Perenti Limited (PRN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Perenti Limited first half results presentation. [Operator Instructions] I would now like to hand the conference over to Mr. Mark Norwell, Managing Director and CEO. Please go ahead. [Operator Instructions]

Welcome, and thank you for joining the Perenti first half results call. My name is Mark Norwell, Managing Director and CEO of Perenti, and with me is Peter Bryant, our CFO. Most the focus of this call is on our results from 1 July to 31 December. I'll first discuss the tragic incident at Dugald River last week. First and foremost, my thoughts are with the families, friends and workmates for Trevor Davis and Dylan Langridge, our colleagues who tragically lost their lives as a result of the Dugald River incident. Their loss has been, and continues to be felt across our whole organization and the wider community. With the profound sadness now in the families of Trevor and Dylan, we'll never see them again. Our immediate focus has been on providing support to the families and workmates of Trevor and Dylan during this devastating period. In addition, we have commenced a comprehensive investigation of the incident with internal and external experts so we can fully understand what occurred, to ensure an event of this nature never happens again. The health, safety and well-being of our 9,000 employees is paramount. I cannot stress this enough. We are absolutely committed to the physical and psychological safety of our people. But in this instance, clearly, this objective has not been delivered upon, which is simply unacceptable. Everyone at Perenti from the Board to the Group executive and senior leadership team are absolutely aligned and committed to work towards a future where our people can start their shifts knowing that they will safely complete each and every shift. We will continue to empower our people to remain vigilant, and the speaker will stop work if they are not completely confident, that the safety is inherent in a task they are undertaking, are being adequately managed. In addition to any specific improvement actions that are identified from the Dugald River investigation, I, along with the Board and group executive that can bring in further changes beyond the actions identified from a comprehensive safety review of the business late last year. I'll discuss this review later in the presentation, and when we hold our annual strategy briefing to the market prior to 30 June, additional information will be provided. Finally, I'd like to thank everyone who carried out the search and rescue effort for Trevor and Dylan last week. This was a complex operation which was undertaken under very difficult and challenging circumstances. I'd also like to thank the wider organization for their support to people directly involved in the incident, and more generally, the care provided to each other. On to Slide 5 I will now talk about our financial results which are positive for the first half, with a similar outlook for the second half. Nothing is more important than our people. So our results are completely overshadowed with the loss of Trevor and Dylan. To our first half results. The combination of strong operational performance, ramp up for growth projects and improved commercial and macroeconomic conditions, has driven us to deliver our highest revenue, EBITDA and EBIT(A) numbers for the first half of this financial year. The continued ramp-up of our growth projects, including Motheo, Zone 5, Cowal and Iduapriem was reflected in a $1.4 billion revenue result, which is 21% higher than the first half of FY '22. Whilst we had significant revenue growth, our focus is to generate returns while operating safely, and the team did extremely well to deliver improved earnings across every measure. As a result of improved operating and commercial conditions, and as our growth projects contribute to a greater proportion of earnings, our EBITDA and EBIT(A) result has also improved significantly. At the end of the period, the group delivered EBITDA of $291 million and EBIT(A) of $135 million. We delivered a group EBIT(A) margin of 9.4%, marking the third consecutive half of margin improvement. This is a direct result because of our people, as we continue to deliver our strategy and as we see progressive improvements in operating and commercial conditions across our projects and operating jurisdictions. We are pleased to report our NPAT(A) is up 75% on the prior comparable period. This was due in no small part to the implementation of our capital management and tax optimization initiatives, which when combined with our operational performance saw profit increase to $61 million. These [ aligned ] P&L figures are in themselves positive. But looking at our balance sheet and cash flows, we have also delivered some important improvements, all of which demonstrate the significant progress we have made on the execution of our strategic objectives. We delivered $70 million of free cash, which is a good outcome and very much a starting position, as we see further cash generation upside in the second half from which we want to continue to improve as we deliver on our 2025 strategy. Peter will talk to cash in further detail later in the presentation. Leverage again exceeded our interim target and is driving closer to our medium-term goal of less than 1x, with a clear line of sight to achieving this objective. Once we achieve this target, we will continue to be disciplined with our capital allocation to generate return for shareholders, including giving due consideration to dividends. And last, but certainly not least, return on average capital employed for the period of 22.2% was up significantly from previous periods and exceeded our target of 20%, which is something that we are extremely pleased with. Similarly, to the results we announced at the end of FY '22, every financial metric presented here is an improvement on prior periods. Slide 6, business overview. Our total recordable injury frequency rate or TRIFR at 31 December was the last it had been for a few years, but the incident last week is a tragic reminder that vigilance is always needed, regardless of improving lag statistics or any other indicator. We will continue to focus on improving our safety performance, particularly in elimination of fatalities, by continuously improving our management systems and controls and leadership effectiveness at all levels to impair our people with the objective of no life-changing incidents. Ultimately, as industry, and is rightly expected by the community, we need to improve to keep our people safe. Everyone acknowledges that there are critical risks associated with mining, and that we need to continue to identify ways to engineer [ out ] the risk, including further use of technology to keep our people safe. In FY '22, we announced the implementation of our critical control management program with the first 2 phases being CheckMate for our operators, and CheckIn for our supervisors. These 2 programs encourage our employees before they commence high-risk work, to determine if critical control measures are present and working. Furthermore, it empowers our people to not start high-risk work until they are absolutely satisfied that the appropriate critical controls are in place and verified as working. In January this year, we implemented our third phase of the program, SystemCheck, which is a deep dive into our risk standards, undertaken by senior leaders to ensure our critical control systems are current, relevant and effective to