Perenti Limited (PRN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Perenti Global Limited Fiscal Year 2020 Results Presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Mark Norwell, Managing Director and Chief Executive Officer. Please go ahead, sir.

Good morning, everyone, and thank you for joining the Perenti FY '20 Results Call. With me today is Peter Bryant, our Chief Financial Officer. I will provide you with an overview of the group's performance for FY '20, then Peter will take you through the financial results in more detail, before I close on the strategy and outlook and then open the call for questions. On to Slide 2, we are a global mining services provider. We operate on more than 55 projects globally in 11 countries across 4 continents with over 25 years operating internationally and more than 30 years in Australia and it is this local experience and know-how, combined with our proud history and track record of operating on an international scale that has enabled our recent expansion into Canada and in time, the U.S., given the significant pipeline of mining opportunities in North America. In addition to our proud history of operating globally, we operate under some internationally and locally recognized brands such as Ausdrill, Barminco, AMS and BTP. To leverage off these brands and capabilities, we have established 3 industry sector groups or ISGs, namely Surface, Underground and Investments. We are proud to operate above ground and below ground at scale, which positions us uniquely with a diversified mining services portfolio. Slide 3, what we stand for. The previous slide provided an overview on where we work and what we do, but importantly, what makes us, us and what we stand for is covered on this slide. Our purpose, principles and aspiration are what drives us and guides us in everything we do. Our purpose is to create enduring value and certainty for our clients, employees, investors and the communities we operate in, and we do this by living our principles. These are more than words on a page. These principles are what shape our behavior and how we work. By focusing on our purpose, by living our principles, we will achieve our aspiration to become the indispensable mining services company. And it's this focus and resolve by our people that enabled us to deliver solid results in FY '20 in a year that has been far from normal, which leads me on to the next slide. Slide 4, FY '20 in review. When looking at these strong numbers, it is easy to overlook the significant challenges the business navigated over the year and more recently, the ongoing challenge of COVID-19. I won't go through all the financial metrics. However, I will call out the following: Firstly, cash. As stated previously, cash conversion and other financial metrics are a focus of the whole business, and this focus was taken to the next level on the back of COVID-19. With this focus, we finished FY '20 with cash conversion at 96%. We generated operating cash flow of $427 million, and we have over $600 million in liquidity, leaving us well positioned to continue delivering on our 2025 strategy. This extremely positive result is a fantastic achievement, which resulted in our leverage decreasing to 1.3, down from 1.4 at the half. We continue to grow the business with record revenue of over $2 billion, and at the same time, we increased our EBITDA to almost $450 million and maintained our ROACE above 16%, although we did see a reduction in EBITA and NPAT(A) due to some business challenges and increased interest and tax charges. And with our focus on cash and the overall quality of the business, we've determined a fully franked final dividend of $0.035, taking the full year dividend to $0.07 fully franked. This dividend is a recognition of the strength of the business and the support showed by current shareholders. I'd also note that 70% of our revenue is from gold. So our gold exposure is very positive to navigate the ongoing global challenges over FY '21 and beyond. On to Slide 5. The safety of our people is paramount. It is a critical focus and the #1 priority of everyone across the Perenti Group of Companies. However, during FY '20, we had 2 tragic events. Firstly, on the 6th of November last year, we lost 19 of our employees to terrorism in Burkina Faso, when the bus they were on was attacked, whilst heading home for R&R. Our people rallied to support the families of the deceased and care for the 26 injured and their families. And then on the 10th of June, [ Justice Akoti ] an underground trainer, working for the UMA joint venture in Ghana, died as a result of a heavy vehicle incident. Beyond the tragic events, positive progress was made in several areas. We rolled out a standardized HSE framework across the group to ensure best practice globally, which included the introduction of group-wide critical risk standards. We have moved our focus towards all injury frequency rate, AIFR, to ensure we minimize all injuries, not only recordable injuries, and it was positive to see the AIFR decrease during the year. Our series potential incident frequency rate, SPIFR, is trending down. And pleasingly, we are a finalist for BHP Global Safety Award. On to Slide 6, our people. We have almost 8,000 employees. And it was the commitment and resolve of our people that got us through a year of significant adversity to deliver strong financial numbers. Investing in our people is a key pillar of our business strategy and this ongoing investment delivered many positives. During the year, Barminco was named Australia's Large Employer of the Year at the National Training Awards, which is a fantastic achievement and is great that team has had this recognition, and we continue to invest in apprentices with 128 apprentices currently being developed through our programs in Australia. In addition, we continue to focus on our proud history of training local employees in Africa. For example, we have built a large-scale training center in Botswana, a facility that is twice the size of our Perth-based facility. This focus is directly aligned with our purpose of creating enduring value for our employees and communities. And it is this focus that enables our ongoing success in Africa, where 97% of our employees are African. On to Slide 7, navigating COVID-19. We have evolved from navigating COVID-19 to living with COVID-19, such that it is now business as usual. As COVID began to impact the world, we established a COVID-19 task force led by our group executive, with a focus on ensuring the health and well-being of our people and continuing operations to deliver value for our clients, our people and our shareholders through these uncertain and ever-evolving times. And I'm pleased to say we have had no COVID-19 related redundancies. As international flight networks started to close, our people once again demonstrated their commitment to the business and their resilience with our expatriate and regional employees electing to remain at international projects on extended rosters to ensure the operations continued. And those employees, who were in Australia on R&R at the time, were mobilized through