Perenti Limited (PRN) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Perenti Limited FY '24 Results Presentation. [Operator Instructions] I would now like to hand the conference over to the company. Please stand by. Please go ahead.

Good morning, and thank you for joining the Perenti Financial Year 2024 Results Call. My name is Mark Norwell, and I'm the Managing Director and CEO of Perenti. Presenting alongside me today is Peter Bryant, our CFO. Before talking to our numbers, I'd first like to provide an overview of the business as it stands today on Slide 3. Perenti is the parent company for our 4 operating divisions. Within these divisions, we retained 13 brands, each with industry recognition and value. For instance, within Contract Mining, Barminco and AUMS are renowned leaders in underground hard rock mining, with more than 30 years of experience; and AMS is a leading surface miner in Africa. Within Drilling Services, the former DDH1 brands of DDH1 Drilling, Ranger, Strike and Swick have been combined with Ausdrill to create a globally leading drilling company, with capability across the full spectrum of mining exploration, development and production. Mining Services contains a portfolio of businesses that directly support mining operations. BTP is the largest business in this division and is trusted by leading companies for the sale, rebuild and rental of equipment components and parts. idoba is our Technical Innovation division and is seeking to bring together AI, data analytics and mining know-how to develop digital products that optimize increasingly complex mining operations. In total, we have more than 10,500 employees working around the world. We provide services to over 100 clients at more than 60 projects. In FY '24, we earned revenue in 12 different countries across more than 10 commodities. By revenue, we are predominantly exposed to underground operations. Underground mining is very complex, requiring specialist operators and technical capabilities, which provides a high barrier to entry. More than 2/3 of our revenue is in countries rated investment grade by international ratings agencies. Lastly, when we tended for work for operating mines, we look for opportunities that will survive commodity price cycles, have a client who is financially sound with aligned principles and the asset has a long mine life. This decision matrix, along with our underground mining expertise, has naturally led us to be weighted towards gold operations, which given the current gold price is a fantastic position to be in. On to Slide 4. This slide demonstrates our ongoing financial improvement year-on-year, with several records set in FY '24: revenue at $3.3 billion; EBITDA of $645 million; EBIT(A) of $314 million; and NPAT(A) of $166 million, all reached new records. This performance was delivered on the back of consistent operations from our core contract mining division, margin growth in mining services and the DDH1 acquisition. Our organizational structure continues to focus on generating efficiencies at the corporate level and within the operating divisions, delivering improved group EBIT margin to 9.4%, up from 9.2% in FY '23. We are particularly pleased with our free cash flow result of $184 million. This is defined as operating cash flow after interest, after tax and after all capital expenditure. For the avoidance of doubt, the CapEx figure includes all stay-in-business and growth capital. I then compare our results to others in the sector, and the first point I noted was the different formulas in use for free cash flow. If we applied some formulas in use, we'll be reporting free cash flow greater than $600 million. However, that is effectively just reporting EBITDA in calling it free cash flow. Coming back to our definition of free cash flow at $184 million. This is a great result and is larger than originally forecast due to, in part, the successful redeployment of assets released from discontinued nickel projects, Savannah and Cosmos, and the timing of capital payments. The strong free cash flow facilitated further reduction in our net debt, thereby reducing our leverage to 0.7x, which is another record for the organization, even when comparing years prior to the Barminco transaction. It has also enabled us to declare a $0.04 per share final dividend. This takes the full year dividend to $0.06 per share, representing a 5.9% yield on yesterday's closing share price and is in addition to the circa $30 million of share buybacks we completed during the year. These dividends and share buybacks are a tangible demonstration that Perenti is positioned to reliably and consistently deliver free cash flow in the future. We clearly demonstrate the commitment we have for our shareholders. We are pleased to announce an updated dividend policy, targeting a different payout range of 30% to 40% of underlying NPAT(A). We are confident that the business is positioned to deliver reliable performance in the years ahead. The scale built during several years of growth is now capable of delivering enduring value and certainty that we have been targeting throughout various cycles within the sector. Slide 5, sustainability. These outstanding financial results have also been achieved alongside our commitment to our 3 sustainability imperatives, which are important to support current and future earnings. Through our actions, we are focused on providing care for our people and communities, valuing the environment and enabling the energy transition and always acting ethically and responsibly. To this end, we restate our target of no adverse life-changing events for our people. We want our staff to feel safe and respected and we have seen meaningful improvements, as evidenced by employee surveys. We've seen an increase in female participation across the