Saunders International Limited (SND) Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining today's investor webinar. I'd like to begin by acknowledging the traditional custodians of the land in which we meet today and pay my respects to their elders past and present. My name is Lana Havenhand, and I'll be moderating today's session. I'm pleased to be joined by our Managing Director and Chief Executive Officer, Angelo De Angelis; along with Alex Dunne, our Chief Financial Officer; Manish Pancholi, Executive Vice President; and Trevor Walker, Executive General Manager. We'll begin with a short presentation from the team covering our H1 FY '26 results and key highlights. And after the presentation, we'll move into a Q&A. If you'd like to ask a question, please do it through the Q&A function on your screen at any time. We'll group as many similar questions together, and while we'll do our best to address as many as possible, please understand that if a question is price sensitive, or outside today's scope, we may not be able to provide a response. And with that, I'll hand over to Angelo to take us through today's presentation.

Thank you, Lana, and good afternoon or good morning, everyone, depending on where you're calling in from. I appreciate your attendance at our results webinar today. I've invited Trevor on my left and Manish on my far arrive right, to join Alex and I today, so that you can directly see the executive leadership strength in our business and more specifically, hear about the deep market and customer insights. Today, I'm pleased to present Saunders' H1 FY '26 financial results and share an update on our performance, strategic direction, growth opportunities and importantly, provide an outlook for the year ahead. The following slides will outline how we are leveraging our broadened service offering for growth including the recent successful integration of Aqua Metro during the period. Saunders is a multidisciplinary engineering, construction and asset services business delivering niche, high compliance critical infrastructure across our 4 key markets: defense and government, water, energy and resources and industrials. In doing so, we partner with some of the world's largest energy companies, Australia's largest and leading Tier 1 contractors in all levels of government. This year, Saunders will proudly celebrate its 75th anniversary. It has been operating since 1951 and listed on the ASX in 2007. Our business reflects a blend of traditional construction contracts with a growing portfolio of annuity style, recurring earnings that are generated from multiyear panel and Master Services Agreements. Our core capabilities that you can see on the right there, deliver critical infrastructure in high-compliance marks and include fluid storage and transfer infrastructure, structural, mechanical and piping industrial automation and electrical, civil and water infrastructure, industrial asset and maintenance services. I will provide a quick overview for those of you who aren't familiar with Saunders. We have a national 9 offices located across Australia as well as operations in Papua New Guinea and New Zealand. This extensive footprint enables us to be local, always having close proximity to our customers and markets. We continue to leverage this footprint to drive our growth ambition. Over the period, our workforce has grown to 580 employees operating across metropolitan and regional locations. We currently have 66 projects in delivery, supporting diverse client needs and delivering safety, quality, cost and schedule outcomes. The projects shown on the map highlight the breadth of our current delivery footprint, spanning our 4 key markets. We currently have active projects across every Mainland state, except South Australia. This geographic footprint reinforces our ability to mobilize locally, deliver nationally and support our clients in their metropolitan, regional and remote environments, all depending on where their key assets are located. The slide I've just put up on the screen now outlines our key performance metrics and a few highlights, and I will just walk you through those in a little detail. Our financial performance in H1 FY '26 is in line with the earnings guidance we gave at our Annual General Meeting on November 18, 2025. This was revenue above the prior corresponding period and an adjusted EBITDA that was circa breakeven. Our H1 FY '26 revenue was a record $143.6 million up 13.7% on the prior corresponding period, with improved activity levels across each of our 4 key markets, including Saunders Aqua Metro from 1 July 2025, and our successful conversion of opportunities into executed contracts. Adjusted NPAT for the period was a $2.8 million loss while our adjusted EBITDA of $370,000 was reflective of the challenges as outlined at the AGM. In the context of H1 FY '26 results, the Board has declared that there will be no interim dividend payable, reflecting a prudent cash management strategy to support our projected future growth. In the period, our work in hand has grown by 3.8% from 30 June 2025, which is reflective of our recent conversion of preferred contractor status on tendered opportunities leading to awarded contracts. You may recall that there have been a number of market updates since the AGM that outlined these project awards and I will provide a little more color on these later in the presentation. Importantly, I'm extremely pleased to highlight that those project awards have been in each of our 4 key markets. Pleasingly, we continue to leverage our market penetration and have grown our opportunity pipeline to $4.9 million. The pipeline growth reflects Saunders broadened service offering, and market demand for end-to-end services capability, particularly in the high compliance markets in which we operate. We are leveraging our end-to-end self-perform capability as we are now able to support our clients more broadly in their project and capital expansion needs. Saunders operating momentum has continued to improve during the period as previously delayed projects progressed to award and tender activity has increased across our key markets. The value of the tenders that we have currently under evaluation in the short to medium term are valued at circa $790 million, providing earnings resilience into FY '27 and beyond. Outside of the financial metrics, we continue to leverage our broadened service offering into a number of early contractor involvement. These position our business to sole-sourced opportunities with our most trusted clients. A number of recently announced projects in our defense and energy markets originated at ECI, which I will share more detail on again later in the presentation. Another key highlight for the period was the completion of a transformational acquisition for Saunders. The successful integration of Aqua Metro has strengthened our position in the highly attractive water market and introduced high-quality annuity earnings through multiyear panel agreements. This is evidenced by the recent award of 2 10-year Sydney water delivery contracted panel agreements. Together, these multiyear contracts provide a strong visible platform for sustainable growth that extend well into the next decade. Finally, our balance sheet remains well positioned with cash of $26.7 million, up 20.8% on 30 June 2025. This reflects disciplined cash generation and management and positions us well to fund growth into H2 FY '26 and beyond. I'll now hand over to Alex, our Chief Financial Officer, to take you through the financials in more detail.