our Australian-based projects, whilst we established alternative plans to recommence international crew rotations. Since May, we have had 57 charter flight sectors move approximately 800 employees, repatriate 53 people in support of DFAT, and we repatriated almost 70 client staff. While these numbers roll off the tongue easily, the complexity involved in working with multiple international governments, aviation providers and other key stakeholders has been a 24/7 exercise. And without the amazing team we have, this would not have been possible. Whilst Africa and our exposure to Africa is negatively viewed by some, working in Africa and overcoming challenges is not new for our business or our people. And it's our quality people that ensure we continue to deliver strong results, and it's why we feel our experience and capabilities should be positively factored in when investors assess our company, not the other way around. And finally, we further increased our focus on liquidity management through the COVID-19, generating positive results, and we did not seek any JobKeeper allowances. In short, our team has done an amazing job navigating the challenges of COVID-19. On to Slide 8, sustainability. Creating enduring value through sustainability isn't just a headline on the presentation. It is more than that for us at Perenti. With the ever-increasing focus on ESG reporting, we have incorporated ESG elements into our 2025 strategy, and as it isn't focused on reporting, it is focused on performance. We want to deliver value through sustainability and not just meeting reporting requirements. So this -- with this focus, we are proud and excited to present our first sustainability report in our FY '20 annual report. In this report, we outlined our FY '21 commitments. And during the next 12 months, we will deliver on these commitments, develop a sustainability strategy that supports and adds value to our 2025 business strategy and deliver a stand-alone sustainability report. Our drive is to become the indispensable mining services company, which includes not only laser-like focus on shareholder return, but also on enhanced governance and practices across the group. Moving on to business performance and on to Slide 10, group performance. During FY '20, we delivered record revenue of over $2 billion, generating almost $450 million in EBITDA, over $200 million of EBIT, and we maintained ROACE growth of 16%. This is a fantastic achievement given the challenges we faced, managed and recovered throughout the year. This result really demonstrates the quality of the business, the strength of the team and the value of our portfolio business. In regard to our revenue breakdown, Australia remains the largest contributor by country at 44%. Gold is almost 70% of our revenue, which is very positive during these uncertain times. Although I would say that we are commodity agnostic when looking at projects as long as they meet our hurdle rates and ESG requirements. And we are not overexposed to any one project with 7% of our revenue coming from the biggest project in our top 10 projects of around 50%, demonstrating the strength and diversity of our business. Slide 11, Surface performance. FY '20 was a challenging year for Surface in more ways than 1. However, on a positive, we did see improvement in the second half, driven by AMS. When comparing the second half performance of surface to the first half, revenue decreased slightly, whilst EBIT increased by approximately 34% as the team focused on reducing overheads, enhancing systems and operational discipline. In FY '21, it is expected that the surface performance will remain largely flat with a focus on further improvements and securing new contracts to position strongly through FY '22. Slide 12, AMS transformation. The transformation of AMS continues with a number of achievements, and with continued focus into FY '21 and beyond. During FY '20, I'm pleased to report that the steps taken to address legacy issues have started to deliver improvements. Examples include: Reduced overheads by 35%. Delivered ramp-up at Sanbrado in Burkina Faso with a focus on ensuring ongoing operational performance, navigating COVID-19 and the terrorist attack in Burkina Faso, successfully exiting the Bissa and Boungou contracts in Burkina, and the Boungou fleet and inventory disposal discussions are well advanced. The transformation initiatives continue in order to drive AMS to meet its financial hurdles and deliver greater returns for shareholders. Whilst improvements at Yanfolila and Mako have progressed, further work is needed to ensure these projects meet their hurdle rates with client discussions ongoing. The key part of the turnaround will be securing new work with circa $0.9 billion in tenders submitted by the new management team, in line with our strict investment criteria. The draft of strategic review report has been received, and we are reviewing the report with any additional opportunities identified, incorporated into the current plan. Details of any changes will be provided when we report our FY '21 first half results. Slide 13, Underground. Please note the FY '18 and FY '19 numbers are on a pro forma basis. These charts clearly demonstrate the ongoing positive performance of our Underground ISG with excellent performance in financial and operational metrics, even though Q4 results were impacted by COVID-19. Revenue growth was driven by the Obuasi and Zone 5 projects and increased scope at several other projects, both here in Australia and Africa. Importantly, revenue growth has translated to maintaining profitability, with EBIT margins remaining above 15%. As a result of COVID-19, we exited the Rampura Agucha mine in India, which reduced our international footprint, which is a positive during COVID-19 and allows us to continue growing in attractive jurisdictions. During the year, we secured entry into North America with Barrick's Hemlo operation in Canada, which commenced in July. And the team are currently negotiating more than $1 billion in contract renewals that we expect we will complete in the first half of FY '21. In summary, excellent performance. Slide 14, investments. Our Investments ISG performed in line with expectations and continues to deliver strong results. During the year, we entered into discussions to sell BTP. However, they didn't meet our commercial requirements, so we are now focused on enhancing the earnings of the business. Well Control Solutions, which is exposed to the oil and gas market had been impacted by COVID-19, but the cost base has been reset to ensure the sustainability of this business. Our Chrysos assay technology investment to support our MinAnalytical business excites us. Particularly the fact that we are part of a potential game-changing technology for the industry. We recently expanded our Kalgoorlie facility, where we have added robotics. The robotic system is currently going through commissioning with go live expected within the next several months. We remain focused on capital discipline and further enhancing the other businesses in this segment. I will now hand over to Peter Bryant, our CFO.