business, and we are proud to have 57% female representation at the Board level. We remain committed to building respectful and rewarding relationships within the local communities in which we operate. Additionally, we have trialed multiple battery electric vehicles during the past year, in collaboration with industry leaders, including Sandvik. And in partnership with IGO and ABB, we completed a full mine electrification study that was released as a white paper in May. In addition, through Swick, we are developing an electric underground diamond jewelry. Slide 6, our people. All of our achievements are due to the dedicated and hard-working people that work for us around the world. Our people are the foundation of our business, underpinning our performance and positive reputation. In FY '24, we continue to invest in employee development. More than 900 people were undertaking apprenticeships or traineeships during the year and a further 200 completed our whole-of-company leadership programs. We firmly believe that development of our people will build both capability and a culture of excellence that, when combined, will ensure ongoing positive performance. The safety of our people is a responsibility that we take very seriously. We want all our employees to be able to fulfill their duties in a safe manner and ultimately go home safe at the end of each shift to their friends and family. Unfortunately, the tragic passing of our colleague, Siswantoro, during the year shows that we fell short of this critical objective. The loss of Siswantoro has clearly had a profound impact on his family and friends, but also his direct work colleagues and everyone across Perenti. The incident highlights the importance of the safety transformation task force, then completed its work during the year and transition into specific actions for each operating division along with increased assurance of progress. On the back of the task force recommendations, each division has finalized safety transformation and improvement plans, with implementation continuing in FY '25. The plans are focused on leadership development, improved training for our people, enhanced approach to critical risk management, knowledge sharing and assurance. The improved safety framework is critical to ensure that all employees and contractors, regardless of role, go home safe at the end of each shift. Slide 7, group results. As mentioned, the combined efforts of our outstanding team have delivered a new benchmark result for the group. Revenue, EBITDA and EBIT(A) were all within guidance and all regionally highs, continuing the growth trajectory of FY '22 and FY '23. Pleasingly, our EBIT margin is also continuing to improve. Year-on-year margin improvement has been driven by focusing on efficiencies in all parts of the business, including overhead savings generated at the corporate level, which is now tracking at less than 1.5% of revenue. The record group performance has been achieved despite lower rig utilization levels in Drilling Services. The integrated Drilling Services division is now positioned as one of the leading drilling companies in the world. The strength of our Contract Mining division and the inevitable uptick in drilling activity offers potential for earnings upside in the future. Slide 8, Contract Mining. The Contract Mining division has delivered a consistent year on slightly higher revenue than FY '23. During the year, the Savannah nickel mine entered voluntary administration. While this was a disappointing outcome, it did allow us to redeploy equipment to other operations. In an otherwise tight labor market, we found jobs to all staff who wish to continue working with us. The net EBIT(A) impact of the Savannah closure was $11.2 million, which we included in our underlying results. To provide a like-for-like comparison, in FY '23, a retrospective rate adjustment for the Iduapriem project was received, which increased the result by $11.3 million. Adjusting for both these one-off impacts, the EBIT(A) margin for FY '23 and FY '24 demonstrate consistent performance at 11.8%. Over recent months, several important contracts have been renewed, including Zone 5 at the Khoemacau Copper Mine in Botswana, the Mana Gold Mine in Burkina Faso and [ 3 ] mines in Canada. Slide 9, Drilling Services. On the 6th of October 2023, we acquired DDH1 Limited and its 4 drilling brands. The integration of these businesses with our existing drilling business Ausdrill has been successful during FY '24. It will come as no surprise that the market conditions for drilling have been challenged, especially during the second half of FY '24. This has impacted the performance of the Drilling Services division. But despite these headwinds, the division delivered strong free cash flow. The performance of the division was within our modeled range to support the transaction. And as mentioned earlier, we are well positioned to capitalize on an uplift in demand. Slide 10, Mining Services and idoba. Mining Services has seen improved operational performance in both BTP and Supply Direct. This helped lift the EBIT result, with revenue relatively consistent year-on-year. By way of comparison, FY '23 included $11.4 million of idoba development costs that aren't included in this segment for FY '24. The BTP result was driven by improved demand and utilization of the rental fleet and parts sales growing in all regions, underpinned by a strong rebuild pipeline. Supply Direct also recorded strong earnings growth, partly due to the successful consolidation of warehousing operations to a single location, allowing us to pursue additional product lines with capacity for further growth. All in all, a very strong set of financial results. I will now hand over to Peter Bryant, who will present some of the more detailed financial results.

