NRW Holdings Limited (NWH) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the NRW Holdings Full Year Results Conference Call. [Operator Instructions] I would like to hand the conference over to Jules Pemberton, Chief Executive Officer. Please go ahead.

Good morning, good afternoon, everyone. Also joining me is Peter Bryant, in his first time as NRW CFO, but obviously, many times over the years in his capacity as a CFO of a listed company. If we go on to Page 2, we'll sort of start with some opening remarks. And despite the many positives in our underlying results, it's been a pretty challenging year. South Australian government placing on steel into administration, of course, had a major impact on the business. And despite the best efforts ensuring we held a strong security position over the port assets. As many of you are probably aware, the South Australian government had amended or written new legislation on 2 separate occasions since the administration to essentially avoid our security or attempt to avoid our security position over those assets in order to simplify the wireless sales process. So that's been obviously very disappointing. Our efforts to recover the impaired balance, of course, is still underway. We've got a number of initiatives happening at the moment. And we'll continue to seek the best possible outcome for all of our shareholders. And the second impact of the business isn't so much of a similar one to the first one, but more an active god, where we experienced probably double the average rainfall throughout Queensland, which impacted the Golding business, but particularly the mining part of NRW's Golding business. and also during the second half. So it was bad in the first half, but also continued to be far higher average rainfalls than -- sorry, higher than average rainfalls in the second half. Now having said those, a couple of negative things, we'll move on to the positives for the rest of the presentation. And on Page 3, the group increased revenue by 12.2%, which was driven by strong growth in both the MET and Civil business, which performed exceptionally well. Our underlying EBITDA also increased with margin expansion in MET and Civil. However, as I just mentioned, the mining margin was significantly impacted by the higher average rainfall. We also had a suspension of the Mountain Catlin contract with a lithium project in WA, which finished early and a bit of descoping of fleets at Kura. Cash holdings remained strong, $265.7 million and also strong cash conversion, 82.9%, which is sort of around our long-term averages between 80% and 90%. Order book, very strong at $6.1 billion and the near-term tender pipeline has actually grown from the half by a couple of billion to $17.3 billion, which is for tenders that can be bid and commenced in the sort of 12-month period. In that, there's active bids of $5.6 billion, again, reinforcing the strong position that the company is in, not only for FY '26, but '27 and beyond. And if you look at the coverage that we have at the moment on our order book, it translates into about 90% of our FY '26, $3.4 billion revenue guidance. being covered already, which is a very strong position to be in at this time of the year. And finally, the Board declared a fully franked final dividend of $0.095 for the end of the financial year. On to the sustainability overview. We've seen a slight uptick in the TRIFR, which obviously isn't great, but we're working. It's our highest priority in the business, the safety of our people. and we're working hard to ensure we continue to see those trend down over the coming period. People numbers grew pretty strongly. We're up about 1,000 people from the prior period. reflecting not only the HSE acquisition and the people that came along as part of that transaction, but also growth in the business, and we're going to see -- continue to see those numbers trend up. We've strengthened commitment to psychosocial, safety. We're partnering Supply Nation to support further engagement with indigenous businesses and obviously continued investment in training and development with a significant number of apprentices, graduates and people in the graduate program as well. On a participation rate, diverse gender diversity, we continue to tick up the female participation rate, which is obviously very encouraging. And in terms of our reduction in emissions, we're also continuing to improve those stats. As you can see, we've had a 51% reduction in emissions intensity within our facilities. So that's sort of the first part of my presentation, and I'll pick up again on the segment results, but I'd now like to hand over to Pete to talk about the financial results.