mitigate the critical risks at each project. We've also continued with our contract mining safety transformation plan, which included a survey across our entire contract mining workforce and site business globally. These reviews were conducted by independent and external organization to better understand the current state of our safety performance and capability across all sites. The results from this work will be used in this half to update the comprehensive safety transformation plan. This plan is focused on all aspects of our safety system, including our safety culture, with a focus on capitalizing on any opportunities identified. During the period, we continued to implement our It's Not Ok program which aims to eliminate harmful and disrespectful behaviors from our workplace. We concluded the discovery phase of the program and analyzed and communicated the results to our Australian workforce. As part of our response, we have identified and are implementing several priorities to eliminate sexual assault, sexual harassment and other harmful behaviors from our workplace. Ultimately, we want to create a diverse and inclusive workforce across our business where people feel safe and respected. We have continued with the implementation of our Sustainability Strategy. We published our climate change position statement, conducted a climate change scenario analysis with input from senior leaders from across our business, and incorporated greenhouse gas emissions reduction initiatives into our STI program. In support of our Sustainability Strategy, we announced a Memorandum Of Understanding with ABB, [ to ] see experts from our contract mining division in idoba along with ABB to collaborate with mine owners to decarbonize mining operations through the increased adoption of electrification. From a more commercial perspective, in previous periods, we announced our intention to strategically exit Mali. In the first half, we finalized this exit and divested our mining assets. We also entered into an agreement for the sale of our noncore power generation infrastructure in Senegal. We capitalized on the improving commercial and operational conditions to outperform expectations and deliver a third consecutive period of earnings and margin growth. As we previously announced to the market, in the first half, we introduced an updated operating model, which will enable us to deliver enhanced value for our clients and stakeholders, but also enable us to capture additional value, where we may not have otherwise been able to. I'll provide further detail when I present Slide 24. Further to our announcement yesterday, we continued to enhance our work in hand with several contract awards and extensions in predominantly top-tier mining jurisdictions, including our largest Australian surface contract at a super pit in Kalgoorlie, the $5.2 billion of work in hand, including $2.5 billion of secured revenue for FY '23. And when we incorporate our first half performance with our second half forecast, we are pleased to further upgrade our FY '23 guidance. Moving to the business performance section, starting on Slide 8. This is a positive slide, demonstrating 3 consecutive periods of improvement across critical financial performance metrics. There are some elements of this slide that I want to call out. As we announced in December 2022, our performance was helped by a favorable foreign exchange ratio, along with retrospective rate adjustments. In the first half, the sensitivity of our earnings to FX movements is slightly greater than in previous years, given the increased USD earnings base. The rate adjustment related to Iduapriem is $11.3 million with no cost implication, and therefore, it cascades directly from revenue to earnings. Therefore, our normalized EBIT(A) position for the period can be considered at $124 million, which is in line with our top end of guidance as provided in December. Slide 9, underlying group performance. These graphs are a continuation of what we presented in August when we delivered our FY '22 results. The trend is clear. Our increase in revenue is not only generating EBIT growth, but importantly, we are dealing improved percentage margins and increased return on average capital employed. Going forward, we expect to experience more of a steady period of growth, as we continue to [ bed ] down growth projects, navigate the broader global challenges and deliver on our 2025 targets. On Slide 10, underground mining. As forecast, our underground business delivered the third consecutive period of improvement, underpinned by the previously announced improved rates and a continued ramp-up of key growth projects, which contributed to increased revenue and earnings as well as percentage margin improvement. These projects include Zone 5, Obuasi, Agnew, Cowal and Red Chris. Looking to the remainder of FY '23, we see some projects rolling off, although some projects will also continue to ramp up. Dugald River was scheduled for completion on 31 December just gone as we declined to tender for the new contract. However, to assist the client with their transition, we agreed to a 2-month extension concluding next week, the 29th of February. Wallaby in WA will also conclude. But with the inclusion of Subika and given the improved rates, and as rise and fall continues to pull through, we expect that earnings will remain in line with the first half, albeit against slightly softer revenue, generating a slight half-on-half margin growth. Slide 11, surface mining. As the title suggests, it is positive for us to see our surface business delivering double-digit margins. As you can see, even if we were to exclude the impact of the Iduapriem retrospective rate revision, the performance of our surface business has delivered consecutive periods of growth driven by strong performance at Mako, [ Sanbrado ] and Motheo. This slide tells a positive story, given the AMS challenges that we have called out previously, and put in place a comprehensive improvement plan, which is clearly delivering value upside. This improved performance demonstrates the quality of our people across the business, and when the team focuses on driving improvements, they do get results. Slide 12, investments. Our investment segment, which includes our mining services and idoba divisions, delivered increased revenue on strong demand for our services. Supply Direct produced improved earnings on improved operational performance and greater demand as global supply chains free up as COVID limitations on the economy ease. BTP's earnings were flat as improved fleet utilization and part sales were offset by some restructuring costs. Idoba is still in its start-up phase, but revenue is trending upwards, and the business is performing to expectations at this stage of its development. On Slide 13, our EBITDA margin expansion to FY '25. We have presented this slide a few times since we first delivered as part of our strategy update in June 2022. As you can see, we have made good progress on our margin expansion, and we are identifying opportunities to continue to grow margin towards 10%. We remain confident in our ability to continue to extract value from our current water projects and add projects and businesses to our portfolio that generates value for our shareholders. As the domestic labor market continues to improve and as we deliver overall business improvement and overhead cost reductions, our target of 10% is within reach, albeit at a moderated pace in comparison to our recent performance. Thank you, and I will now hand to Peter Bryant.