Thanks, Mark. I, too, would like to welcome all those on the call to what will be my last presentation as the CFO of this significant global business, a business that houses some of the most iconic brands in the contract mining, drilling and broader mining services sectors. As we announced on the 20th of May, this year, after over 11 years with what is now the Perenti Group, I've tended my resignation and will be moving on to the next phase of my career as the CFO of the Perth Airport in the coming months. It's very gratifying to be leaving Perenti with record free cash flow; 3 consecutive years of growth post-COVID; a much improved balance sheet, which has facilitated the reinstatement of dividends; and with a positive outlook for FY '25 and beyond. Slide 11 summarizes the underlying profit and loss of the period. Mark has been through the performance of Perenti and the divisions to the EBIT level. So my focus will be on the numbers below EBIT, which effectively means the interest and tax expense for the year. Interest expense, being the delta between EBIT and profit before tax, was $69 million, which was up on the $62 million recorded in the prior year. Interest expenses increased year-on-year because we have seen an increase in interest rates, coupled with a temporary increase in total debt balances as a consequence of the acquisition of the DDH1 Group in October of 2023. As a brief recap, the DDH1 purchase consideration included the payment of $15 million in cash to DDH1 shareholders, together with the payout of DDH1's $24 million net debt balance. These amounts were, in effect, funded through Perenti's revolving credit facility. As we are all acutely aware, global interest rates increased through FY '24. The oil rate of our revolving credit facility, which is a variable rate facility was up circa 1.5 percentage points compared to the prior year. I note, however, the majority of the revolving credit facility was repaid in May of this year as part of our refinancing activities. The blended rate of our core U.S. high-yield bonds also increased marginally in FY '24. Following the refinancing activities, we saw the new bonds issued at a rate of 7.5% compared to the existing bond rate of 6.5%. That said, the new issue was a sensational success, which I'll expand on later. Moving to tax, and as foreshadowed when we presented the DDH1 acquisition, we saw a notable and pleasing reduction in our effective tax rate, which for the year came in at 32%, well below the previous year's rate of 35%. Given the historic upward pressure on our effective tax rate, it is great to see the rate falling in line with the expectations we communicated to the market. Underlying earnings per share and the very impressive free cash flow per share are also shown in this table at the bottom of the slide. Mark will speak to these in relation to the DDH1 acquisition later in the presentation. Moving to Slide 12, which shows the reconciliation between our underlying and statutory numbers. Looking at the NPAT column, the underlying results for FY '24 was a profit of $165.8 million, which is up circa 7% when compared to the statutory result before amortization. With the exception of the partial redemption premium paid on the bonds that were redeemed as part of our refinancing activities and the release of capitalized borrowing costs associated with those bonds, the adjustments are consistent with those made at the half and are reasonably straightforward. They include the gain made on the acquisition of DDH1, which is slightly lower than the number at the half following the finalization of the purchase price accounting exercise. The transaction, restructuring and other one-off costs, which relate primarily to the DDH1 acquisition. Net foreign exchange losses associated with the restatement of our international balance sheet to Australian dollars. This balance was up on the $5 million reported at the half, with a large proportion of the increase due to unrealized losses following the implementation of some foreign tax management initiatives related to historic bond account balances. Importantly, these amounts are noncash and are partially offset by a gain that flows through our other comprehensive income. idoba product development spend was in line with expectations at $15 million. And finally, we have the net tax effect of these adjustments. Moving to Slide 13, the money side both metaphorically and literally. As Mark has already commented, the business continued to excel in FY '24 by delivering free cash flow after growth and stay-in-business capital and after its investment of idoba of $184.5 million. This sensational outcome was well above the initial guidance we provided when we released the half year results and is testament to the relentless focus the business has on generating cash. It was the efforts of our people and the relationships we have with our clients