Perenti Limited (PRN) Earnings Call Transcript & Summary

Welcome to the Perenti FY '23 Results Call. I will now pass you over to the company to start the call.

Welcome, and thank you for joining the Perenti 2023 Financial Year Results Call. My name is Mark Norwell, Managing Director and CEO, Perenti. And with me is Peter Bryant, our CFO. Moving on from our disclaimers and on to Slide 4. Perenti's financial performance continues to go from strength to strength, and this is a result that everyone at Perenti can be proud of. We are pleased to report that our performance that delivered record first half financial results continued into the second half. Our ongoing focus on operational performance, supported by favorable commercial outcomes and improving macroeconomic conditions underpin Perenti delivering record financial results for FY '23. Our revenue of $2.9 billion was up 18% on the previous year and as our growth projects continue to deliver a greater proportion of earnings our EBITDA was up 30% to a record $553 million. EBIT(A) was up 50% to a record $264 million, which is at the top end of our revised FY '23 guidance range. Group EBIT(A) margin was 9.2%, our best result for several years. Our overall performance, along with our continued strategic focus on capital management and the delivery of strong cash back profits resulted in record underlying NPAT(A) of $132 million, up 58% from $83.6 million in FY '22. These headline P&L figures have also translated across to our balance sheet in our cash flow statement. Our free cash for the full year was $271 million, which is up $102 million since FY '22 and up nearly $200 million from the first half of this year. I don't want to steal Pete's thunder, as he will go into this in greater detail later in the presentation, but this is a very pleasing result. It underlines how strong our business is now and what the disciplined execution of our 2025 Strategy is capable of delivering. Leverage for the year was 0.9x due to our record EBITDA and reduced net debt, which is in part due to timing of capital spending. While we are below our 2025 leverage target of less than 1x, we will continue to be disciplined with our capital allocation to generate returns for shareholders, including giving due consideration to dividends in future periods. Finally, but by no means least, is our return on average capital employed of 21.1%, up significantly from 15.2% in FY '22 and exceeding our target of 20%, which again is something that we are extremely pleased with. This has been a very successful financial year for Perenti. This is the type of performance we can and should expect from the business and is an important milestone on our journey to deliver enduring value for our shareholders as well as our clients, communities where we work and importantly, our people. Of course, it doesn't end here. We still see opportunities for further growth and at the same time, improved operational performance. We plan to keep building from here with the expected inclusion of DDH1 into our portfolio. We certainly have the people, the capability and the opportunities to do even better, and that's what we are aiming for going forward. Slide 5, business overview. Before we go further, I want to provide an update on the tragic event at Dugald River in February this year, where Trevor Davis and Dylan Langridge were fatally injured in our underground incident with our thoughts continuing to be with the families, friends and colleagues of Trevor and Dylan. Several internal investigations have been completed and we continue to support when needed, the ongoing external regulatory investigations. While our lagging safety indicator, total recordable injury frequency rate, or TRIFR, has improved significantly year-on-year, the incident at Dugald River is a stark reminder of the inherent risk in our industry. We continue to focus on improving our safety performance, and we are 100% committed to doing everything we can to eliminate fatalities in underground mining and mining more broadly. This year, we established a safety transformation task force supported by globally renowned safety experts, Professor Sidney Dekker, and Peter Wilkinson. This task force is led at Board level by myself and Alex Atkins, and has the responsibility of understanding and improving everything we do in safety across the organization. We have also formalized our commitment to allocate capital towards future focused strategic initiatives, which includes investment in technology and engineering solutions to further mitigate and ultimately eliminate risks inherent in underground mining. Outside of safety initiatives, we will also allocate a portion of our annual free cash flow towards the development of services related to decarbonization and electrification plus digital product development for idoba. Despite the ongoing tightness of the labor market in FY '23, our workforce remained at circa 9,000 with approximately 57% of our workforce in Africa, 39% in Australia and 4% in North America. In support of our future growth endeavors, we have a very strong pipeline of apprentices and trainees with 412 currently employed in Australia. These apprentices and trainees equate to 11.5% of our Australian workforce and comprise a loyal and career-focused cohort of young people who will help us derisk future staffing needs. We are also providing additional investment in our leaders to further embed the diverse, inclusive and engaged workplace culture. During the year, 60 senior leaders completed our Leading@Perenti development program with further programs being run in FY '24. The often-negative experiences women in the mine industry had a significant focus during the year by Perenti and the industry as a whole. At Perenti, we are focused on creating a safe and respectful workplace and we joined many of our clients in delivering the campaign and awareness program to further educate employees about harmful behaviors at work. The Board also signed off on Perenti's comprehensive road map that sets a multiyear plan to create a diverse and inclusive workplace, including a target for women to hold 40% of executive positions by 2030. From a commercial perspective, we completed value-accretive capital management activities, buying back bonds at 91.5% of their face value, which are now trading at approximately 98%. And since we commenced the share buyback in June of 2022, we bought back 25 million shares at an average price of $0.94 per share. We continue to progress with the development of the suite of products and services of idoba. The Sumitomo Corporation acquired a 10% minority stake of idoba supporting an enterprise value of $80 million. This is an important step in the evolution of idoba and it represents a significant vote of confidence in idoba by a major multinational player in the mining and technology sectors. In November 2022, Perenti announced a strategic partnership with ABB for the electrification of mines. And in June 2023, this partnership was awarded the prefeasibility electrification study of the Cosmos underground mine for IGO. As I reflect on the year, I'm proud of the whole Perenti team, the degree of unity and purpose