Yes. Thanks, Jules. Look, it's great to be here during my first NRW results call. I'd also like to take this opportunity to welcome everyone to the call. In my 3 months with the business I've met face-to-face with many of our shareholders and analysts -- for those who I haven't met, I look forward to catching up with you over the coming weeks, hopefully. From my perspective, it's a new comment to NRW, I'm happy to give you a part of presenting models is a very solid set of numbers. particularly against the backdrop of the wet weather in Queensland and distractions and frustrations caused by OneSteel, which Julian touched on. I think it's a testament to the strength and diversity of the group and the quality of the people that make up NRW that were able to deliver underlying earnings against these headwinds. Slide 5 reflects the high-level P&L. Jules has called out the key numbers. And as you said, I'll hand back to him shortly to run through the segment performance. That pretty much leaves me with the highly engaging commentary on interest and tax. That said, I'll also provide a bit of color around the nonunderlying items, which are presented on the next slide. Before I jump into interest and tax, I thought I'd just reiterate the point Jules has made around the EBIT margin. So EBIT margin for the year was 6.3%, which is a tad down on last year's 6.6%. This reduction was due in part to the underperformance of the mining segment as a consequence of the weather. But on a very positive note, I think, was due to the greater earnings contribution from the lower margin and lower capital intensity in the businesses. So on to interest and tax. Our interest expense did increase year-on-year, driven by 3 key drivers: we saw a net increase in our draw equipment finance lines due largely to the financing of the HSE South Walker Creek fleet that came across as part of the acquisition. We drew down $50 million on our recently upgraded bank debt facility to help fund working capital requirements of HSE and to provide additional working capital buffers across the broader group largely off the back of the 1 nonpayment. Finally, we incurred circa $600,000 of interest expense related to the amortization of the establishment fees of that new bank facility that I just referred to. Tax expense in the P&L and I stress, this is the P&L not cash tax. It was well down due to the excellent work of NRW's relatively new Head of Tax and his team, who secured a prior period tax refund. The positive outcome of this positive outcome was amplified by the accounting impairment of OneSteel and the other nonrecurring items, we saw the accounting tax expense tenet on a lower statutory earnings base. Moving to Slide 7, which provides a summary of the non-underlying items. So this balance is bigger than you would have traditionally seen, which won't be a surprise as we previously called out our intention to impair the OneSteel receivable, running down the list, impairment of trade receivables and contract assets. This balance captures OneSteel, strand line which primarily did some work for prior to FY '24 and who went into administration owing us $6 million in February of this year and a further allowance by the company. Importantly, this amount excludes the movement in our expected credit loss or ECL which is reflected in our underlying results. Next, we have another amount related to strand line, which reflects a payment to secure the release of an insurance bond under the contract. Business acquisition costs relates primarily $5.5 million of stamp duty paid on the acquisition of the HSE South Walker Creek assets. And finally, we have a net gain on investments, which is the mark-to-market impact of a small portfolio of investments held by the group. For completeness, the book value of those investments at 30 June was around $7 million. Importantly, particularly in the context of the material impact of OneSteel the non-underlying items will deliver a tax benefit to NRW just shy of $43 million. Moving to Slide 8. cash flow. Jules called out the cash flow conversion. Just that is within our group target range. I don't plan to run through all the numbers in the cash flow. I'll just touch on a couple of the material movements. Cash interest was up year-on-year for the reasons I ran through going through the interest expense in the P&L. Cash tax was up, which is counter to the reduction we saw in new tax expense in the P&L. Whilst tax always has [indiscernible] of complexity, at a high level, the most significant driver to the variance between cash and P&L tax is the timing of the deduction that will be received for OneSteel if the debt is ultimately not recover. So from an accounting perspective, the FY '25 numbers included the impairment from a tax perspective and no deduction and to formally write off that balance, if that gets what occurs. Aside from the above, the increase really to last year as a result of some benefits received through accelerated capital deductions during the cup period, resulting in a slightly higher nondeductible depreciation this year. Net capital expenditure, notably down year-on-year reflecting continued focus on capital management. Payment for business companions is the HSE acquisition out and the bank and other finance movements, we have over in the interest commentary. Moving to Slide 9. Most of the material movements in the balance sheet have been explained. You ran through the P&L and the cash flow. I think the only movement that requires commentary is working capital that went from a debit balance of $25 million in '24 to a credit balance of $44.3 million in '25, again a bit like a scratch, but like a few other things, this movement is primarily related to OneSteel, which effectively saw the receivable, which is a debit balance in working capital being written off by posting new credit balance. There are a couple of other minor movements in working capital related to the acquisition of HSE South Morgan Creek, but the main movement is that receivable impairment. Finally, from me, Slide 10, which is a new slide to the deck and provides an overview of both our net debt position and our available liquidity. The callout for me is the table on the right-hand side that shows both the drawn and committed amounts of our bank facilities, our equipment finance facilities and our guarantee and insurance bonds facility. With a total committed undrawn value of these sites 3 facilities sitting at just over $8 billion. In the box at the bottom of the slide, I've excluded new equipment finance and guaranteed insurance bond capacity, given these facilities are quite specific in relation to what the funds can be used for. So at 30 June, looking at our cash on hand and our undrawn bank debt, we have available liquidity at just shy of $600 million, which provides significant capacity to fund working capital and strategic corporate activities if and when the right opportunities present. That's it for me. I'll now hand back to Jules.