that resulted in this great outcome. Cash flow conversion, being the conversion of EBITDA to cash flow from operations, which we were a tad concerned about given 30 June till on Sunday, finished the year at 98%. Although not a record, to achieve this outcome in a period growth is exceptional. Running down the table, I talked earlier about the drivers to the increase in profit and loss interest, and those same factors saw a slight increase in cash interest for the period. The cash interest increase is less due to the timing of interest payments and the inclusion of some noncash items in the P&L relating to the amortization of borrowing costs. Cash tax for the year was up slightly on the prior period due to the combined impact of the level of foreign profits derived, the remittance of funds to Australia, which often attract the holding tax and the timing of tax payments. You'll also see we've included acquisition and transaction costs in the free cash flow calculation. These costs relate to the purchase of DDH1 and could arguably have been excluded in calculating the free cash flow number. However, we want to ensure the numbers you see in this table agreed to the numbers in the cash flow that forms part of the statutory accounts. Our total capital expenditure and stay-in-business capital plus growth capital and less proceeds from the sale of plant and equipment for the year was $303.3 million, which is below guidance and thus contributed to the strong free cash flow. As per our ASX announcement on the 22nd of July, this reduction in capital expenditure can be attributed in part to the successful redeployment of assets released from the discontinued nickel projects, Savannah and Cosmos, and to the timing of capital payments. The timing element is not that material, and the FY '25 capital guidance, which is in the deck and which Mark will talk to you shortly, includes the impact on FY '25 as we deferred and we spoke to in the announcement. So what did we do with the $184.5 million of cash the business generated? We paid $50 million for cash consideration to DDH1. We paid $24 million to pay out DDH1's debt facilities at the date we purchased them. We reduced our net debt by $30 million and the most important, which we did currently, we returned $48.8 million to our shareholders via share buybacks and the payment of the interim dividend. All in all, a very rewarding year from a cash flow perspective. And for those on the call and in the room with me here today who like to see the cash flow in the graph, we have included one in the appendix to the deck. On to my last slide, Slide 14, which reflects the liquidity of the group. On the 29th of April 2024, Perenti announced the very successful issuance of USD 350 million of new high yield bonds. As a brief recap, the issue was 6.6x oversubscribed and priced at a spread of 2.82 percentage points above the U.S. 5-year treasury rate. That compares to a spread 6.27 percentage points when we last issued the bonds back in 2020. Additionally, the debt investors who supported the new issue are some of the most respected names in the market. The success of this placement is testament to the fundamental strength of the Perenti business in the eyes of this very sophisticated credit market. The proceeds of the new issue were prioritized to firstly repay all of the variable components of the revolving credit facility, which is more expensive debt than the high yield bonds that we issued in October 2020. The funds left from the new issue after retaining revolving credit facility were then used to fund the redemption of the proportion of the bonds issued in October 2012. Those who are familiar with the U.S. high yield bonds will be aware that redemption premium is payable if the bonds are repaid prior to them becoming current liabilities. As a consequence, it is better that Perenti should limit the redemption of its existing bonds and so that they become current in October this year. At that point, the business will need to assess the realization of March interest rates and make a treasury call on the most efficient use of funds. So what does that all mean? It means that at 30 June, both the cash holding and the gross debt balances were elevated as financially the maths do not make sense to repay the existing bonds whilst the redemption premium is still payable. My last comment on this slide and in the presentation relates to revenues. Historically, Ausdrill's leverage has been as high as 3x. And when Ausdrill acquired Barminco, the transaction set leverage at 1.4x. Since then, it has been a priority and must-have focus of the business to bring leverage sustainably below 1x, which I'm very happy to say we have successfully achieved, with FY '24 being the third consecutive half where we have recorded a level of leverage below that target. Ladies and gentlemen, thank you, and I'll now hand you back to Mark.