Thanks, Angelo. I'll walk through the key income statement highlights for the half. For H1 FY '26, group revenue was $143.6 million, representing an increase of 13.7% on the prior corresponding period. This growth reflects the inclusion of Aqua Metro from the 1st of July 2025, which, as Angelo mentioned, has further strengthened our position in the water market. Given the increased contribution of the water market to the group following the acquisition, we have updated our segment reporting accordingly. As expected, the inclusion of Aqua Metro has also resulted in higher operating costs across a number of P&L lines, reflecting the larger cost base and acquisition-related integration activity during the period. The adjusted EBITDA in H1 FY '26 was $370,000, which excludes $1.3 million of one-off acquisition and integration costs incurred to ensure the successful acquisition and seamless integration of Aqua Metro. As foreshadowed in the first half guidance provided at the AGM last November, adjusted EBITDA was lower than the prior corresponding period. Depreciation and amortization increased by approximately 70% compared with the prior corresponding period due to the amortization of intangible assets recognized on the acquisition of Aqua Metro. Adjusted earnings per share for the period was a loss of 2.1%, which is down on the prior corresponding period due to the lower net profit after tax, which was impacted by the amortization just outlined, and an increase in the ordinary shares on issue as a result of the vendor equity consideration paid for the acquisition of Aqua Metro and the associated placement, reflecting our continued strategy of pursuing value-accretive acquisitions with a combination of cash and equity. Now turning to the balance sheet. You may notice that the acquisition of Aqua Metro has been the primary driver for a number of movements during the half. Saunders closed half 1 FY '26 with a cash balance of $26.7 million, an increase of $4.6 million on 30 June 2025, mainly reflecting stronger working capital performance, now inclusive of Aqua Metro, which is a capital-light business. And as a result, the group ended the period in a net cash position of $18.7 million. Contract assets decreased by $2.5 million and additionally, contract liabilities increased by $9.7 million, reflecting continued improvements in contract terms and reduced working capital requirements across the business. Other financial liabilities increased during the period, primarily reflecting contingent consideration associated with the Aqua Metro acquisition. And similarly, intangible assets increased following the acquisition of Aqua Metro, driven by the recognition of goodwill and identifiable intangible assets as part of the purchase price allocation. Overall, the balance sheet remains strong with net assets of $58.9 million which is an increase of $8 million in the 6-month period, which when combined with our existing headroom and security facility, provides a solid foundation to support ongoing delivery, integration activities and future growth opportunities. I'll now pass over to Trevor to provide more insight into our defense market.