Thank you, Mark, and I also take this opportunity to welcome everybody to the call. As I'm sure, you have heard us and will hear on many occasions during this reporting season, it has been an unprecedented year. A year where we all had to deal with the significant impacts of COVID-19 on both our business and personal lives. Against this backdrop, I am happy to be presenting what I see as a very strong set of results, strong in terms of profitability, strong in terms of cash conversion and strong in terms of liquidity management. Results, which reflect Perenti's disciplined focus on managing the business and on ensuring we are always positioned to be able to withstand any unknown challenges, which may come from time to time. And equally as important, ensuring Perenti is always in a position to be able to continue to deliver our strategic aspiration. Slide 16 summarizes the underlying profit and loss for the year. Mark has touched on several of the key numbers, but I think it's important that we run through them again. Revenue for the year was a record at just over $2 billion, up 3.8% on the prior year. Also of note, circa 70% of revenue is derived from gold generating projects or gold related projects. Our underlying EBITDA was up 6.8% to $443.8 million and equally as importantly, the margin at 21.7% was up, albeit only slightly on the prior year. To have delivered such a strong EBITDA margin in a year that has had its challenges is reflective of our group focus on financial discipline, and EBITDA margin of 21.7% is one of the strongest margins you will see in the sector. Our underlying EBITA for the year of $211.7 million did come off slightly due to an increase in depreciation for the year, which was at 11.3% of revenue, up from 10.1% in the prior year. This increase is due to the deployment of equipment on the gross projects into existing projects to deliver scope increases. Moving down the slide to NPAT(A). I think it's worth providing some commentary around tax expense for the year, which is the primary driver for the year-on-year NPAT(A) reduction, a reduction which by comparison to others in the P&L was slightly larger. Income tax expense for the year was 30.9% of profit before tax which is in line with the guidance we provided. By contrast, our tax expense in the prior year was at 24.1%. This increase relates to the application of the tax effect accounting standard under which Perenti booked it carry forward tax losses at the time of the Barminco acquisition. Finally, as per the heading, the results reflect the underlying profit and loss for the group. In FY '20, there are a number of adjustments between the statutory results and the underlying results. The most material of which was a noncash impairment of $59.6 million that I'll provide further clarity on shortly. Excluding impairment adjustment and the related tax effect, the underlying and statutory NPAT results for the year were materially consistent with the numbers fully reconciled in the appendix to this deck. You will recall, last year by contrast, following the acquisition of Barminco, there were some significant material differences, which saw us reporting a statutory profit that is well above the true underlying result. Moving to Slide 17, cash flow conversion. This is a number Mark referenced area, is a number we are very pleased to be reporting. Cash flow conversion reflects the conversion of EBITDA to operating cash flow before interest and tax and is a very pleasing 96%. At the half we reported a conversion of 68%, and we undertook to ensure the full year conversion reflected a year-on-year improvement, which you can see from the slide was achieved. Across the group, cash flow conversion is a key area of focus. Generating book profits is important, but we need to ensure we convert those profits to cash. Our aim now is to improve on this very strong result. On to Slide 18 and another pleasing slide, with the group generating cash before shareholder returns of $134 million in the year, which represents a cash flow yield being cash before shareholder returns over a market cap of 16.6%. There are a couple of numbers on the slide that require some commentary. Cash tax at $68.1 million, is just over double of the amount paid in the prior year. There are several factors that led to the increase. Firstly, and most significantly, the FY '20 tax paid captured the results of Barminco and more relevantly, AUMS for a full 12 months. By contrast, in FY '19, these businesses were only held for part of the year. The strong performance of AUMS in countries where we are committed to being a responsible corporate citizen and paying the required taxes also contributed to the increase in cash tax. Moving down the table, net CapEx at $190 million came in below guidance of $244 million. This reduction in the net number is partly due to some CapEx that was deferred as a consequence of COVID-19 and partly due to a slight increase in proceeds from sales. I think the rest of the numbers on this page are reasonably straightforward. Slide 19, asset backing a new addition to the deck, but an important addition. In these times of what I'll call credit concerns, it's important that we revisit and draw out a significant level of asset backing that the Perenti Group has. After the impairments, which I'll talk about shortly, the group had asset backing of over $900 million, which included land and buildings of $57 million. Including cash and working capital, the group is underpinned by $1.6 billion of, what I'll call, real assets. On to the impairment, which comprised the following 3 elements: an impairment to the carrying value of the property, plant and equipment and inventory located at the Boungou site in the Burkina Faso. We have indicated in the past that the likely proceeds from the sale before short listed book value of the assets. This impairment reflects that position. We are hopeful of concluding the sale in the short term, which will generate cash proceeds to the group. There is also an impairment to the carrying value of Power Solutions Africa or PSA. This is a small business that is noncore. In line with our strategy of divesting noncore businesses, we've entered into a conditional sale agreement for this business and have impaired the value of PSA to match the expected sales proceeds. As with the Boungou asset sales, when concluded, this transaction will generate cash proceeds to the group. The final element of impairment relates to the carrying value of certain items of property, plant and equipment and inventory within BTP. On to my final slide, Slide 20, which is a slide you'll be familiar with, as our group debt and funding structure has remained consistent over recent reporting periods. Our efforts made in relation to working capital and more broadly liquidity management have delivered a reduction in net leverage, which for the year was 1.3x, down from 1.4x at the half. The ratio was impacted by the introduction of AASB 16, the leasing standard. Without that impact, the ratio we have been seen at 1.2x. As announced during the half, we secured an increase in our revolving credit facility of $130 million shortly after COVID-19 started to take hold. This increase was a precautionary measure with the aim of ensuring the group had access to a significant level of liquidity, if required. The real positive is we did not need to draw on the increased capacity due to the level and focus on liquidity management. That said, we are grateful to our existing banking syndicate members who provided this additional level of support at a time when global credit markets were under some pressure. As outlined on the slide, at June 30, we had a total RCF limit of $530 million with undrawn capacity of $276 million, coupled with cash on hand of $328 million. This equates to total available liquidity of $604 million. In closing, I'll reiterate my opening comments. I'm happy to be presenting what I see as a very strong set of results, strong in terms of profitability, strong in terms of cash conversion and strong in terms of liquidity management. On that note, I'll hand you back to Mark to run through our strategy and outlook.