Thank you, Peter. On Slide 15, progress on DDH1 integration. As previously mentioned, the integration of DDH1 has gone extremely well despite the challenging operating conditions. The synergies related to the acquisition have been largely realized, which include the ongoing tax benefits associated with the increased Ausdrill earnings, particularly the cash tax benefits. The net result is a slight reduction of 1.4% to underlying earnings per share. However, the free cash flow generated per share increased to over $0.20 per share as per our strategic rationale for the transaction. The Drilling Services division now sits among the largest drilling companies globally. And when drilling activity increases, we will see upside in both earnings and free cash flow to the Perenti Group. At the time of the acquisition, Sy Van Dyk agreed to lead the new division. Having successfully completed integration, Sy will finish with Perenti in December to take up the Managing Director position with Austin Engineering mid next year, where he already serves as a Non-Executive Director. On behalf of the Board and the group executive, I'd like to thank Sy for his contribution, and we wish him well for when he commences his new role in 2025. Slide 16, Group Executive Committee. The upcoming departures of Peter and Sy has allowed us to reshape the Executive Committee. As Peter mentioned, this will be his last results call with Perenti before he leaves to accept the CFO role at Perth Airport. It's a shame to lose a CFO of Peter's caliber, but I understand his desire to seek a new challenge. I very much appreciated his counsel and support during our time together, and I wish him all the best in the future as he transitions from the cut and thrust of contracting to a monopoly. With Peter resigning, one of the benefits of investing in the development of our people is that we are blessed with talent. I'm pleased to announce that Mike Ellis will be appointed as CFO effective 9 September. Mike was previously the Vice President of Finance for Contract Mining and is now serving as the Deputy CFO. He has been with the business for 10 years and worked with Barminco, AMS, AUMS, Ausdrill and in corporate. Mike is a great addition to the Group Executive Committee, and he will be joining us on our upcoming investor roadshow. As mentioned, Sy will be leaving the company in December. Existing Perenti executive, Ben Davis, will take up the position of President of Drilling Services in late November. Ben has been leading the Mining Services division for the past 2 years and at the same time, has been our Chief Sustainability and People Officer. With Ben moving to Drilling Services, Raj Ratneser, another of Perenti's existing executives, has commenced in the role of President of Mining Services. Raj will also continue to lead our electrification studies and strategic initiatives that support our sustainability priority of accelerating decarbonization, which he has sponsored for the last few years. Prior to these changes, Ben and Raj collectively held responsibility for several corporate functions outside of finance. Paul Muller, our former President of Contract Mining, has assumed responsibility for these combined corporate functions, in addition to corporate technology in his new role as Chief Corporate Services Officer. With Gabrielle Iwanow commencing earlier this year as President of Contract Mining, these changes effectively reduced the size of the group executive team by one, consistent with our aim to further optimize our corporate overhead. Slide 17, work in hand. Looking forward, we have $5.1 billion of work in hand. As mentioned previously, more than 3/4 of our revenue is from the Contract Mining division. Contract Mining revenue is generated by typically long-term contracts ranging from 1 to 5 years, usually with extensions. For instance, at Sunrise Dam, we will have been on site for over 20 years when our current contract concludes. These long-term contracts give our forward order book greater certainty. Beyond our existing contracted work, the pipeline of potential work remains strong. Our team can point to $15.9 billion worth of prospects after applying a disciplined filter to any potential new opportunities. When filtering prospects, any new project must be a sufficient quality that we believe will survive a commodity price downturn. The client needs to be financially sound with strong value alignment, and the asset needs to have a lengthy mine life. However, we don't plan to chase growth for the sake of growth. Our target is to deliver reliable free cash flow during the years ahead by efficiently operating the business and generating moderate growth. This will allow us to pay dividends, buy back shares when appropriate, reduce leverage and fund sustainable growth without compromising reliable cash generation. With this focus in mind, I'll move to Slide 18 and outline our FY '25 guidance. We are forecasting moderate growth at the revenue line of between $3.4 billion and $3.6 billion. We are guiding EBIT(A) to be between $325 million and $345 million on improved margins. Leverage will reduce further to between 0.6x to 0.7x as we continue to strengthen our balance sheet. CapEx is forecast to be approximately $330 million, including payments that shifted to FY '25 late in FY '24. The outcome of these results are forecast to deliver free cash flow above $150 million in FY '25, easily supporting our ability to pay future dividends. It should be noted, like FY '24, cash flow will be weighted to the second half of the financial year. While generation of free cash flow is a priority, our first objective is the safety of our people as we deliver our services. This goal is clear across the entire organization and is a focus through our divisional safety transformation and improvement plans, as detailed earlier. We will continue to win and extend projects but without jeopardizing free cash flow. Achieving this balance requires us to maintain our disciplined approach to capital allocation. We believe this balance is the key to delivering a sustainable rate of growth and delivering enduring value for our shareholders. Our organizational structure has returned some excellent efficiencies over the past year, but we will continue to see efficiency across all divisions and functions. This includes further optimization of our overheads to improve margins. On to Slide 19, we have significantly grown the business in recent years. We are proud of our growth because it has established a business of scale and a diversified portfolio to deliver consistent returns to shareholders. We have either hit or exceeded our guidance targets for the last 3 years, and our expectations for FY '25 are realistic based on current work in hand. We hope investment markets will take some reassurance from this chart that we achieve the goal that we set for ourselves. At the same time, as we have grown the business, our balance sheet has been strengthened by significantly reducing our leverage. The reliable free cash flow that the business can now generate enables us to fund CapEx to sustainably grow earnings, provide returns to shareholders by paying meaningful dividends and buying back shares and reducing our gross debt to reduce our interest costs. On to Slide 20, our final slide. On behalf of the Board and group executive, I'd like to thank everyone at Perenti for their commitment and contribution throughout the year. I love this slide as it showcases some of our dedicated team members across the globe. Today's result is the culmination of the hard work of individuals like you see here. It's important to recognize that our company is built on the capability and commitment of our people. I am incredibly proud to be part of such a fantastic team and look forward to continuing the journey with them in 2025. Thank you to our shareholders for supporting our journey, and we look forward to rewarding you with another successful year in FY '25. We'll now move to Q&A.