Thank you, Alex, and good afternoon, everyone. Defense remains an important growth market as it enters a sustained investment cycle with a forecast spend of $3.7 billion to $4.8 billion over the next decade in fuel infrastructure alone. The investment will be substantially directed towards the northern basis as part of the Northern basis hardening initiatives, which is situated in geographies where Saunders has extensive experience delivering high compliance infrastructure to defense and private industry. With delays in defense programs easing, and opportunity starting to flow to award throughout H1 FY '26, including approximately $40 million of defense infrastructure projects secured by Saunders across 3 basis Western Australia and the Northern territory, we have an improved short- to medium-term outlook. Saunders continues to strengthen its role in supporting Australia's defense capability. We are well positioned as a trusted partner for delivery of high compliance infrastructure engaging directly to defense and through strategic partnerships. Our defense and government pipeline has grown 61% since this time last year, increasing from $586 million in H1 FY '25, to $945 million in H1 FY '26. This includes U.S. funded defense projects in Australia and the Indo Pacific further diversifying our defense exposure between Australian and American fuel agendas. We are targeting long-term programs, such as the Defense Fuel Resilience Program where we can leverage our integrated delivery model to consistently and repeatedly create value for our defense clients. With short listed or pending tenders across more than 20 basis and programs, Saunders has a strong runway for sustained growth. I would now like to hand over to my colleague, Manish to run through our outlook in the water market.

Thanks, Trevor, and good afternoon, everyone. Water is now one of our most significant growth markets in Australia. And I'm excited to share with you the market outlook, our delivery portfolio and how we're positioning for the strategic opportunities nationally. The Australian Water sector is entering a sustained capital expansion cycle with estimated CapEx of $7 billion per annum for the major water authorities across the country. This reflects a structural uplift from the $6.5 billion per annum baseline last year. And when you look at the total spend, 65% of it is consolidated in New South Wales, Victoria and Queensland where our current focus is. The investment is being driven by population growth, aging infrastructure regulatory compliance and increased government funding into water security, creating sustainable opportunity for Saunders nationally. We now have a substantial and expanding pipeline of opportunities of $2.3 billion across key growth regions, including New South Wales, Victoria and Queensland. We are also positioning for the opportunities in South Australia, Western Australia and Tasmania, which are aligned with long-term capital investment cycles, you can see that on your screen where yellow markers are. Looking into our delivery portfolio. Currently, we are delivering works with Melbourne Water, Yarra Valley Water, Greater Western Water and Southeast Water under long-term partnership models in Victoria, and you can see that on your screen where blue markers are. We have expanded our delivery footprint in New South Wales with the recent win of 2 long-term delivery contractors panel for mechanical and electrical scope of works with Sydney Water. Following the integration of Aqua Metro, we have materially strengthened our capability and market presence. Our ability to leverage in-house civil, mechanical and piping, tank construction and automation capability providing an integrated offering to our customers is a key differentiator in the market. With our delivery scale engineering depth and a program management maturity, we are well positioned to capitalize on buoyant water infrastructure investment and secure long-term partnership contracts. This will enable delivery of recurring revenue and predictable earnings under our recurring services strategy. I'd now like to hand over to our CEO and Managing Director, Angelo, for an overview of our pipeline.