Thanks, Mark. All [ narrowly ] I'm obviously excited and positive about presenting the results Perenti has achieved. However, the tragic events of last week are still very fresh and it had an impact on all of the Perenti team. There's not much more I can add to Mark's comments, but to say we are all deeply saddened by the loss of Dylan and Trevor while working at Dugald River. On that basis, I'd now like to share my section of the results with you. Slide 15 reflects the underlying result for the half. Mark has been through the numbers to the [ A4 ] level and provided commentary around the performance of the divisions, which collectively deliver the results we are presenting. What's clarified on this slide is the uninterrupted green arrows that reflect the positive momentum and results that have been delivered by the hard work and commitment of the circa 9,000 employees that make up the global Perenti workforce. Below the EBIT line, we can see an uptick in interest expense, which for the half was $32.2 million, up circa $5 million on the prior corresponding period. It will be no surprise to you that the [ raging ] of the Australian dollar relative to the U.S. dollar and the increase in interest rates across the [ reporting ] period has driven our cost of debt up. Our core high-yield bond debt, which I note is at a fixed interest rate is denominated in U.S. dollars and our revolving credit facility, which has been drawn to an average of circa $200 million throughout the period has a variable rate. A quantum of this increase in interest was reduced by some capital management initiatives that I'll talk to in a few slides. Our effective tax rate for the half was in line with the guidance at 36%, a slight step up on the rate achieved in recent reporting periods. This step-up is driven by a mixed of earnings, with our international earnings generally attracting a higher effective tax rate, which includes withholding taxes on profits related to Australia. This, coupled with the fact that Perenti has now recognized the majority of its off-balance sheet carry-forward tax losses, has seen the effective tax rate increase. For some time, we've talked about the importance of Australian earnings in the context of the management of our effective tax rate. Put simply, Australian earnings will see the effective tax rate come down. Additionally, Australian earnings will enable us to accelerate the utilization of the carry-forward tax losses available for the group, which will clearly increase our free cash flow. Bottom line on this slide, Perenti delivered an underlying NPAT for the half of $61 million, up 75% on the prior corresponding period. Slide 16 steps through the reconciliation of our underlying result to the numbers reported in the statutory accounts. As I called out when we presented our FY '22 results, we are once again presenting results where the delta between the statutory result and the underlying result is relatively small, both in terms of the number and value of the reconciling items. At the EBIT line, the delta before amortization is $7.8 million, and at the NPAT line, the delta is only $1.1 million. Of the EBIT variance, $4.7 million relates to the impairment assets associated with the power generation business called PSA, that we own and operate in Senegal. The impairment arose as part of the sale process of this noncore business, which is consistent with our strategy of simplifying the portfolio and divesting of noncore assets. The sale of the PSA business will generate a cash inflow to the group of circa $6.5 million in the second half of FY '23. In the early Perenti days, we readily had a number of often material reconciling items between statutory and underlying which, in the main, arose, as we address certain legacy contracts and issues predominantly in AMS. As Mark articulated earlier, when presenting the surface result, AMS is performing strongly, and we are confident that the legacy issues have been identified and addressed. On to Slide 17. We have continued with the cash flow waterfall graph we first presented at the end of FY '22, which I think gives a clear reflection of the activities for the half. I won't run through every bar on the graph, but I will add some commentary to explain a couple of items that I think require some clarification. SIB or Stay-in-Business capital expenditure for the month was $101.6 million. As a general rule, we expect same business capital spend to run at about 9% to 10% of revenue. This fall short of that benchmark. The primary driver for the shortfall ties back to the significant investment we made in capital in the prior year. Our total FY '22 capital spend was $468 million. A large proportion of this capital spend was in new and growth projects, some of the more notable being Motheo, Iduapriem and Cowal. In the first half of this year, these growth projects all performed well, and given the age of their fleet, did not require any material investment in Stay-in-Business capital. Growth capital, the second dark bar on the left of the page, was $63.6 million, with the bulk of that capital spend on Zone 5, Motheo and Cowal. The proceeds from the strategic exit from Mali reflects the sale of our Malian exploration business, which was called out when we presented our [ DJI ] results circa 6 months ago. The bond and share buybacks I'll talk through in a few slides. And finally, the NCI and other, this reflects the distribution made to