned earlier, we recorded revenue of $1.93 billion for the year, reflecting the strong demand for maintenance services across all sectors and the successful completion of a number of major construction projects. And earnings before interest, tax, depreciation and amortization was $111.2 million, an increase of 2.3% on the prior corresponding period, giving an EBITDA margin of 5.8%. Labor costs, productivity and employee retention were impacted by the very high demand for labor within the industry, along with the significant travel restrictions. Our net profit after tax for the year was $52.2 million, an increase of 11% on the prior corresponding period, and earnings per share was $0.549. And the Board declared a final dividend of $0.25 per share fully franked. We ended up cash balance at 30 June 2022 with a $183.3 million, and we generated strong cash flow from operations of $65 million during the year, and the cash flow conversion rate for the period was around 84%. The strength of our balance sheet provides us with the financial capacity required in the current economic environment and enables us to take advantage of suitable investment opportunities which may arise. So with that, I'll hand it back to Rob who will provide you with an overview of the outlook for the business.

Thanks, Phil. So Slide 13 shows relevant current and forecast Australian market conditions through our business. And as you can see across all the sectors in which we operate, they're all forecasting strong outlook for -- if not a solid continuation of high levels, growth -- continuing growth in capital and operating expenditure over a number of years in the future. If we look -- move now straight to our outlook slide, which is Slide 14, you see, the resource sector in Australia and in our overseas locations will continue to provide a large number of significant opportunities across a very broad range of technology markets. Looking at them sort of one by one. The outlook for iron ore is expected to remain buoyant with capital and operating expenditures required to sustain and indeed, maximize iron ore production levels, continue to drive strong demand for our services. High levels of global demand for battery metals driving significant investment in lithium, copper and nickel, also rear earths. They all provide numerous prospects for us in the coming years. Along with the gold sector as well, they will present opportunities not only in Australia but also in South America, Mongolia, and Papua New Guinea. Conditions in the oil and gas sector are also buoyant with construction opportunities from development of new LNG projects currently in the pipeline, and demand for oil and gas maintenance services is expected to remain strong. Australia's transition towards clean energy will continue to strengthen and provide opportunities in the renewable energy sector. Increasing pipeline of new wind farms are coming to market in the next few years, will provide many opportunities for Zenviron, both in the electricity market as well as in the private sector. Industrial operators moved quickly to meet their decarbonization objectives. Also, a rapid development of the hydrogen sector will provide us with opportunities in the coming years. And more broadly, favorable conditions in aging assets across all resources and energy sectors will continue to drive strong demand for maintenance services. The shortage of skilled labor though will be the most significant challenge for our operations, especially in Australia. We are also mindful of the challenges posed by heightening supply chain risks and an escalating cost environment. So, with capacity constrained, we'll be taking a strategic and targeted approach to new work opportunities. We'll be engaging and collaborating earlier with customers and focusing on earnings quality. Also, obviously, continue to focus on employee attraction, training, development making Monadelphous a great place to work. With travel restrictions lifted, we've also recently reengaged, as I mentioned earlier -- early today, international labor sourcing strategy. As supported by our strong balance sheet, we will continue to assess opportunities for acquisition to achieve ongoing service and customer market diversification and support long-term sustainable growth. As highlighted in our half year results, following a ramp down of construction activity in the second half, a new wave of construction projects currently in the tendering phase expected to see activity ramp up during the 2023 financial year and into the following years as well -- into the following years. Revenue for the 2023 financial year will be dependent on the timing of awards and commencement of these projects, and will likely be skewed moving forward to the second half. Anyway, in closing, I would like to thank our stakeholders for their ongoing support, including our shareholders and customers. And I commend our team on their commitment and effort in achieving another solid result. Thank you. I'll hand over to the operator now for any questions.

[Operator Instructions] Our first question comes from the line of James Wilson from Jarden.