Thank you, Peter. Now on to our strategy and outlook, starting on Slide 22. This is a slide that we have presented before that outlines key focus areas of our 2025 strategy. We are making solid progress on all areas as we continue to deliver in the short term, but importantly, position for the long-term to ensure enduring value. In FY '21, we will continue to progress our strategy with a focus on delivering against our safety, operational and financial targets, extend current contracts and secure new work. In the next couple of slides, I'll provide detail on our order book and pipeline. However, before moving on, I'll call out a couple of key points of our strategy. As we continue to expand the business globally, we will have greater reliance on our management systems to ensure that correct tools are available for our people and the right controls are in place. With this in mind, we will be investing in our systems over FY '21 and FY '22 to ensure we enhance our systems for profitable growth. We continue to progress our technology during the future in both our current services, but also explore new service offerings that we will expand on in FY '21, and Peter has already spoken about the ongoing focus on our financial capacity, which is very well positioned. Slide 23, work in hand. We have $5.4 billion of work in hand, and we are currently negotiating $2 billion of extensions for existing projects, which we expect to conclude this year. These extensions are projects we have been operating at for some time and have positive client relationships. So we are confident of securing the extensions, although we cannot provide certainty or a guarantee until they are signed. Of the $5.4 billion of work in hand, $1.7 billion relates to the revenue for FY '21. So we have started the year off with a solid base. As mentioned earlier, the Hemlo project in Canada for Barrick has been secured, which is our first contract in North America, and we are focused on securing further contracts in this region. We also have significant exposure to gold, which represents almost 70% of our work in hand, with copper at 16%, our next largest commodity. Slide 24, pipeline. Whilst we could report a pipeline of greater value, the $8.8 billion represents projects that we are interested in pursuing and feel we have a competitive advantage, and it's not what we could pursue. The $8.8 billion is made up of 57 opportunities with 26% of the pipeline associated with existing clients. Over 60% of the pipeline is linked to 4 key countries. Obviously, Australia at 31%; plus Canada, the U.S. and Botswana at approximately 10% each, with almost 90% focus on gold and copper, both sought after commodities. Although we don't expect to win everything, we have a strong market share that we are confident of maintaining and building our share in North America. Our pipeline is weighted to the second half of FY '21 with growth coming through in FY '22. Slide 25. FY '21 priorities and outlook. Whilst we have many priorities for FY '21, I'll call out a few key items. Ongoing navigation of COVID-19 is a clear focus in ensuring our people stay safe and healthy and that we continue our operations. Operational excellence is always a focus for us, specifically on safety, productivity and financial performance. Capital management has been positive across the group, and this focus will continue into FY '21 and beyond as the way we work, plus refinancing of our debt, continuing to drive improvement in the surface ISG with a focus on improving the quality of returns and then grow in FY '22. And moving on to FY '21 outlook. Our outlook is highly dependent upon COVID-19 impacts, although we will continue to manage this proactively. At this stage, we won't be providing hard numbers for guidance. However, we are set to deliver similar revenue and operating margins in FY '21, subject to COVID-19 impacts, with solid growth expected in FY '22. I will reiterate a number of points focused on FY '21 outlook. $1.7 billion of revenue is already secured for FY '21, with almost 70% of that in gold, and we are currently negotiating $2 billion of extensions, which we expect to conclude this half. We are focused on investing in our people and systems to support further growth into FY '22 and beyond as we look to convert our pipeline in North America. At this stage, we expect the second half of FY '21 to be stronger than the first, with growth into FY '22, supported by our pipeline of $8.8 billion, with capital allocated projects that generate the right returns in accordance with our strategy. In summary, we delivered a strong set of financial numbers in FY '20 in spite of the multiple challenges, which demonstrates the quality of our people and the strength of our business. And it is this strength and with our people that we have started FY '21 with a solid foundation and a foundation that we will continue to strengthen this year with further investment in our people and systems to support our growth as we deliver on current commitments, but importantly, secure additional projects and deliver on our long-term strategy. Thank you. And I'll now hand back to the operator for questions.