non-controlled interest [ Barminco-Obuasi ] joint venture. Slide 18. This slide presents the numbers from the graph on the previous page in a table which [ comps ] to the prior corresponding period. Our cash flow conversion at 75% was one of the softest conversion rates we've seen for some time, and clearly fell short at our well-publicized target at plus 10%. There are some reasons for the variance and I'll run through it on the next page. Importantly, these reasons do not reflect any underlying issues with the cash conversion. They reflect a significant growth in the business and the timing of a material one-off received. Going down the page, I talked to the increase in interest earlier. I'll also talk through our effective tax rate. Effective tax and cash tax are 2 different things. And pleasingly, our cash tax for the half is relatively down on the prior corresponding period. This reduction was due in part to the prepayment of some international holding tax last year, which we outlined in our full year presentation, and the implementation of some global tax management initiatives in relation to our operations in a couple of West African countries. Continuing down the page and you can see in bold our cash flow before corporate activities and shareholder returns, which for the half was $16.6 million, up $70 million on the results achieved in the prior corresponding period. Below that we paid down some debt, bought back some bonds and shares, which I'll talk to you shortly. In line with our undertaking to shareholders, we've been focusing on free cash flow generation, and we are starting to see the results from cash flow generation materially better than it was for the first half of the previous financial year. This focus continues and is front of mind to the executive, the senior leadership team and the broader operational leadership in our various businesses. Slide 19 is the cash flow conversion explanation that I was just referring to. The 3 drivers for the dip in the conversion for the half were the one-off Iduapriem rate adjustment that Mark referred to. This amount was invoiced in late December and the funds were received in early January. The second item, and to be honest, this happens whenever we sell assets, but we don't generally call it out as our cash flow conversion is really very strong. That said, when we sell assets, it’s part of our normal operations. The profit or loss generated from those assets flows into EBITDA. However, the inflows are not classified as operating cash flows; they are classified as investing cash flows in the statutory accounts. The final and most material item is a $33.5 million working capital outflow, and is quite simply attributable to the revenue growth in the business. The consolidated group generated revenue in June last year of circa $220 million. Revenue in December was circa $240 million, excluding the Iduapriem adjustment. This increase in revenue and the related increase in the debtor balance and the accrued revenue, translates to an increase in receivables, which is a working capital outflow. We also saw inventory and creditors tick up a bit, noting that a creditor balance increase is a positive working capital movement. The bottom line, the growth in the business impacted working capital. In above said, we remain focused on cash flow conversion, and our financial models send us back at circa 90% for the full year. Moving to Slide 20, which outlines the capital and liability management initiatives we undertook during the half. The share buyback, which is the graph on the left, is well known and as reported by the ASX every step of the way. We were active in our buying back of shares and trade at whenever we were able, having regard to both the regulatory requirements and our internally agreed guidelines. As the share price appreciated, there is a point at which we consider the internal mix of the buyback at those higher share prices was not the best allocation of capital. So we paused our activity. That said, there is still capacity under statutory regulations for further buyback activities, and we will continue to monitor the situation. The graph on the right relates to the buying back of higher bonds. Until today, our activity in this space is very much under the radar. Under the terms of the higher bond and the relevant exchange and regulatory frameworks that cover the higher bond market, we are able to repurchase bonds on market up to a certain threshold without enhancement. During the half, we took advantage of a depressed bond price off the back of some names in the global debt markets, to buy back bonds. We bought back bonds with a face value of circa $27 million at an average purchase price of $0.915 in dollar. This initiative delivered a reduction in [ deliverables ], a gain on the buyback due to the discount and a reduction in interest costs. On to Slide 21. There are only a couple of items I want to call out on this slide. As per the first bullet point, during the half, we successfully refinanced our revolving credit facility with an expanded syndicate of top-tier lenders. This refinance occurred as interest rates are on the up, and there was a reasonably high level of anxiety in global debt markets. So we have secured the refinance as a credit tool involved. My last point on this slide is net leverage, which at 1.1x, has as well on the way to delivering our FY '25 target. Thank you. I'll now hand you back to Mark.