across the organization and the commitment of our people to deliver great results. Our strong financial performance is, of course, tempered by the tragic event at Dugald River. As an organization, we are focused on improving all aspects of our business with no area more critical than the safety of our people. Slide 6. We have published our full sustainability report, which sees us continuing to make significant progress on our sustainability strategy. During FY '23, we completed 78% of our sustainability commitments and made significant progress on others. We established 4 executive sponsored steering groups to drive action on our 5 sustainability priorities. We published our climate change position statement and undertook a climate scenario analysis with wide input from senior leaders, executives and Board members, along with internal and external subject matter experts. But apart from highlighting our sustainability progress to date, we've also announced that in FY '24, we will increase our sustainability reporting split. We also announced the progressive strengthening of our commitment to make meaningful, positive and lasting changes to our workplaces and to the broader environment. Most importantly, we reiterate our target of no negative life change events to our people across the business. We've also strengthened our diversity targets, seeking 40% female representation across our executives and board by 2030 and 33% female representation across the organization by 2033. We've also announced our net zero Scope 1 and 2 emissions by 2030 with a near-term target of 40% reduction by 2026. This is against an FY '22 baseline and will be adjusted for any acquisitions. Importantly, these targets reiterate that we are serious about our commitment to creating enduring value and certainty for all our stakeholders, and this includes our stakeholders of today, but also for those of tomorrow. And to achieve this, we really must embed sustainability into everything we do. Moving to the business performance section, starting on Slide 8. This is a very positive slide, demonstrating 3 consecutive periods of improvement across critical financial performance metrics. FY '23 has been a record year for us. We saw an 18% increase in revenue, but the pull-through to EBITDA and EBIT(A) as a result of the corporate and operating disciplines that we have embedded within all areas of our business over the last 4.5 years resulted in EBITDA of over $0.5 billion, EBIT(A) of $264 million and a 21% return on average capital employed. Incorporated within the FY '23 performance some elements that we called out in the first half of the year. During FY '23, our performance was also helped by improvement macroeconomic conditions, including easing of labor market tightness and supply chains, favorable movement in the U.S. dollar to Australian dollar foreign exchange ratio, along with a retrospective rate adjustment. Slide 9, underground mining. As forecast, our underground mining business delivered an uplift in performance, underpinned by the previously announced improvement in rates and is labor-related productivity improved in line with the easing of the tight Australian labor market. Revenue and earnings benefited from the continued ramp-up of key growth projects as well as percentage margin improvement. Looking ahead to FY '24, our underground mining business is running exceptionally well, and we have an expectation that a margin of around 12% is achievable considering the current suite of projects and their respective forecasts. Slide 10, surface mining. Our surface mining business has yet again delivered another improved set of results with most projects performing very well and the business generating a 20x earnings improvement when compared to FY '21. This turnaround is absolutely fantastic. And while we do not currently forecast another 20x increase, we do see earnings and margin improvement in FY '24. As you can see, even if we were to exclude the impact of the retrospective rate revision, the performance of our surface business has delivered consecutive periods of growth driven by a strong performance in Mako, Sanbrado and Motheo. I think that this slide demonstrates something that I'm most proud of. In early FY '20, we announced that we were embarking on a transformational journey within AMS and looking at it today, it is clear that the comprehensive improvement plan that was developed and executed by the team is clearly delivering value upside. This improved performance demonstrates the quality of people across the business and with the team are aligned and are focused on delivery improvements they achieve exceptional results. Slide 11. Our Mining Services and idoba divisions delivered increased revenue on strong demand for their services. Our Supply Direct and BTP businesses both delivered increased revenue and earnings on strong demand. BTP delivered stronger earnings for improved fleet utilization and part sales and supply directors capitalizing on greater service demand by being well positioned to navigate improving the still difficult global supply chains. As outlined in the first half, Mining Services earnings this year is softer as improved performance was offset by some restructuring costs. The larger driver of the FY '23 earnings performance is related to the investment that has been made in the development of products within idoba. For this development stage of this journey, we are encouraged by the revenue growth and that the trading business remains profitable. Given our investment in the development of its products, the impact on the P&L of the Mining Service business is apparent. In FY '24, we expect to carve out the idoba business and provide further disclosure on its performance. What we can say is that idoba is still in a start-up phase, but revenue is trending upwards and the business is performing to expectations at this stage of its development. Slide 12. This is a key metric for us, and I want to be clear that despite corporate activity, Perenti will continue to strive towards its FY '25 targets. Corporate activity represents upside to these targets, and we will not simply lose sight of these targets in the face of potential change. As we have stated before, any corporate activity must complement and improve the performance of our underlying business and the DDH1 acquisition, which I'll talk to later in the presentation provides exactly that. As you can see, since we first presented this slide in June 2022, we've made great progress on our margin expansion and we continue to identify opportunities to grow margin towards 10%. We are confident in our ability to continue to extract value from our current suite of projects but these remaining few percentage points are more challenging to deliver on when compared to those first percentage points. We will remain disciplined with the opportunities for further improvements within our current set of projects and businesses. We'll continue to utilize and adopt the products and services of idoba and we'll seek to innovative initiatives to further improve business performance and optimize our overhead structure. Thank you, and I'll now hand to Peter Bryant.