[Operator Instructions] And our first question will come from Michael Aspinall with Jefferies.

Just starting off, the return on average capital employed was 16.6% for the group. The LTIs and STIs kicking in at just 14.5% at the top end of the target of 19%. Do you see a path towards achieving that 19% over the next 3 or 4 years?

Yes. Thanks, Michael. In terms of the return on capital, yes, look, we're still targeting to continue to drive the return on capital up. I think in terms of FY '21 will be pretty sort of similar, subject to COVID for FY '20. But beyond that our longer-term objective is to be driving that up to the 19% and 20% mark. We also have the plans to continue to improve the Surface business that has been called out previously, and we've stated that would be a couple of years journey, and we're partway through that. So as that starts, we probably would see the overall number-wise stats. So Michael, we're still targeting driving that towards the 19%, yes.

Okay. Great. And just on Surface then. In Surface EBIT was up, I think it's around $15 million from $11 million in the first half, which brings margins close to 5-ish percent versus 8% in '19. Is the 2x performance representative for FY '21? Or do you expect margins to continue to improve back to where they were in '19 and '21? Just trying to get a gauge of how that journey plays out.

Yes. Certainly, the promise of Surface in the second half of '20 was an improvement on the first half. So we're seeing some of the initiatives starting to take, I guess, positive hold. In terms of FY '21, we do expect it would be relatively flat with an improvement in the second half. So first half relatively flat with improvement in the second half. We did see a couple of jobs come up the back end of FY '20, and we've got a reasonably solid pipeline for the Surface. Mind you, we expect that to pay dividends more in FY '22. So we expect to be flat but we are working to continue to improve that into '22.