Thank you, Peter. Slide 23. From a financial and operational perspective, our strategy is delivering improved results. Our financial performance over calendar year 2022 is a window into what our people are capable of. And with ongoing and disciplined execution of our strategy, we will be in a position to sustain this level of performance. As we presented at our 2025 strategy update, our strategic focus areas are across 2 time horizons, with some focus areas delivered ahead of schedule, which has in turn, enabled us to accelerate some of our longer-term objectives. However, there are some areas that will require ongoing focus, particularly safety, as I detailed earlier, when I spoke to Slide 6 of the presentation. Delivery on our first-time horizon enables us to progress to our longer-term objectives. Again, we have discussed a few here today. For example, further business simplification and exiting Mali and recycling capital across our business. As Pete mentioned, we have implemented mechanisms that we expect will deliver future reductions in cash tax and interest costs. While there is room for improvement, we are pleased with many of the aspects that we have delivered to date, which has positioned us for a strong FY '23 and beyond. Slide 24. Helping in both, execute strategically and deliver operational performance, is our new operating model. The central construct of our operating model is that the core capabilities that makes the services we offer successful, vary by business, hence establishing 3 separate operating divisions and a focused corporate center. For example, idoba in contract mining will collaborate on various opportunities to generate greater value, but they are fundamentally different businesses, requiring different capabilities to be successful. And our operating model is designed to drive accountability and responsibility down through the divisions, so the people with the knowledge of the business are empowered and responsible to deliver operational performance across a range of metrics. At the same time, we have a centralized system of performance management and governance to ensure the right level of oversight and support is delivered in the most effective way. This is underpinned by investment in company-wide systems, where appropriate, and analytics to a system managing a global business in an increasingly complex world. The other benefit of this model is, if we embark on M&A activity to generate shareholder value, integration risk is decreased, as there will be minimal impact on each operating division. We still have further work to fully embed the operating model. However, it is a critical platform in delivery of our business strategy now and beyond. Slide 25, guidance. Looking ahead, we are confident of delivering positive results in the second half of 2023. The tragic event for Dugald River last week means that our safety objectives have not been achieved. Nevertheless, our continued focus on safety remains. Our growth projects continue to ramp up, and we expect to generate further revenue above our secured number, which we expect to land in the range of $2.8 billion to $2.9 billion, with earnings of $250 million to $265 million and leverage of about 1x at 30th of June 2023. We'll continue to focus on capital discipline across the organization and optimize our cash flows. In closing, I'd like to thank all of our people who continue to make me humbled and proud to work for the business, whether it be the care they're showing to [ Dugald River ] tragedies or the resilience to navigate COVID and other global challenges, or the desire to deliver no matter the challenges. It is our people that make our business. Our improved results in the first half is due to our people and the sheer determination and commitment over the last few years to deliver this positive outcome for our shareholders, to our people, our clients and our shareholders. Thank you for the ongoing support. And once again, our focus and thoughts continue to be with the families, friends and workmates of Trevor and Dylan. Thank you. I'm happy to now take any questions from investors and analysts.