Thank you, Mark, and welcome to everybody on the call. As Mark said, FY '23 was a very strong year financially. The results we are presenting are the best numbers we've seen from revenue to EBIT to free cash flow and leverage all the financial metrics are sensational. This very strong financial performance reflects a couple of things going our way, including the weakening of the Australian dollar relative to the U.S. dollar, but most significantly, the result reflects the continued effort and commitment of our global workforce of circa 9000. It is their effort and commitment after working in harsh environments that enables Mark and I to be sitting here in the Perth Boardroom presenting these record results to you. Slide 14 summarizes the underlying profit and loss for the period. When presenting this slides for the first half, I called out how gratifying it was to be running through a slide that showed uninterrupted green arrows. For the full year, it is equally gratifying. The positive momentum in the business has continued and for the full year, we have delivered a sea of green arrows. Mark has been through the performance of Perenti and the divisions to the EBIT level. So my focus on this slide will be on the drivers of the numbers below EBIT, which in simple terms, means interest and tax expense for the year. Interest expense being the delta between EBIT and PBT was $62 million, which is up on the $55 million recorded in the prior year, an increase of $7 million. When we presented the results for the half, we saw interest up $5 million on the prior corresponding period. So pleasingly, there was a positive trend in the second half. The primary drivers for the increase in interest expense should not be a surprise to those of you who are familiar with our debt structure. Our core debt is USD 433 million high-yield bond. And although the interest rate on the debt is fixed at 6.5%, the debt is denominated in U.S. dollars. So the relative softening of the Australian dollar has seen the interest expense increase. This core debt is supported by a multicurrency revolving credit facility. The RCF has a floating interest rate, so the multiple interest rates across the year have had a direct impact on the interest payable on the RCF. I'll talk a bit more about our debt, the quantum we have paid down and the impending refinance in the coming slides. Moving to tax. As per the second last bullet point, our effective tax rate for the year came in at 34.6%, which was slightly below the half year effective rate and our forecast rate of 36%. This improvement reflects the efforts of our very dedicated tax team who are always looking for ways to effectively manage our global tax exposure. Moving forward on the assumption that the DDH1 deal is approved by their shareholders, we've seen some great synergies in the tax area. Without DDH1, we will see continued upward pressure on our effective tax rate given our global [indiscernible] earnings. Moving on to Slide 15, which serves the reconciliation between our underlying and statutory results. As with the indication, we presented at the half year results, the numbers are pretty clean. Looking at the NPAT line, the underlying result for FY '23 was $131.8 million, which is slightly above, I should say, very slightly above the statutory result before amortization that came in at $131.7 million. The adjustments made are broadly consistent with those made at the half and are, in my view, reasonably self-explanatory. If we delve into the details of the financial statements, you will be able to reconcile specific numbers back to this table. Please feel free to reach out and we can provide any clarification required. Moving on to Slide 16, cash flow and cash conversion, which I think is 1 of the highlight slides in the deck as the free cash flow numbers are impressive. Cash flow conversion being the conversion of EBITDA to cash flow from operations finished year in 95%, which are low down on the record breaking conversion achieved last year reflects an improvement of the 75% conversion diluted for the half. Miracle at the half, we included a table in the results deck that calls out the key drivers that contributed to the conversion for the half dropping. When presented in the table, we indicated the second half would be stronger and we will be back at circa 90%. So to hit 95% is another example of Perenti delivering. Running down the table, I talked earlier about the drivers to the increase in profit and loss interest and those same factors saw cash interest increase for the period. Impressively, cash tax was down year-on-year despite a significant step-up in earnings. I talked about the effective tax rate earlier but cash tax and effective tax are 2 different things. The cash tax savings was due to the combined impact of a prepayment of some withholding tax on international dividends last year and the implementation of several global tax