Okay. Great. And single one on investments. There is still some $15 million EBIT in the first half to $10 million in the second half. But it looks like first half margins were exceptionally strong. So how much of it was the strong first half versus a weaker 2 half and was there anything that happened in the first half that might not have reoccurred in the second half?

Yes. A bit of a combination there, Michael. We did have some asset sales early on, which is part of the BTP operating business. So it does go to online in probably the first couple of months of FY '20. So that increased the first half of investments, which is predominantly BTP. We did see some softening in the second half. Some of that related to -- sorry, can you still hear us, Michael?

Yes. Go ahead.

Okay. Sorry, just checking there. And the second half had some softening, and that related in 2 parts. One to the Peabody contracts, which is predominantly in thermal coal. We did have some bits come off. The Peabody contract that we are looking to redeploy. And also we had some softening in the parts business, which the team are shifting in terms of their focus to generate the right path moving forward. So a combination of improved first half stock, and second that we're working to improve investments into FY '21.

Okay. Great. Last one for me and I'll handover. Just what the book value of the Boungou posting impairment?

The Boungou asset post impairment, look, the book value is in the range of $40 million.

Our next question will come from Ben with Brownette (sic) [ Ben Brownette with CLSA ].

On the Underground performance when you spoke before at the end of June on some of the COVID impacts. Can you talk about the sort of the magnitude in Africa against Australia in that fourth quarter? And then to the extent you're currently still seeing that disruption?

Yes, sure, Ben. Certainly, we did see in Q4, a softening in Underground. And if we look at Australia versus Africa, the complexity of managing and navigating COVID in Africa is higher. But I have to say the team are doing extremely well. So there was greater softening in the African Underground business. In terms of where we're at with that. We did have some intermittent interruptions of some of the projects during Q4, into Q1. We're not seeing the same interruptions to date with COVID, but we are seeing the ongoing logistical challenges. And what we have done to mitigate that in June, did provide an update around how we're navigating the logistics for expatriates. We've shifted rosters from normally a 6 and 3 roster to 10 and 6 roster. Given that most countries still require 2 weeks isolation in the country, it's effectively an even time roster for our employees. So we are seeing a reduction in coverage of our expats. So there is still some softening reproductivity in the African business that we see it on par or may be slightly better than in Q4 in terms of the African operations, and we have put in place our routines to manage a sustained period of reduced international airline traffic. So the team has set it up pretty well, and we're so far, going well, managing the COVID in Underground in Africa.

And can you please comment on the level of disruption in Australia, if any? And what -- is there any currently?

Yes, Ben, it's been pretty minimal at the start of COVID onset like sort of all other mining organizations. We put in place the appropriate social distancing requirements at each of our projects. We relocated some of our eastern states employees working in WA across to WA. Some of our New Zealand based employees sort of located at the east coast, we also relocated as well. So we're not seeing much disruption at all. I guess, the team have got into a pretty good rhythm to manage the current situation with COVID in our Australian operations.

Okay. Cool. And a couple for, Pete, if it's okay. In the presentation, you said that stay in business CapEx of $130 million. Is that kind of under a normal run rate you'd expect going forward? And when you were saying that there was some growth CapEx pushed into '21, do you have a number for us for '21 for growth Capex?

The run rate going forward to CapEx, which should be consistent with our historic run rate of between 10% and 11% of revenue on the net expenditure growth CapEx, if we do secure a contract with a large volume of growth CapEx to update the market at that stage, you’ve got the CapEx number. The CapEx that rolled forward from FY '20 into '21 will be capturing 10% to 11% [ all those records ].

Okay. And the corporate cost number in the year, was that inflated because of anything? Or is that what you're looking at going forward?

The cost [ in there ] also inflated and going forward, actually, I think, we will see a slight increase in net corporate cost. We have reallocated some of the overheads out of our Surface business, particularly. And we're investing those in our corporate function to build our systems and processes et cetera.

And Ben, if I might just add to that in terms of the investment, I touched on it a bit in the update earlier. But I guess, as we look to sort of grow our business further globally, we are looking to sort of invest and strengthen our foundation across the group, so that we are able to better execute and expand the business. So effectively, we're investing in the business to derisk the longer-term growth for the company.

Okay. And just one last one. Obviously, the cash performance was really, really good. But in terms of where the inventory level sits and your overall working capital position sits, is that, I mean, is there more that you can do there? And then going forward, are you likely to save a little bit of -- a little bit of working capital build as you move into the back end of '21 before growing in '22? Or do you actually think you can reduce that base a little bit more?