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

Firstly, can I just ask about the EBITDA guidance for FY '25? And I apologize if I missed this on the call, but how much of idoba development costs are you expecting in FY '25? Presumably, it will be a bit of step down from $15 million in '24?

Yes. Will, extending the quality of that call is a little bit easy for us here. I think it was around, at idoba, around overspending in FY '25. At this stage, we are envisaging idoba spend to be broadly consistent with the amount that was spent in the FY '24 financial year. And the accounting treatment of that spend will be exactly the same as it was in '24, so no change.

And my next question is free cash flow. And Mark, I appreciate that you said this will be second half weighted. But could you give us a sense around what the second half -- first half, second half split sort of looks like? And what are some of the key moving parts that we should be aware of?

Will, the key movie pass read around timing of CapEx predominantly sort of the business based on our CapEx profile and our assets utilization changes. We see that late in the first half as we called out. As far as giving that specific split, we won't provide that specific split as part of our guidance, but we did call out, obviously, the weighting. So it's purely a timing issue regarding CapEx, but the overall free cash flow guidance number north of $150 million for the financial olds.

And just on, I guess, uplift in your work in hand and pipeline in '25 -- '24 versus first half '24. Can you just talk through what has driven this? And presumably a lot of extensions being secured at a more favorable rate. Is that what's driving this? Or is there something else?