initiatives in relation to our operations in West Africa. The tax team has delivered this year, and they continue to work on ways to efficiently manage our international tax arrangements moving forward. Our total capital expenditure being staying business capital plus growth capital, less proceeds from the sale of plant and equipment and inventory for the year was $208.8 million, which is below guidance by $9 million and reflects one of the lowest capital spend for several years. When we presented the updated capital guidance at the strategy update in June, we did call out that there was potential downside opportunity due to equipment delivery schedules as we approach the end of the financial year. That scenario has materialized, which is reflected in the delta to guidance. Proceeds from the sale of property, plant and equipment and inventory at $93 million was higher than normal. Managing our fleet and either redeploying assets or selling them to reallocate the capital is part of what we do. It's a fundamental element of running the business and managing capital. A key component to the proceeds was the sale of the Subika fleet to Newmont as part of the renegotiation of the Subika contract. The operating cash flow, which Mark spoke to of $278.7 million was up over $100 million on the prior corresponding period. This is a number that we're very, very proud of. We have now set ourselves a high bar for the future. Cash flow, excluding financing activities and shareholder returns for the prior corresponding period was skewed by the inclusion of $129 million of proceeds from sales in FY '22, which included MinAnalytical, Well Control Solutions, Chrysos and some property. Excluding these, we have seen cash flow extruding finance activities and shareholder returns, improving by circa $217 million year-on-year. So what do we do with the cash? We paid down $121.7 million of revolving credit and lease finance debt. We bought back $24.9 million of our high-yield bonds on market. And we bought back $21.4 million worth of shares. All in all, a very rewarding year from a cash flow perspective. Moving on to Slide 17. The information presented in this chart is effectively the same information that was presented in the table on the prior slide. So I don't have any additional commentary. That's it, it's a cool slide. And I want to include it for those who prefer charts to tables. On to Slide 18, the final slide in this section of the deck, which reflects the liquidity of the group at 30 June 2023. I appreciate some might be looking at this slide and seeing total borrowings $806.4 million, which is down circa $95 million on the prior corresponding period and thinking what's going on. We just said that paid down the RCF by $121.7 million and bought back high of bonds of $24.9 million. That's close to $147 million reduction in debt. As I mentioned, been talking through the movement in our interest expense, a higher bond is denominated in U.S. dollars. So as the Australian dollar softened during the period, we saw the value of the debt on the balance sheet increase. Our RCF is multicurrency and some of our equipment finance is also in non-Australian dollar facilities. So the delta between the cash outflow and the movement in debt balance is in large part relates to currency movements. In addition, there was an increase in the liability related to the office lease extensions. When it comes to currency exposure, we have a natural hedge in that our foreign operations are, in effect, U.S. dollar denominated. So from a treasury management perspective, our decision not to enter into currency hedges or swaps is sound by reducing movement in the Australian dollar debt levels as currencies move. Likewise, we see currency movements when we consolidate the balance sheet and profit and loss of our fire operations. Our cash holding at 30 June was a tad over $300 million. This is higher than we would like and is reflective of the global nature of our business. The cash from our foreign operations is received into foreign bank accounts and we then need to move it back to Australia to enable us to pay down the RCF. Net debt for the year was $409 million, resulting in a very pleasing leverage of 0.9x, which Mark talked to earlier in the presentation. Gearing for the year, it was 25.9%. This means both leverage and gearing were the best they have been since the formation of Perenti. You can see from the bottom bullet point on the slide, available liquidity sitting at $607.7 million, reflecting cash and undrawn [ as year ] of capacity. Finally on this slide, as many would be aware, our U.S. high-yield bonds mature in October of 2025. And thus, we'll be looking to refinance prior then going in October of 2024. Apparently working through what this refinance exercise will look like, including the impact of DDH1 on the Perenti group. Ladies and gentlemen, thank you, and I'll now hand you back to Mark.