So Ben, in terms of working capital, we do think there's more that we can do in the working capital space across a number of fronts. So that is a focus for the management, same as it was in FY '20, and we've increased our focus into FY '21. To your point about will that build at the back end of FY '21? As we bring on additional projects, and obviously, we're tendering for a number, and we hope to secure more projects in back half of FY '21 and into '22, we will see an increase in the working capital. But that will be commensurate with the work that we secure and that will be around inventory and other sort of working capital items. But we are looking to drive down the base level of working capital currently.

Okay. And can I just ask, Pete, with that maintenance CapEx number in '20 that was so much lower than what you're guiding there as a percentage of revenue. What enabled you to do that and is there any risk associated with spending so much less than revenue over that period?

I don't think it was that much risk. Mark quoted earlier, it seemed a bit lower than the number I had. But there was no...

On slide 18.4, FY '20 CapEx includes $130 million of stay in business.

Yes. Got it. Sorry, that -- there was no forced deferral of CapEx or anything like that during the process. Some of the CapEx just moved forward into the following period, we said, so there is no risk to the business.

Yes. I'll just reiterate that as well, Ben, certainly one of the areas the team focuses maintaining the assets. We need the right availability in some parts of the business, we've actually been investing more in that. So no, we don't see any operational risk from what we did in '20.

Our next question will come from Josh Kannourakis with UBS.

Great. Just a little bit more clarity. Apologies I got on to the call a little bit late, just around some of the Q4 impacts you've seen. Are you able to quantify or provide a bit more context around the impact of the incremental shifts in some of those incremental travel costs within that period? I'm just trying to get a bit of a feel for what you think the sort of step change in cost is while the travel restrictions remain in place for the business?

Yes, sure, Josh. I guess I'll qualify it. And without providing sort of the exact numbers, the reason being is it's generally sort of balancing out. If we think about rosters of our folks, who had been -- normally a 6 and 3 roster, I'm talking about our expatriates working internationally. Given that we shifted the rosters to a 10 and 4 roster. So effectively doubling the cycle, whilst we are paying more for the charter aircraft that we are operating into Africa. We are seeing a reduction in frequency of the seats compared to a standard operating cycle. So in that regard, we're seeing some savings, but some cost increase per seat. So Josh, we're not seeing the massive delta in terms of our logistical costs, in terms of a broader impact on the business, where we have seen some impacts in our operating results in Q4. It was twofold, one about intermittent interruptions at various projects. And the second being around, I guess, reduced number of expatriates on-site, as we've been shifting our roster cycles and that's come through into the Q4. Softening, I did mention that in Q1, we're not seeing the same level of softening so far albeit what we also know collectively is the dynamic nature of controls and the situation around COVID-19 is pretty unpredictable, but so far so good.

Got it. And just trying to go into the detail around the first half, second half being. So when you mentioned first half relatively flat and improvement into the second half, what's the first half relative to -- sorry, is that the second half of '20 or first half of '20 or?

Look, I think, similar in terms of the second half, but maybe by drawing back to the overall sort of qualitative, which is a pretty clear description that you can, in fact, calculate, if you like, Josh, but we are looking at FY '21 revenue and operating margins to be similar to FY '20, subject to COVID obviously.

Okay. Yes, got it. And then just when you mentioned the extensions that you've got there, Mark, can you talk about just what you -- I guess, the revenue would be if you're successful, the revenue in hand would be, if you got all of the extensions that you've got in this period?

Sure. So Josh, we spoke about for the year having circa of $1.7 billion of revenue are already secured. In terms of the extensions, we are currently negotiating circa $2 billion. What that would equate to in FY '21 would be approximately $250 million.

That's perfect. And final one, just around the pipeline in North America. I think that was obviously a bit bigger than expected, and that's a clear focus for the business moving forward. Could you talk a little bit about just, I guess, the timing and expectations of that particular part of the pipeline in terms of conversion? Is that also sort of second half of this year? Or is that further out? Just interested to understand that particular geography and when you expect to get some ball on that?

Yes, Josh, I guess you're right, we did increase the pipeline in North America compared to what we did report in the first half. I guess, the reason for that is the longer we have folks on the ground, the more sort of, I guess, intel we're getting and the more interest we're getting from customers as well. And on the back of that, we've reassessed our pipeline and therefore, increased it. And that pipeline is across both U.S. and Canada. Our approach in North America is, I guess, in 2 stages, albeit, sort of parallel stages, if you like, Josh. One being the Hemlo contract, which we have been ramping up from the start of the financial year. That's our key focus over the -- at least the next 6 months and beyond for that contract. But what we don't want to do is go and secure a lot of work in a short period of time, whilst we're still betting down. So we will focus on driving Hemlo to the right level in parallel, getting more intel tendering on jobs in North America and we would like to be in a position in the second half of '21 to be securing the second project that we would expect may commence before the end of the financial year, but possibly into '22. So positive opportunities, but I guess, we don't want to go too quick. We want to manage our entry into North America.