Thank you both, Trevor and Manish for providing a little more insight into defense and water, 2 of our high compliance infrastructure markets. As previously mentioned, tendering and project activity continues to increase, supported by strong government and private sector investment and growing demand for integrated delivery capability. As of 31 December 2025, our opportunity pipeline has grown to $4.9 billion, significantly up 22.5% from 30 June 2025. This record pipeline reflects the depth of opportunity from our end-to-end service offering and importantly the confidence our clients have in Saunders capability and operating model. Clearly, the integration of Saunders Aqua Metro has opened up opportunities nationally for our business in the water market and our pipeline is reflecting those opportunities as we look to leverage Saunders national footprint in our local proximity to water utility clients and contractors around the country. This pipeline growth continues a clear multiyear trend underpinned by disciplined market selection, early client engagement and a broadened service offering across the group. By key market, our pipeline is well diversified with defense and government representing 20% of our opportunities, water with our now additional capability at 47%, energy at 25% and resources and industrials are smaller but important contributor at 8%. From a regional perspective, we maintain a strong national footprint with activity spread across Victoria, New South Wales, Queensland, Western Australia and the Northern Territory, reinforcing Saunders position as a local delivery partner across Australia. This spread across markets, regions and contract models, support earnings resilience, improved pipeline conversion and positions the group well for sustainable long-term growth. I'd now like to walk you through some of the major projects secured during H1 FY '26, which demonstrates the breadth of our capability across our key markets. At our recent AGM, I outlined that Saunders had $94 million of projects in preferred contractor status and that barring unforeseen circumstances, we expected those to go to award quickly. This, in fact, did occur in the next few slides we'll provide a short overview of those awards. And pleasingly, those awards were in each of our 4 key markets. In defense, we secured 3 projects during the period that included both capital expansion and renewal upgrade projects, including a $20 million fuel infrastructure project at RAAF Base Learmonth in Western Australia for CPB. The scope of this project includes inground aviation fuel hydrant piping, emergency airfield lighting systems and associated civil, electrical and control systems, further strengthening our role supporting high compliance defense fuel resilience. We also secured a $9 million ordinance loading bay fuel project at RAAF Base Darwin for UGL. This includes off-site fabrication, installation, commissioning and full control system integration, again, leveraging our in-house fabrication capability and multidisciplinary model all of which were going from previous acquisitions. Turning to the next slide. We were also awarded an $9million chilled water upgrade program at an undisclosed defense facility in the Northern territory. Of course, this is not undisclosed for us, but intentionally kept low key. The project will upgrade chilled water pipelines and was leveraged for the long-standing client on the site. The scope includes design, installation and commissioning with integrated civil, mechanical, piping and E&I works. In regional New South Wales, we were awarded the Violet Street Bridge replacement project for Narrabri Shire Council demonstrating our growing capability in civil infrastructure, regional delivery and working with local councils. In the water market, Saunders secured a $10.4 million water storage infrastructure project in Southwest Sydney for Ward Civil under Sydney Water's Wilton Integrated Services program. This project supports the increasing water infrastructure needs from the growing population in that metropolitan growth corridor. Additionally, as mentioned, we also secured 2 10-year Sydney water delivery contractor panels for electrical and mechanical services positioning the group to deliver long-term capital expansion and renewal upgrade works across critical water and wastewater infrastructure. Continuing with major projects secured in FY '26. In the energy market, we were awarded a $16.4 million project at Ampol's Lytton refinery in Queensland under our long-standing Master Services Agreements. The project involves the renewal and refurbishment of existing fuel storage infrastructure and supports continued investment in upgrading and future-proofing critical refinery assets. This refinery is only 1 of 2 operating refineries left in Australia. This award reinforces Saunders position as a trusted long-term partner to major energy clients and highlights the strength of our recurring work model in this sector. In the resources and industrials market, Saunders secured a $19.8 million contract with PARC Engineering in the Northern Territory to construct 11 storage tanks at a gold processing facility in Central Australia. This project reinforces our strong position in the mining and resources sector and reflects our ability to mobilize quickly and deliver complex infrastructure safely in remote operating environments. We also secured the Kyalite Road Realignment project for Tomingley gold operations in New South Wales, a key enabling component of the Tomingley gold mine expansion that will separate public traffic from mine haulage to improve safety and operational efficiency. Together, these projects finalize Saunders ability to deliver high compliance infrastructure projects across all 4 key markets in a wide range of asset types across metropolitan, regional and remote geographies. They also demonstrate the strength of our long-term client relationships, our multidisciplinary capability and the growing contribution of Saunders Aqua Metro to recurring work and programs of work. In closing, I'd like to share the outlook that is driving forward momentum in Saunders. We have seen an increase in tendering and projects being awarded. And based on performance to date, financial year 2026 is expected to be in line with the earnings guidance provided at the AGM. To remind you of what was outlined, Full year FY '26 revenue is forecast to be between $315 million and $345 million, delivering an adjusted EBITDA margin of between 3.5% to 4.5%. This reflects the improved operational and market conditions, we expect to continue into H2 FY '26. In H1, we've increased our work-in-hand to $549 million, a record $4.9 billion opportunity pipeline, of which circa $790 million is currently under evaluation in the short to medium term provides a runway for long-term earnings resilience. Saunders' increasing exposure to high compliance critical infrastructure markets, particularly in our niche defense, water and energy markets strengthened earnings resilience and create a high barrier to entry. Additionally, we continue to balance our portfolio with long-term multiyear Panel and Master Services Agreements supporting annuity style and recurring earnings. Our diversification strategy over the past few years, including the transformational integration of Aqua Metro has broadened our service offering increased market opportunities and fostered broader brand recognition in the market. I want to thank you for your time today and your continued support of Saunders. I'll now hand back to Lana for any Q&A.