Thank you, Peter. Moving to Slide 20. Firstly, I want to reiterate some of Peter's sentiments. Our strong operational performance delivered record P&L performance and through our disciplined approach to cash and capital management we have seen an exceptional step-up in free cash, and our balance sheet is in great shape. Across almost every financial metric, the business is performing how we would like it to and our portfolio of businesses and projects have strategically positioned us to capitalize on the longer-term thematic that we are seeing in the mining sector. Our acquisition of DDH1, as announced in late June of this year is another step in the evolution of Perenti. This is a value-accretive opportunity that will create the largest ASX-listed contract mining services company. It will provide us with the second largest fleet of drill rigs globally with a combined entity 95% exposed to the development and production phase of the mining sector and 65% exposed to underground activities. The financial and operational aspects of this transaction are compelling and will create meaningful value for all our stakeholders across the short, medium and longer term. Slide 21. The initial share price reaction to the DDH1 transaction suggest the strategic rationale may not have been clearly understood. We have continued to engage with the market to communicate the significant benefits of the transaction and the next few slides outline the value proposition. I don't propose to go through all aspects, but I want to highlight some standouts on this page. With the inclusion of DDH1, we are forecasting double-digit EPS accretion and the delivery of material post-tax synergies that are not at risk. Even without the synergies, this transaction is value accretive for all shareholders. The consolidated business will be approaching ASX 200 scale and the free float pro forma market cap is estimated at $1.2 billion, making Perenti the #1 ASX-listed contract mining services company. Post the transaction, our Australian earnings will increase to 55%. We will generate significantly more free cash, and therefore, the business will have a greater pool of capital from which to return value to shareholders. And the consolidated entity will see the accelerated delivery of Perenti's FY '25 targets. As I said before, this does not mean that the underlying Perenti business will not continue to progress towards achieving our previously stated 2025 targets. We will remain disciplined in our approach to capital and cash allocation and we'll be relentless as we continue to look for opportunities to improve business performance. Slide 22. This table has been updated to reflect the pro forma FY '23 results to account for Perenti actuals with DDH1 estimates showing the FY '23 pro forma outcomes. With Perenti delivering improved business performance, we are pleased that the FY '23 pro forma of the combined entity has also improved. As we have shown in several other slides, when the Perenti team is aligned and focused, we are confident in delivering outstanding results. And based on the discussions we have had with DDH1, we share common values and aspirations, which we believe will translate into something bigger than the sum of the parts. Slide 23. To close out on, I think that this slide sums up the rationale for the acquisition. The combination of DDH1 and Perenti has clear strategic alignment. It bolsters our underground service capability, and it broadens our service offerings and scale. We conducted deep due diligence and evaluated a number of scenarios to understand what the upside and downside may represent, and we are confident that the value that we have ascribed represents both a fair and reasonable price for a quality and complementary business. We have nearly 40 years of experience in the drilling industry, and we understand the value drivers, inherent risks and the opportunities. When combined, the Perenti and DDH1 business will generate significant free cash and immediate shareholder value. We look forward to a positive outcome to the DDH1 shareholder vote in September and in the event of a positive outcome on completion, we expect to provide further detail and clarity on a consolidated business. Slide 25. With record financial results in FY '23, we are very happy to provide our FY '24 guidance. Firstly, the health and safety of our people remains our top priority, and we continue to target no life-changing events. We have sadly fallen short of this objective, but our focus has not wavered, and we will continue to work to make our workplaces safer for our people. We expect our revenue to be between $2.8 billion and $3 billion as our growth projects hit run rates. As a result of these projects hitting their steady state physicals, we expect to see earnings of $260 million to $275 million. Our net capital expenditure will be approximately $330 million and leverage between 0.8x and 0.9x at 30 June 2024. Slide 26. As we have demonstrated in these FY '23 results, we continue to focus on capital discipline in order to optimize our operational performance and our resulting cash flows. Our record performance in FY '23 demonstrates the strength of the business for FY '24 to build upon. In FY '24 we look forward to another year of strong operational and financial performance, driven by our dedicated and high-performing 9,000 strong workforce. Subsequent to a positive outcome of the DDH1 shareholder vote and several other procedural steps, we look forward to welcoming the DDH1 team as we collectively move forward to create enduring value and certainty for all of our stakeholders. Once again, and on behalf of the Board and Group Executive, I would like to thank everyone at Perenti for their commitment and contribution throughout the year. I also thank you, our shareholders, for your support. Thank you, and we'll now take questions.