Just 2 for me today. Firstly, on the outlook for construction, can you just clarify whether that second half skew in your guidance is due to expected award wins in construction? Or is it something related to the timing parts of maintenance operations, just given that we saw a slowdown of contract wins in the second half of '22, particularly in the construction space?

Yes, the skew is because there -- we've finished a significant amount of work last year -- early last year. We still have some work moving into this year. But in terms of the timing of work, we're seeing -- we're forecasting to grow our construction revenues through this year into the second half, which will, therefore, give a skew -- expected skew of revenue into the second half. So it's construction related.

And just secondly for me, guys. Cash conversion looked a bit lower over the second half. Can you perhaps talk a bit to the dynamics you're seeing there going into '23?

It's really just kind of the timing of payments around year-end. There's nothing that we're concerned about. Cash conversion, we still -- our cash conversion is around 100%. No big change.

Our next question comes from the line of Richard Johnson from Jefferies.

Rob, can I just start with talking a little bit about FY '22? I'm just trying to make sure I understand why the second half top line ended up being a little bit better than you had suggested at the half year. Is there anything particularly you could call out in that regard?

Well, no, not really, perhaps -- I guess the -- I mean, it's very -- it's not that easy to forecast. I mean, in this particular market, we do follow and then we get asked to do stuff that we didn't expect perhaps to happen during the period. So we had a lot more work come through that was not necessarily in our book. So yes, it just really probably reflects the amount of demand that there is out there in the market.

And then just on the issue of the labor challenge, which obviously, I presume it doesn't come as any surprise to anybody. I'm just trying to understand the work you're tendering at the moment. That's based of labor numbers that you're very confident in, or have already -- And essentially, I think what I'm trying to ask is whether labor is an issue of availability? Or is it just an issue of cost, or both?

No. It's availability. Availability is not there. There's just so many people were available and there's more work to do than the people that are available.

So what does that imply for sort of near-term top line growth then?

Well, it implies that we need to be more -- we will need to be more selective in the work, because there will be probably more work available for us than we can actually do. So, we will be selecting jobs that are obviously going to give us, I guess, a more secure and long-term return.

So would it be fair to say that in the near term, notwithstanding labor cost pressures, that the growth might be more skewed to margin than revenue in the short term.

Yes. Well, I guess that's the implication of all of that, yes, the quality of our earnings. We need to -- yes, we will be, I guess, making sure we're getting a good return from the human -- from people that we do have.

And is it your sense that the customers are fully aware and understand the pressures in the system?

Look, I think it's varied across the industry. I think there is a general -- generally people understand that, and then getting to understand that better over time.

And then just one last one. You mentioned the capacity uplift of your maintenance facility. Is that being done to address business that you've already got? Or does it give you some latent capacity?

Probably a bit both. Yes, a bit both. I mean -- and there's also an emphasis on regional bolstering -- regional kind of presence and having more people located in those areas rather than trying to minimize perhaps flying play out, that sort of thing. But it's just reflecting the increased level of activity and demand on our business in those regions.

Our next question comes from the line of Andrew Hodge from Credit Suisse.

I wanted to ask -- just extending that idea about the margin. I guess, going forward in the next sort of while, Rob, you've talked about being more selective in where you allocate resources to. Does that -- is the implication that you can make better margin because of that, or that you'll skew the portfolio further again to maintenance and industrial services because it has the longer duration nature to it? So as a composition, the margin may not improve as much as we might otherwise expect if there was a bigger increase in engineering and construction side?

Yes. Look -- yes, it doesn't -- the statement is thematic in that -- this will apply across the board. Won't be just for construction, it will apply to maintenance, and then we do have workforces that are -- whilst there's some overlap, they're quite discrete workforces. So, the demand is right across the board. So the -- I guess the point I'm making is that -- clearly that, given those -- given that sort of supply-demand situation that we've got, that we should be sort of trying to focus on getting the -- improving our returns from the people we have, which will -- therefore, should translate to better margin, I guess.