Our next question will come from Daniel Porter with Wilsons.

Just one from me. It sort of focuses around your work in hand split. You've obviously gone pretty heavy towards the Underground in terms of bidding and how that pipeline is shaping up. Just touching on some of the comments you're making earlier around cash cycles, returns, et cetera. I would have thought that just simply by focusing the business towards that Underground space, you're going to see probably an improvement in the cash cycle and inventory levels almost by default. Is that the way we should be thinking about that?

Daniel, you're right in the fact that our weighting, I guess, of our work in hand, excuse me, also our pipeline for that matter is with Underground. That's a very good reason. The returns we're seeing Underground clearly better than Surface. So we are being selective on where we allocate the capital. For the right projects in Surface we will allocate capital as long as it meets the right hurdle rates. To your point around working capital. We do see lower inventory associated with the underground projects. So again, by default, that will drive our working capital down as well, in turn, increasing our ROACE. So there is no -- yes, it's pretty clear why we're weighting our work in hand and pipeline to the Underground because of better quality. Having said that, we'll continue to work on improving the Surface business. Some positive signs that there's more work to be done to drive that back to the levels we come forward.

Yes. Yes. No, that makes sense. And that Underground is sort of sitting out. I think it's 82% of be work in hand at the moment. As you sort of, I guess, for want of a better term, down-weighting Africa and up-weighting in North America, would you see that increasing from that point? Or is this about that sort of 82% to 85% split? Is that why you would see that sitting going forward?

Yes. Daniel, I'll sort cover that off in 2 parts. Firstly, in terms of sort of shifting away from Africa, I guess, I would say that -- I'll just sort of park that generalization and talk about, say Botswana. So we are looking at Africa in terms of the various countries and also the regions within the countries. So we are shifting our focus to different countries in Africa to basically derisk the business. And in turn, as you called out, we are clearly shifting focus to North America as well. In terms of the weighting, we haven't set a weighting of the balance that we want between the Underground and Surface business at this point in time. And the reason being is, it goes back to the work we're doing to improve the Surface. We are going to look at what run rate back in sort of to sustainably operate and be competitive. So whilst we do that, we will have a great weighting to the Underground. That may continue, subject to how the Surface performance goes. The other side about the weighting that I will touch on is we do want to continue our weighting in Australia. So whilst we will grow North America in Underground, we're also working to ensure we have a solid base in Australia, which we do, and we want to keep growing that base. So North American growth won't come at the expense of Australia. We want to grow in parallel.

Okay. Okay. That makes sense. And can I just ask finally, just some political events taking place in Mali, end of last week. Any updates you can provide on that one? You've obviously still got a couple of decent sized contracts over there, but are there any updates from the teams on the ground?

Yes. So Daniel, the -- I guess, in terms of the coup that you are referencing within Mali, on the ground has settled down. The feedback we're getting through our employees and also our intelligence network is it has stabilized. The borders were closed for the period in the first, I guess, 3 to 4 days of the coup and the border is now open and reporting pretty much stability within Mali. And I guess, I think the last time we had a coup there was in 2012. So I guess it's not unusual for that region. Through our intelligence network, we had been seeing signs of social unrest that we had predicted could result in a coup. So I guess it was something we were sort of I'd say anticipating as an option, which has played out, but is pretty stable. We have the one job remaining within Mali. We just wind down a couple of others. It's again to deliver a job. Whilst it's sizable, I had called out, but it's not a great job for us. So we are looking at options to, I guess, turn that around. And that could be a combination of ways to turn that around and actually get the returns we need on that project. And so stable operating, [ it's calm on the streets of Bamako ].

[Operator Instructions] There are no further questions at this time. I will now hand back to Mr. Norwell for any closing remarks. Please go ahead.

Thank you, Alan, and thank you, everyone, for taking the time and joining our call this morning. I guess as I wrapped up with the opening, we had a very strong FY '20 given the challenges that team navigated. I think this goes to show the sort of strength of the business, the strength of the people that we have across the Perenti Group as we move into FY '21 and beyond. We're going to continue to invest in the business, focus on the quality returns, drive the areas that need to improvement and increase the market share of the areas that are delivering very solid results that being -- being Underground. So thank you for you,, and have a good day.

That concludes our conference for today. Thank you for participating. You may now disconnect.