[Operator Instructions] Your first question comes from Nicholas Rawlinson from Jefferies. Your next question comes from [ Roger Lynn from SF Asset Management ].

You said on multiple occasions that you're disciplined in the use of capital. Somewhat disappointingly capital spend last year was way in excess of depreciation, previous link up I suggested you look at extending life of equipment right and buying new capital and I think you took that on Board. Given the overrun of capital expenditure way above depreciation last year, which you explained is partly pull forward of growth capital for this period. I was a bit surprised to see that your capital projection for Perenti is again in F '24 significantly above depreciation. And I wonder what you're going to do to make the capital spend come in line with what you're saying about being disciplined in the use of capital?

Yes. Roger, thanks for the question. I still recall the previous discussion. I guess a couple of parts to the points that you raised. One is, in terms of capital spend in FY '23, we actually did come under what we had sort of previously called out. And our capital spend is a combination of both sustained business, which goes to depreciation and also growth CapEx. So it's a combination into FY '23 and certainly was down compared to '22. We have called out that we will see some increase into '24, which we had mentioned at our June strategy session as well. So I'm happy to sort of have a discussion offline and discuss any of those numbers further, but I will also touch on the other point regarding differentiation, certainly an asset life for that matter. Obviously, given the nature of our business, we do have significant value associated with mobile fleet and equipment. And it's always looked at how do we extend the life. And there's the balance between extension of life versus reliability and availability to generate returns. But it certainly is a focus, particularly within the contract mining team and BTP, we're looking at extension of life. I would note that as we've increased our percentage of earnings associated with underground, which has a lower capital intensity outlay at the front end of any contract, we have seen our return on capital employed increase, and we delivered north of 20% for the year compared to around about 15% for the prior year. So we have generated significantly increased returns on our capital employed. But to your point, Roger, we're always looking to extend capital life, but there's the balance with the availability and reliability as well. So back to your opening point, if you do want to discuss any of that detail further, Roger, happy to take that offline.

Okay. Well, I'll call you back.

Your next question comes from William Park from Citi.

I've had some issues so I couldn't get the majority of your commentary, unfortunately, and I do apologize if this has already been covered. But just looking at your guidance, it appears to be quite conservative given your order book and pipeline of opportunities. Just wondering how you're thinking about that? Are you taking sort of similar approach to the 1 that you've taken in FY '23. And could you also just talk to the margin, I guess, expansion profile across the FY '26. Just looking at your midpoint of your guidance, it implies sort of flat margin versus '23. So are you expecting sort of margin of Perenti-based business to sort of accelerate at the latter stage of that was FY '25, '26?