And could you make a comment just around your early observations of labor supply? I understand you're saying it's still tight with regard to the WA Board having opened just domestically, and whether you think the government lifting the cap on skilled immigration maybe next month for something to flow through later in the calendar year or early next calendar year, has the capacity to make any difference for you over the next 12 or 24 months?

Look, every little bit will help. I guess, the way we're sort of reading the outlook in terms of demand versus supply, I think we're going to be heavily restricted on for the foreseeable future, getting people -- more people in from overseas, et cetera. I think it will be good because this is not just a problem that we have, it's probably everywhere. That will help alleviate the situation. But I don't see it as something that's going to fix it in 12 months’ time again.

And then just one last question on whether the higher payout is something sort of to look for going forward, if it's just -- or it's just sort of more novel for this period here?

Sorry, the high end?

The higher dividend payout ratio.

Well, our policy is 80% to 100%. So what was it, 90% or something, pretty spot on. And maybe it's been a little bit higher than before, but it's -- I mean, we're running between 85% and 90%, I think.

Our next question comes from the line of Nathan Reilly from UBS.

Rob, speaking up that comment you made with respect to your aspirations to grow construction revenues into F '23. When I layer that with the maintenance outlook, it sounds like there's a fair amount of catch-up in deferred maintenance volumes which should support a bit of growth into '23. I'm just wondering, is there any risk that '23 revenues could be below FY '22?

Right. Definitely. I think there's definitely a risk. I mean, it's a timing issue. It's a timing issue, things what sort of falls before June. I mean -- so yes, there's definitely a risk that we won't do I'd say. So I'll be happy if we did do I'd say. I mean, the story is a longer-term story than what fits into this year -- the outlook beyond this year. I mean, I think if you look at the -- where all the execution revenue, if you like, on projects since it's really looking strong for '23-'24, '24-'25 for major new projects. So it's [ the way about ] this year. Yes.

Yes. So that definitely comes through with your guide to that sort of back-end skew to the second half.

Yes.

And picking up on your comments that there is a substantial sort of tendering activity and a very buoyant demand outlook. I'm just wondering, do the current labor constraints that you see at the moment, impact your ability? Or do they constrain your ability to grow revenues into '23, even if those contracts did fall for you as you'd anticipate?

Yes, look, the general -- firstly, yes, there's no question that we know -- our revenue will be constrained. There's more work variable, I think, or will become available and capacity to the work. Where that ends up, I'm not too sure. Hence, the focus around making sure it's the work with best returns or the longest, best jobs -- the best work that is work that will best attract labor to the job.

And one more question just in relation to that tender outlook, picking up what you're saying with respect to a high level of demand and project activity over the next 18 months to 2 years. I'm just curious about your recent tender win rates. Can you give us an idea of how those more recent tender win rates would look relative to say what you're achieving heading into that last round of iron ore mine replacement project activity?

Look, I think we'd be 1 of 3, if not 1 of 2, maybe our work, our [ SMP ] and our kind of major resource project work. As in -- Yes. So that's what's at, 30% to 50%.

And the win rate is unchanged? So it's that sort of 30% to 50% more recently?

Well, I think where we are today, that's where we are today, yes. Yes, we're quite -- ourselves more business, 2 or 3.

Our next question comes from the line of Anthony Longo from JPMorgan.

Just a quick question for me just with respect to the construction work that you're expecting to bid on and hopefully secure over the next little while. How should we be thinking about CapEx and CapEx requirements in the context of what was achieved this year, and what level -- versus this year and what levels we've seen in previous years?

Probably not a lot of change. Maybe an increase of some sort. Minor increase. We've got with this demand going forward with client equipment, et cetera, may be small expenditure in that area, but that's cranage, that sort of thing. But I think when we're running at 2% or 3% of our revenue, that's likely to continue probably at maybe 3% or something like that 2% to 3%.

And also just a final one for me and covering off on some of the earlier questions on labor costs and shortages and the like. When you look at this particular result, I mean, with some of those projects rolling off in the first half '22, call it, and in the context of cost that you have achieved for the year, like how much of that is -- how much cost sort of came off as a result? And I guess I'm trying to work out what ultimately the cost base is going to be going forward as some of those new project wins and then work comes online as well?