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

Perhaps firstly, can we just touch on the -- I guess, the safety performance? Obviously, its 4 consecutive years of fatalities. Just wanted to -- I mean, I'd appreciate that you've given some examples of some of the initiatives that you've undertaken to address this, but, can you give us some more color around some of the specific examples of what you're implementing? And are there differences across, I guess, these protocols and process you have in place to manage safety performance in different jurisdictions, please?

First and foremost, the focus absolutely is on supporting the families and friends of Dylan and Trevor, given the Dugald tragedy, as also called out in parallel running a detailed investigation -- 1 or 3 investigations that are occurring associated with Dugald. I mentioned in the call earlier about a broader independent and external review that has been conducted at [ Topac ]. It's partially through being received. That has been assessed and then considered in our broader continued improvement associated with safety. As far as your specific points regarding sort of -- different sort of regions and different standards, no, we have one consistent approach to safety -- physical safety, starting with policy that's approved by the Board, cascading through our corporate or group standards then in the contract mining where there are a number of critical risk standards, and they are applicable regardless of jurisdiction, regardless of clients we work with, regardless of the type of work. The nature of that type of work then goes into the next level of detail around assessing the risk associated with the activities and then putting controls in place. So that is consistent across the organization. The other aspect that we then sort of look at, in addition to critical risk, is around border sort of leadership, broader cultural elements. We're very focused on our principles across the organization, which go directly to safety and safe operation of our business. We talk about principles such as smarter together, safe together, talk about no shortcuts, to drive compliance with controls that we have in place. So there's a range of areas where that are pretty comprehensive and consistent across the organization, but then bespoke by each project. There's lots of different examples that I can go into, Will, but I think the fundamental focus for us is the organization from the Board, the group executive down -- is around keeping our people safe, which clearly -- there's further opportunities to improve it, and we'll continue to work that through. As I also mentioned in the call, once we have completed and received the full feedback and therefore, update sort of final position around the ongoing safety transformation plan, I will present more of that detail in due course. But at the moment, really continue to focus on the families of Dugald and the investigation specifically. But it does have the attention from the full Board all the way through the organization, as you would expect.

Can I just move on and touch on, I guess, your work in hand balance? It looks like it stepped down from $6.5 billion to $5.4 billion. But I'll be sure that the pipeline is up since -- during last year. Could I take that to mean that -- I mean, is it fair to say that there has been some sort of tender losses or anything that you should be mindful of in terms of competitive dynamics here? Or is it just a matter of -- is it just -- I'm just trying to work out some -- the debt dynamics here in the half.

It was more a function of timing. If you look at our overall revenue of $1.4 billion for the half and then annualizing that at $2.8 billion, we have a pretty significant burn rates with our revenue generation. Therefore, with our work in hand, we have some sizable tender awards that occur from time to time, that then we replenish that work in hand. So from where we see today, I see there's a timing issue. We've got some tenders up for extensions and renewal at the moment, that's including the announcement we had yesterday with [ Fimiston ]. Plus, we also have some other projects that we're working towards, extending throughout the course of the year. So Will, basically, it's a timing item, and that will be replenished. I'm pretty comfortable where we're at. Also very comfortable with our pipeline. The pipeline has increased, and we have continued to focus on replacing the work in hand that we have. So very comfortable with the status there, will.

And just one last one from me. In terms of the retrospective rate adjustments, are there any other projects that are in your pipeline at the moment that we -- that you could potentially expect benefits from respective rate adjustments that you've done with Iduapriem?