Thanks, Will. So a couple of points to cover off there. Firstly, if we think about FY '24 guidance and your comment about being conservative, we think it's another strong year with the guidance we've put out. It is built up from first principles from each of our operations and businesses across all the divisions within Perenti. Obviously, we're always looking for upside, and we've had strong momentum from '23 into '24. And it's sort of getting by sort of mid sort of 9% EBIT margins. We do still see that as very positive. So we wouldn't necessarily call it conservative, we call it pragmatic given the conditions that we are in. In terms of work in hand and also pipeline, we see significant opportunities for our pipeline in each of the operating jurisdictions that the teams are focused on. As to securing those projects and then ramping those projects up, the flow-through of those projects would be more into future years than FY '24, normally at the end of period. So it would be over a few month period of ramp up could be anywhere from 3, 6 months out to 18, 24 months, subject to the scale of the mine. So completely agree, we did recognition [ that Will ] that we do have a good pipeline that would flow into future years, which then also goes to your point regarding our margins into FY '25 and beyond. We have called out in our strategy about targeting 10%. Through the excellent work our teams have done over the last couple of years we've made excellent progress towards that objective. Clearly still more work to be done. And it's just not 1 area that we'll be looking at. We're looking at multiple areas to drive that margin increase, whether that around be overheads, whether that be around commercial terms and conditions, whether that be around productivity, whether that be around technology, adoption across our businesses, there's a range of levers to pull. The only thing I'd say well is obviously the focus on EBIT is 1 area. But then from a broader cash perspective, we're looking at the cash generation. So therefore, you bring in sort of interest and tax and other surveillance as well. So in summary, we'll -- I think FY '24 is a balanced position. It's a strong position, working hand and the pipeline is strong, which will generate further returns to give further step up in future years.

And just 1 last 1 from me. I think when I caught up with you with [indiscernible] check last month or so. You were talking about 1 of the project that's being quite close to being awarded. And obviously, that's gone to 1 of your competitors. Just wondering if there is anything that you sort of would like to point out, was it pricing related or has it been other factors that have led to this decision? Just wondering if there are any changes to competitive dynamics or how your competition thinks about pricing or anything that we should be sort of aware of?

Yes, Will, I guess I can't comment on how competition prices, I can only comment on how we price and the team and the particular job is within contract mining. They're world-class team. They are very disciplined in their approach to tendering. There were opportunities if we so desire to produce margin and conditions, but they stuck to their guns and stayed on the part of commercial discipline. Why the client chose one of our competitors, I guess, we get some feedback in due course, we'll take that on board. But I would say we want to remain disciplined in terms of how we target jobs and the team did that well in this occasion.

Your next question comes from Nicholas Rawlinson from Jefferies.

Mark, Pete sorry about before. Just on the [indiscernible] from rate adjustment. That was $11 million in FY '23. Could you just sort of explain exactly how that was derived and whether that could repaid or at least a portion of it?

Yes. So that rate adjustment is a mechanism within contracts that we have, and we have a couple of contracts of a similar nature. And the way the mechanism works, it does sort of vary from sort of year-to-year against the budget that is set versus the actual performance within the job. There is always reviews at the end of this year, but it depends upon the broader performance and any change in the mine plan. So you can't sort of bank $11 million 1 year and then sort of bank that for the following year. There will be rate adjustments to what extent we'll still work through, but that quantum was certainly higher than the market previously, hence, calling that out specifically Nick.

Yes, but there's still a possibility that you could get a positive rate adjustment, just not to the same magnitude.

It always was that possibility absolutely. Whether that's [indiscernible] being called out, as you say, probably not.

Okay. And just on FX, it looks like it could be a tailwind once again. Could you remind us what impact of $0.01 downward moving currency has on EBIT(A) over the course of the year?

Yes, set -- Nick this is Peter. We set the budget at $0.68. And you're right, we have had a bit of a tailwind since then. It's roughly now be over $2 million of EBIT impact.

Okay. And just on labor costs, they're up 15% for the year. How should we think about labor costs into FY '24? Should we see a similar sort of growth rate? Or is that expected to taper off?

Certainly, the labor market continues to be tight, albeit the team have made pretty good progress over particularly this calendar year where we've seen turnover pretty much month-to-month decreasing but labor rates have been increasing globally given the inflation that's sort of obviously within the market. What we have factored in, and this goes back to my point earlier about our FY '24 guidance is based on first principles budget buildup. We have factored various increases into that. And with our escalation formulas in place, they will then effectively match that cost increase. So -- as far as what it looks like this year, the way I look at it is that they will be recovered through escalation formulas, which will maintain the guidance range we put out.