Yes, certainly, extensions that we've secured, particularly over the last couple of months where we've closed out a number of key extensions, including Sunrise Dam, which is of key scale and some other ones, the predominant drivers for the increase in work in hand. In terms of the actual terms per contract, we don't disclose those, but they're all factored into our guidance for '25.

And just one last one. Just with respect to DDH. Has there been any meaningful changes with respect to retention rates at all, the provident?

Well, if you're talking retention of the team within the 4 businesses that came across from DDH plus Ausdrill that we've integrated, beyond the change for Sy that I outlined, there's been no change for the leadership teams within each of those 5 brands within Drilling Services. There's a great growth rate in each of those businesses, very stable. So we've got the right people in place to continue to operate that division.

And just the last one. Can you just talk through some of the updates around work that you've done with the safety task force and what some of the initiatives that you have been able to roll out given what's happening in this fiscal year?

Yes. So, Will, it's certainly been an absolute focus from the Board throughout the whole organization, regaining safety of our people more broadly. We called out a number of items, but there's a range of areas that we've been focused on across each of the divisions. And as you'd appreciate, each division with the different service offering that they have, there have been different sort of priorities albeit we do have some consistency, particularly around leadership development across the whole organization, driving critical risk management standards and that broader risk management of higher order activities across the organization. The training and the development of our people more broadly has been a focus. Also around the assurance of verification of activities, as you'd appreciate, we do a lot of activities, associated work that we deliver, assuring that they are in accordance with the standards we expect. But at the same time, looking at ways to share knowledge across the business, take learnings and continuously improve the broader system. Obviously, safety but the industry is a critical priority, as it is for Perenti and sharing that more broadly. We're also looking at how we partner further with our clients regarding particularly critical risk and factors associated with driving improved safety performance across the industry. So it's been a range of areas, Will, that the team had been focused on and making solid progress, albeit still plenty to continue to do in safety. You never actually finish the safety set of the journey. You're always looking for further improvement. So it's been a very, very clear focus right throughout the organization.

[Operator Instructions] Your next question comes from Matthew Chen from MA Moelis.

Just wanted to ask about in the Drilling Services, the dynamics in terms of the margin result, which was up, but just in the context of lower-than-forecast rig utilization and then perhaps a little bit of an update how that performance has gone fiscal year-to-date.

Yes, Matthew. In terms of the margins, it's an area that we did call out as part of the investment case associated with the DDH acquisition. Part of our due diligence, obviously, focused on the maintenance activities within DDH1. We like the practices that they had that we have been looking to adopt across the Ausdrill business, particularly -- plus also with the increased purchasing power associated. We've been one of the largest drilling service businesses globally. That's also flowed into some ability to drive some costs down. So they are the key areas that we've looked at within the Drilling Services division to drive margins up. We still see sort of further upside, and that's the, I guess, the future benefit associated with having one of the largest drilling service divisions globally. But when the demand uptick inevitably occurs, we're extremely well placed. We have a stable of people. We've got the practices, and we've been focused on the cost base as well. As far as into this financial year, into the second month, I'll hand over to Peter to give out some specific numbers.

Yes. It's still running a little bit softer than we would like. Rig utilization is just, just below the 70% mark. As you know, from most our previous engagements, we've got it to run around the mid-70s. So utilization is a little bit soft, but as Mark said in the call, well positioned for the inevitable turn in the drilling cycle.

That's really helpful. And just in terms of a leverage target in the medium term, have you got one that you can talk about?

Yes. So in terms of leverage, obviously, we've called that out over the last several years of driving that down to the record result at June of 0.7. With our guidance, we're putting that out to 0.6 and 0.7 into the future and beyond that. Now I guess we'd be looking at getting closer to 0.5. Anything beyond that, we don't think we're using our balance sheet wisely. But in terms of what we do with the additional free cash, that will go into returning to shareholders that we called out in terms of buyback subject to the value of associated share price at the time. Dividends, as we've been increasing those, we recommenced in February this year and also looking at organic growth opportunities as well to generate further returns. So certainly, we see it decreasing. But there's a floor where we want to get to, and we'll share more information in due course on that.