Thanks, Pete. I'm going to go to Slide 12, which just gives us the segment overview. And from there, you can clearly see the heavy lifting that both the Civil and the MET divisions have done, strong growth at top line but also very strong growth at an EBITDA level. And I'll talk about those individual projects in a minute. And mining relatively on par versus the prior year despite the fact we've seen growth in the Mining business, given the addition of the Southwark Creek contract. So you can clearly see the impact at those challenging weather conditions have had on the business during the year. If we move on to Civil, strong performance. obviously significantly improved margin. And a lot of that is driven by higher activity across the key Pilbara and Bon Basin regions. Bone Basin still experienced a lot of rain during that period, but relatively clear in the Pilbara on higher volumes. We successfully completed a number of projects, including the Bumbryata Ring road, which completed in December '24, a couple of projects for Rio and the 2 alliances, which were essentially not contributing to margin. They were alliance-style projects running at relatively low or mill margins are now out of that. Civil business as well, which, again, will contribute to improving margins as we look forward. West Australia and Queensland are both experiencing significant surges in infrastructure development lot of projects coming online, be it port, be it defense, and of course, significant demand remains from our Tier 1 iron ore majors as well for sustaining and capital works. So a very good outlook for the civil business at the moment with those backdrops, and active tenders also will reflect that story. So I think if you look at the order book currently versus the active tenders, that active tender pipeline is probably as big as we've seen it in a long time. So I'm fairly very positive about the outlook for our Civil business moving forward. Again, another good contributor to the margin during the year has been our urban business, urban, the activity across the Pilbara and still robust activity in Queensland has seen a markedly improved performance from our Civil business. On to Mining, obviously, the revenue increase was due to the addition of the Southwark Creek contract, which I think commenced as of August during the year. That contract, the 5-year extension to that contract actually commences in January '26, where we will also operate clients' equipment as well as managing our own fleet and equipment there, which will see a step up in terms of activity on that site. And it's also under a slightly different commercial structure, whereas the commercial structure of the extension was sort of an hours-based recovery versus a production-based contract, which is more consistent with the rest of our business. So with that, the full year contribution of evolutions project, which started in February, this year in '25 -- or sorry, FY '25. Again, we'll see full year contribution from Castle Hill. So a very different picture, assuming the weather goes back to long-term norms, we should start to see those margins tick back up in the business, particularly this year and obviously in fourth [indiscernible]. Active tenders still pretty strong, quite a diverse group of tenders in there across gold, coal, and other metals. So I think we're very active in terms of our tendering at the moment at $2.9 billion is a pretty good position to be in. We go on to our MET business. Again, very strong performance from MET in terms of top line growth and also margin improvement, both Diab and RCR had a very strong year, particularly in the second half. and Primero has continued to grow through its contract at Fimiston. We completed Western range and some work that was doing Pilbara Minerals as well. But lots of activity happening a couple of good contracts awarded during the period, 1 at Coastal Waters for Rio Tinto and also the hope downs to satellite embedded Hilltop NPI projects. So lots of work ahead, $1.3 billion in the order book at this point, there's a very strong position to be in and also, obviously, a pretty large active tenders pipeline as well across projects, FEED studies, a number of other things that we're working on at the moment. It's a very busy period. Some of the key highlights for me in terms of RCR. We launched the Seal Panfeeder, which is our new innovative product which reduces the capital intensity capital costs for our clients. And that product has been rolled out at the mine expo in Vegas, which was last September, and we're very encouraged by the interest from clients, not only in Australia but also internationally. So we'd expect to see our products, parts and services business to significantly expand in the period to come, which is a great opportunity for us. And again, the MET business continues to work on Primero on lithium processing technologies that we've been involved in. We're on to our second -- on to our third pilot plant now, getting to the commercial pilot plants at a stage -- and again, these things that we're working on in the background, absolutely part of the potential of our future evolution as a company. So that brings us to the group outlook and guidance. As I said, the tender pipeline has actually grown. I think from the half it was about $15 billion to $17 billion. current active tenders very strong at 5.6%. And of the order book, $3 billion is already secured for FY '26. And that would be as high as we ever see it going into a new year in terms of our secured order book. So clearly, opportunity to do better. Balance sheet remains strong, as Pete touched on as well, obviously, enabling any other strategic or corporate opportunities that we may wish to do despite the impacts, obviously, of Laela during the period. And in terms of guidance, our full year guidance is the revenue expected to be a minimum of $3.4 billion. and EBITDA between $218 million to $228 million, with cash conversion at sort of long-term averages. So that's essentially the summary. Happy to go to questions now. Obviously, this plenty of good stories about our underlying results. We've had a couple of backdrops this year, but I'm very positive about the outcomes for '26 and beyond. So with that, I'll hand over to questions. Thank you.