In terms of the way we've approached updating guidance, Will, is, we've taken, obviously, the first half results and continue a detailed forecast or reforecast every quarter, and that's been completed. So our updated guidance includes everything that the team has seen, is coming through in the next -- well this half, effectively. So the guidance reflects what we see in front of us. So therefore, no, we're not seeing any further one-offs. Having said that, if there are opportunities that we can capitalize on, then we'll go after those, but the guidance reflects what we're seeing in the next 5 months.

Your next question comes from Nicholas Rawlinson with Jefferies.

Can we have a rough indication of expected CapEx FY '24 and maybe split into both sustaining and growing?

So the short answer to that question is no. We'll put out FY '24 guidance when we deliver our FY '23 results in August. But it's fair to say our focus is continuing on cash generation, driving down leverage and stay-in-business capital will be pretty standard and previous rules of thumbs. But in terms of definitive numbers at this point in time, I think we might be providing that [ soon ] there. I am sure we can try that.

Could we have an update on the sale of BTP?

I can say that we're continuing to operate BTP and I wasn't aware of a sale process in [ play ] lately. But, no, as far as our portfolio is at the moment, we are continuing to run the 3 divisions that I've outlined, and there's nothing further to answer that question, Nick.

I think we talked about it at the last row, yet, we have appointed some new leadership into that business, new executive running it, and business is actually performing pretty solidly following those changes.

And just the last one from me. Would you look to reinstate the dividend in FY '24, given it looks like leverage will now be down below 1x?

Nick, if I link back to our capital management policy, there's various ways that we can generate further value for our shareholders. Dividends, obviously, being sort of one of those options to return value to shareholders. The Board will make a decision on that in August, taking into account all options that in front of us at the time and generating value. That will be an option if we end up below 1, but it's not a guarantee that we will. We see other options to generate further value. We'll focus on those. But we'll make that decision in August of the FY '23 results Board meeting.

Your next question comes from [ Roger Flynn with SF Asset Management ].

Mark, I have 2 questions. One is, why are you holding so much cash? And the second thing is that, whilst I hear your statements about capital efficiency, the numbers seem to me year after year, very heavy on capital spending. And the question arises, what initiatives have you undertaken to extend equipment lines rather than just churning into new equipment all the time?

I'll start with capital efficiency and touch on cash in hand, so Peter Bryant is there as well. So the capital efficiency, I guess, well, first and foremost, we have -- the nature of contract mining work is a large amount of capital. We have increased our percentage of earnings more into the underground space, which has a lower capital intensity up front for projects. So that has shifted over the last few years. We do focus on various efficiency metrics with the return on average capital employed, is one of those key metrics where we had over 20% for the half with a target of [ $20 million ] that we had stated in our strategy previously. So we are seeing that improvement on the back of improved EBIT results. The team also did focus on a broader capital employed assets being occupied on inventory, working capital more broadly. We have seen positive progress in those areas. Having said that, with the supply chain challenges in parts, we have increased inventory to sort of manage the ongoing delivery of profit. So that's been an informed decision, but it continues to be a focus. As far as extending of the [ block ], Roger, that's an area that the team always explore to look at how do we get sort of longer life out of assets, although there is the balance between longer life versus reduced performance as well. So that's not beyond focus. And Roger, you'd call out there is absolutely spot on [ transparent ] for the team being focused. As their -- cash and holding so much cash, it goes down to the number of jurisdictions that we operate in and the need to hold cash in those jurisdictions, I'll ask Peter to provide some further detail.

Yes. I think on cash flow, there's 2 elements to the balance at the end of the reporting period. Firstly, full credit to the team who did an excellent job in receiving or in getting all the debt balances paid. So we -- by definition, have payments contributed to cash. As Mark said, the bulk of our operations also offshore. So that cash would be sitting in foreign bank accounts. We have a [ site ] where we repatriate the cash to Australia via dividend or loan payments as quickly as you can, as soon we get it into Australia. We will deploy it to offset the revolving credit facility.

Sorry, to correctly understand that, there is an offset or agent from the bank that it offsets the credit?

No, [indiscernible] funds that are held offshore. The jurisdictions that we operate in West Africa generally does have global banks present, so we don't have an offset arrangement whilst the funds are in West Africa. As soon as we can get them back to Australia, then we offset it, [ it ] puts the revolving.