Not sure. Phil, do you understand the question?

I think the question was how much of our cost base came off when the project first -- was that it?

Yes, exactly. Sorry. Exactly.

The majority of our...

It all comes off.

The majority of our costs are labor costs and the majority of the people employed on those projects, when they are employed any -- for the duration of those projects. So it all comes off.

And then thinking about it going forward. So while we're expecting that to come back online in terms of costs for work, you're still expecting it to be margin accretive work, just given the project pipeline that is out there?

We're expecting it to be margin-accretive work based on pipeline of work that's out there.

I don't know. I'm not sure. I don't understand the question.

Anthony, do you want to try?

No, it's fine. We'll take it up [ offline ].

Yes. I think the answer is probably yes to the question.

I think it comes back to what Rob said earlier about the limited resources we have, maximizing the returns that we get on those limited resources, so quality of earnings.

Our next question comes from John Purtell from Macquarie.

Just had a few questions, if I can. Rob, thanks for the presentation, some of the color there. Can you talk to some of the major opportunities that you are tracking currently, to the extent that you can, and potential timing of those awards? It sounds like there's some near-term opportunities retiming?

Yes. There's like many and very big today. There's a number of near-term opportunities with Rio, Western [ Ridge ]. There is -- and there's a pipeline of -- I guess, of iron ore work that span over the next 2 or 3 years, for both BHP and Rio Tinto. Western Ridge is another one. BHP. There's one -- there's about 5, 6 opportunities in lithium over the next -- so this is over the next 12 months I've got to get some sort of an award. There's 2 trails at Albemarle and Kemerton, there's to work at Talison Greenbushes or 2 more trails, or –- [ Dilma ] Minerals have a project that needs to get awarded in the next 6 months. Liontown resources have got a project that needs to get awarded the same period. There's gold opportunities with Newcrest. So they're all -- so yes, there's a lot of work available to be awarded within the next 12 months, like more than we can –- so, I mean there's a lot more I can say about that. But does that help, John?

It does. And just the second part of that. I mean, obviously, we've heard a lot about labor availability issues and higher capital costs. Is that having any meaningful impact on the pipeline? You're still seeing a buoyant pipeline notwithstanding that?

We are. Yes, we are. I'm not sure the implication in the long-term here or whether things -- it means that projects will take longer to do or to be done, would be --clearly issue around the cost, et cetera, is going to be in question. So maybe it's harder to get projects up, I'm not sure. But it certainly will be a constraint on the volume of work that can be done. Now, remember, we're talking whatever resources and energy here, there's just -- there's a lot of work in infrastructure, which is a lot of work more generally right across the construction of -- construction services, if you like, right across a number of all sectors, which is really taking the -- making the supply so difficult. There's just demand everywhere.

And just a final question in relation to margins. Obviously, your margin was up slightly in the second half versus the first despite the revenue drop off. So the question is, what was driving that? Is that essentially the new work rolling on at better margins and the legacy work rolling off? And sorry to ask a 2-part question here, but we've talked in the past about a 7% EBITDA potential margin. That's where you were pre-COVID, and I think the target was to get back over time to that sort of margin profile. Is that still a realistic expectation?

Look, it's definitely a realistic potential outcome for sure. Absolutely. Yes, I think the new work that is being taken on is -- in some ways we might actually be in a good position in that or better position, because we've seen some significant issues around price increases, inflation, supply chain type issues that -- we're going into some of this new work, we're well aware of the risks there, and so we're better able to deal with that in our pricing or negotiations with customers, et cetera. So we probably didn't really see any great impact of those increases. And yes, the new work we took on was probably better margin work than the work that was coming off.

There are no further questions. I'll now turn the call back to Kristy for closing remarks.

Thank you for your participation today, everyone. That now concludes our briefing.

Thank you.

Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may all disconnect.