Your next question comes from [ Rodney Pryor ] from [ Nordlys Investments ].

Just wanted to ask a little bit in terms of contracts. Obviously, you've been asked quite a few extensions in recent months. Just going through the historical, is it fair to say now that Sanbrado is one of the last remaining contracts that were sort of signed pre-GFC? Or are there any others in that, that I'm missing, all other contracts or Sanbrado kind of been rolled and renegotiated in the last couple of years?

Thanks, Rodney. Yes, in terms of contracts, Sanbrado has actually been the recent contract for us over the last few years. It is coming to an end in the near term. So we won't be seeing the extension of that probably beyond this financial year, possibly earlier, but that's factored into our guidance. Most of the other contracts since COVID, we've predominantly rolled. We've got a couple coming up now that would have been rolled during or about COVID time, it's Agnew, which will be down within the next 6 months or thereabouts. But as you say, yes, predominantly, they will be renewed over recent periods.

I might add, Rodney. So the average contract turn is between 3 and 5 years in the contract mining space. Similar in the underground space, more specifically in our historic rollover rates, in excess of 95% contract successfully rolled. Just declaring on that.

Yes. No, that's great. I appreciate that. And then the other one, just on sort of depreciation and CapEx. I guess you've obviously gone through quite a heavy growth cycle in recent years, some excellent contracts that you've picked up that now looks like it's coming in balance more so where sort of depreciation and sort of CapEx are close. I just noted some previous announcements you had split sort of sustaining and gross CapEx, but I don't think that was in the full year pack that I saw. Just wondering, could you give any color sort of that for the full year, what was sort of the growth versus stay-in-business CapEx.

Yes, a very good question. And we've kind of moved a little bit away from stay-in-business and growth, with focusing more on total CapEx. In part, that's because of, to be honest, the difficulty in defining the difference between growth and stay-in-business. So I don't have the split here. But I think the thing is, stay-in-business should be running broadly consisted with depreciation is the right thesis moving forward.

Okay. That's great. And well, maybe just interrelated to that and sort of asked maybe slightly a different way. In terms of contract ramp-up, is it just Motheo in Botswana that is still sort of ramping up? Is Cowal now kind of pretty much running at full steam or any other ones that I'm sort of missing that are sort of still in ramp-up stage from that sort of CapEx spend?

Yes, Rodney, those projects that you mentioned there, predominantly, they have sort of ramped up in terms of the capital outlay to the rate that the customer is looking for. We do see potential upside for further growth for those projects in time, albeit that will be dealt with subject to the mine plan and the right returns as well. And ideally, we want to see growth in the projects we're in because we take out the ramp-up risk of greenfields. But in terms of your assessment, yes, the CapEx for those projects you've named, has been invested into '24 predominantly for the ramp-up.

There are no further questions -- pardon me, we do have a question from Brendon Kelly from Alceon.

Just on the CapEx, hoping you can just help us understand what assumed for new wins on the pipeline for FY '25.

Yes. So in terms of pipeline into '25, we've got a number of existing contracts for extension, Agnew and a project in Burkina, capital requirements being factored into our capital number for the year. And we have included one small additional job for a new win into FY '25, and that's a moderate amount of capital that supports our moderate growth with a focus on cash generation. So in summary, Brendon, CapEx is included for extensions and also for one additional job into the year for Contract Mining.

Brendon, not directly related to capital, but perhaps to close that out. When you do look at the Contract Mining business for next year, circa 80% of the revenue is from the existing portfolio of secure jobs. As we roll a couple of projects forward, that gets us pretty close to the numbers in the Q and the capital for most projects.

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

Thank you. And in closing, I'd just like to reiterate that we are very pleased with the FY '24 results. With the outlook positive and the strength of our businesses, we are confident of delivering growth and strong free cash flow into the future. And this is evidenced by declaring a final dividend of $0.04, taking the total dividend to $0.06 for the year. By the Board announcing a dividend policy, along with share buybacks, as appropriate, we're very optimistic about the ongoing positive future of the Perenti business. Thank you for taking the time to joining our call today, and have a great day.

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