Great. And just lastly from me. I know we saw that 1 of the contracts that you're tendering on here in Australia went to a competitor. But what are the other work packages in Tier 1 jurisdictions that you're tendering on? And could you give us a rough indication on timing?

Sure. So from a near-term perspective, Botswana, we've called out Botswana as Tier 1 jurisdiction to operate in. we have secured work there with Zone 5 and the Motheo project. The near term is expansion at Motheo. So with Sandfire looking at the A4 deposit, we completely well placed as the incumbent there. So hopefully, that's in the near term. We do see other opportunities within sort of broader sort of Southern Africa regions, which are good to operate. So we're looking at opportunities there currently. Then if I go to North America, Red Chris where we're incumbent for Canada, project in Canada for Newcrest [indiscernible]. We do see further opportunities there as that continues to grow, and we are looking at some jobs in the U.S. with our previous head of African Underground Mining Services [indiscernible] related to Denver to drive performance in North America like we did in Africa as well. So that will be some of the opportunities in those parts of the world.

Any in Australia, Mark?

Yes, there are some good opportunities, including some contract extensions that the team working through come in place in the second half of all this calendar year and early in this calendar year also some leads the team working through at the moment for some new projects.

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

Just the apologies if you've already answered this question, but that's the future-facing idoba spend. So you've given us a pretty broad range, I guess, of potential spend. So I had a couple of questions on that. It looks like you spent about $13 million this last year. Is it fair to say we should expect a similar number next year.

So Cameron, in terms of the spend last year, it'd be a little bit less than the number you called out. I can say that the way we're looking in FY '24. It will be sort of circa $15 million, give or take, while idoba, as discussed in the call when we get into reporting periods, i.e., the half and the full year for FY '24, we will providing more detail associated with the idoba business and calling out those numbers. The way we also look at those numbers, Cameron, is effectively these are investments in product development to generate future returns. Much like when we look at the equipment into mines, an investment there to generate future returns as well. What we will look at though in terms of the disciplined approach to product development is making calls early on about where we invest further money into those products or where do we sort of cut those products and sort of move to other opportunities. So in terms of '23, a bit less than you called out, in terms of '24, potentially a bit more, but that will be on a case-by-case basis throughout the year.

Yes. Okay. And I take it you're expecting what, a couple of million bucks of revenue in there as well.

A bit more, and we'll call that detail out in due course. But yes, there's the underlying sort of business from the businesses that we've acquired to build out idoba, generating return and then there's the investment through the products that run parallel to the underlying business.

Okay. So that $15 million, that's not the drag on the guidance. It's more like a -- that's the gross number. So the net number is $5 million, $10 million or something.

Yes, no drag on guidance as I shared it. The overall impact on guidance is strong. I think the results are positive. So I'd actually call out that it's actually good numbers moving forward. The way we look at idoba is this is our medium to long-term play in terms of generating sort of future returns for shareholders with products in the digital space that could be quite valuable to our shareholders in the future. But that's [ meaning ] to longer term, but we have to invest now.

Sorry, I just want to touch on something, you said then. You say it's not a drag on your guidance. It looks like you've got $260 million to $275 million, and that's before the spend on idoba.

Yes. I think if you look at that, though, when I talk about investment in product development, that's outside of guidance. It's the same as CapEx investment in equipment that sits outside in terms of how we allocate cash. So that's what I call it not drag on guidance.

Okay. But the reported EBIT(A) number, you'll report in, say, half year and 4 year will be below that $260 million to $275 million.

From an underlying perspective, no.

Okay. And then just the other thing, I don't know if you can answer this, but that line down contracts. So can you make a comment on what you saw as the likely CapEx number you would have to spend on that and how many people you'd have to allocate.

Both very high numbers.

Thank you. There are no further questions at this time, and I'll pass you back to the company for their closing remarks.

Okay. Thank you, everybody, for taking the time to join our call, and I specifically want to call out the employees across Perenti, our team resilient, committed and very capable in the results that we just delivered, a testament to the people across the business and looking ahead to FY '24 and beyond. I'm absolutely excited about the future of Perenti. We have clear plan, strong foundations and excellent people. So once again, thank you for joining the call and enjoy the remainder of your day.