[Operator Instructions] Your first question comes from Will Park with Citi.

My first question relates to guidance. I mean you called out that there's 88% revenue coverage versus $3.4 billion that you're guiding to. So there's around $400 million left to be secured. Given the context of your robust active tender balance, can we give some sense around the timing of when these opportunities are likely to land and some maybe if you could sort of call out some of the larger ticket items that we should be watching out for in the next 6 to 12 months, please?

Will. Look, there's lots of opportunities across the business and that news flow to deliver those additional earnings obviously would happen, you'd expect to be a first half style awards, but they're across mining and civil I can't be too specific in terms of what the actual project.

And then just thinking about mean, 8.6% in second half. Just wondering how sustainable that is. And what the key drivers of that second half uplift in margin, presumably, given your comments earlier on this call, it's driven by RCR and Diab. And just wondering what the, I guess, contribution from Fimiston was in terms of project margin profile there, please?

Yes. Well, RCR and Diab did have a strong year. sustainable. I mean Diab is a little bit more of a project's business than RCR. So RCR is becoming more of a product. Obviously, it is a products business that did do projects. So there is clearly more sustainability in that model going forward. Diab will have for 1 of the better term swings around about occasion will have good years and it will have better years. So it's had a very good year in terms of the project profile and how those projects were completing during that period in terms of booking those profits. There's no additional margin being recognized at Fimiston at this point in time, and we've been very clear that we're recognizing at the sort of the base end of that margin profile and assuming everything gets delivered per plan, which we've got 12 months left to do, then there is an opportunity there. but that is not baked into our assumptions at this point.

Just to clarify, could you kind of give us a sense as to what you're kind of expecting in terms of MET's margin for FY '26. Is it sort of 8% level? Or is it slightly below that? Just trying to get a sense as to...

Without any abnormals, I mean, obviously, there's -- Fimiston is a large project, and there is a potential gain share there, depending on how the project comes out, time-wise and all the rest of it in terms of cost targets. But that business should be doing 7% to 8% margin on a regular basis. We've always called that out. We've had obviously some challenges in the past and whether it's post-COVID, et cetera, et cetera. But the combination of those businesses should be at 7% to 8% margins.

And then my next question relates to the eliminations component in the top line. It's stepped down a fair bit in the second half. Just wondering what's happened there? What are the key drivers? And how should we be thinking about the eliminations component going forward, please?

So the intercompany revenue elimination, you're referring to?

That's it, yes.

Yes. Well, that's just a factor of the number of contracts between different parts of the group. And it moves around depending on what's being done.

And then just 1 last question. Cash conversion that you reported in FY '24 was around 95%. And -- and just looking at your releases this morning, is sort of suggesting that it's more like 82%, 83%. Just wondering whether if that's relating to the some of the late cash receipts that you sort of touched on in last fiscal year. I'm just wondering why there is that discrepancy.

Will, I wasn't here for the last financial year, I'm not so in the commentary. But Certainly, our target internally is to be in between 80% and 90%. The nature of the business where we have advanced payments, et cetera, does mean is it's going to move around a little bit. I think my comment would be my view on the debtor book at 30 June as the debt book was in very good shape. So that target range of 80% to 90% is where we should track. There might have been an anomaly is an advanced payment for Fimiston last year perhaps, but I'd have to probably review and revert to you on that.

Your next question comes from Kerry Page with NRW Holdings. We might move along to the next questioner. We have Nicholas Rawlinson with Morgans.

Maybe 1 for Pete. You guys did a good job of reducing CapEx through the year. How should we think about that in depth by '26?.

Yes. Good question, Nick. We haven't given capital guidance. I think the $140-odd million this year is probably the kind of bottom end of the range. So I think if you use $140 million as the bottom number addition might be somewhere between $140 million, $160 million depends upon what projects come across.

Yes. Nick, it's -- we didn't have a lot of growth CapEx in the last 12 months. So that number can move around subject to what we're doing, but that's obviously driven by new projects. We're working hard to kind of manage the sustaining CapEx and maintenance CapEx, obviously, to continue to drive those costs down. within reason, obviously, making sure that we don't have any availability issues with our fleet. So close focus on that. The bit that will swing a bit is growth CapEx. But at the moment, we actually don't need anything to hit the numbers that we're forecasting in our capital-intensive businesses, right? We've got capital. So you could assume a similar number, but it just depends on if we pick something else up that needs some growth CapEx.