On the capital life extension run, I listened carefully what you said, and I appreciate your comments, but I urge you to think more laterally about some initiatives of what can be done to extend lines, because I didn't hear any comment really on what initiatives are being taken saying you got cognizant of it, but I didn't hear any initiative has been taken. So I commend to you to have a task force to look at that because it is potentially a big impact on shareholder returns.

I appreciate the feedback. And Roger -- and also don't sort of go into any specifics in response to question. There are absolute specifics, but do take on board your feedback and you're right, it is a large component of outline.

Your next question comes from Matthew Chen with Moelis.

Just wanted to clarify in the guidance. So that includes Subika as it stands that upgraded guidance?

Yes. So Subika, we have a -- would now proceed to extend that beyond on 31 December that the team will work under at the moment, and they are looking to conclude that longer-term extension basically within the next couple of months. So as far as the FY '23 guidance is concerned, it's [ to ] include Subika to include into June.

And just to clarify, it also includes the Iduapriem effective rate adjustments, but that needs to be normalized from the first half?

Yes, that's right. So that guidance number does include the $11 billion that we've called out for the first half with Iduapriem.

And just to make sure that incremental upgrade from your last one, a couple of months ago, what's driven that? Is that more certainty around Subika? Or is it washing through the outperformance to commercial conditions, the rate improvements that you've called out?

Yes, Matthew, its combination. I guess, there has been -- and if we think back to the December upgrade, we called out some specifics in there. We also have called out 4x in the first half, a range of commercial progress by the team, improving operating conditions, whilst it's still a challenge with people. It's easier than it had been. So there's a range of areas that have been coming through to contribute to the improved performance.

[Operator Instructions] Your next question comes from Cameron Bell with Canaccord Genuity.

Just a couple of little finance questions for you, Pete. The corporate costs have been trending higher just for the last 3 halves. Can you give us an idea on where you think that might go over the next 6 months?

Yes. Cameron, I might give some commentary on the step up in terms of the halves that the setup is reported. We're up circa $60 million as a number of charges to it, but they're all interrelated. Firstly, the company pays a discretionary bonus to the bulk -- or to a number of the employees. We switch from a cash accounting to an accrual accounting business for that discretionary bonus to that lets say an uptick in the amount that hit us in the first half of this year. With the relatively strong performance that the company also had in regard to how the market in terms of employees are operating, we did increase some of the accruals we put through for contractual short-term and long-term incentives and also gave ourselves some buffer for potential schemes to ensure we retain and attract staff. There's also a little bit of cost that comes through in relation to the work we've been doing on our new operating model and the development of group standards and other processes. So some of those have come through and contributed to that $6 million [ SCP ] step up. For the second half of this year, can I see the number being broadly the same? I think importantly, when we look at the number in the context of the revenue growth and how the business is performing, although it's going up in absolute relative -- in percentage terms it's reasonably flat. Beyond that into FY '24, I'll revert back to Mark to give you a comment, may give some guidance on '24 numbers and clarify what we said in that number look like.

And then just trying to get a sense of, I guess, the underlying growth rate of the business backing out the Iduapriem staff. And then also looking at the FX. Can you give us maybe an idea of the tailwind at the EBIT(A) line in the first half versus potential headwinds in the second half?

Specifically on FX, Cam, in the first half, if we look at the FX impact compared to the first half of the prior corresponding period, the positive contribution will be circa $10 billion. If you look at the exchange rate and how we forecast for the second half, we make our assessments on guidance based on consensus. Consensus is pretty consistent with how FX rates are currently exceeding, so if there's no material movements in currency rates, I'm not expecting either a headwind or a tailwind for the second half.

You're not expecting a headwind in second half versus [ PCP ] or versus the first half?

Versus the first half versus and versus the guidance and the [ rate fluctuating ] guidance.

We are showing no further questions at this time. I'll now hand back to Mr. Norwell for any closing remarks.

Thank you for taking the time today and the questions. Just a quick close and just with a wrap. We -- our 9,000 employees delivered a very positive performance in the first half. We were well positioned for the second half and beyond. Now with this outcome, as I outlined earlier, we certainly have overshadowed by the devastating event at Dugald last week and our focus continuous to be on supporting the families and the investigation and then the business more broadly. So that brings it to a close. Once again, thank you for your time to join the call.

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