Thanks, Angelo, and I'm now opening the floor to the questions. [Operator Instructions] I'm reading them out and directing them to Angelo or the appropriate member of the leadership team. Where we've received some similar questions, I'll consolidate them to make sure that we can cover as many as possible. And a reminder, if a question is price sensitive or if it relates to matters that we can't disclose at this time, we may not be able to provide an answer today. So we'll get started with the first question, and this one relates to shareholder value and outlook. Why would shareholders continue to hold Saunders share following today's results? And how confident are you in meeting FY '26 guidance, including generating positive cash flow from operations in the second half and for the full year?

Thank you, Lana, for that question. I guess maybe the second part of that question first. We've reaffirmed guidance, of course, for the second half. And so that gives us comfort that we're on track to deliver those results. For us, obviously, first half result wasn't as we expected to be in line with guidance based on the reasons that we outlined at the AGM, and I propose not to go through them again now. But certainly, the conditions that we saw in late Q1 FY '26, we had a number of projects award delays. We expected those to go to award late in Q2. We saw those go to award, and we were successful in converting 7 or 8 of those opportunities that obviously started to deliver earnings in H2 of FY '26. In terms of the broader outlook beyond that period, I guess, our work-in-hand continues to grow. So we're seeing longer-term contracts and particularly the acquisition of Saunders Aqua Metro provides more runway for that growth. As we know, that business has a number of long-term multiyear contracts with the water utilities in Victoria, that extend out through to 2031, gives us a bit more earnings resilience typically than we've had in the past. And on top of that, I guess now as we've brought -- as we've integrated Aqua Metro into the Saunders business. We're leveraging that broader end-to-end capability to identify more opportunities in the market. And I think that's reflected in the growth of the pipeline over that last 6-month period is as we mentioned, I think we grew that pipeline 22.5% from 30 June last year to the end of December. And a lot of that's come from, of course, the additional opportunities that Saunders Aqua Metro now has in markets outside of Victoria. But I think it also reflects the broader capability that we have and so we've seen an opportunity pipeline grow.

Thank you, Angelo. The next question we have relates to revenue performance and with some specific questions in relation to Aqua Metro. Can you please explain year-on-year revenue performance, excluding Aqua Metro? And then separately confirm whether or Aqua Metro remains on track to meet its FY '26 guidance of $135 million in revenue and $11 million in EBITDA.

I might let Alex handle that segment breakdown between the water as well?

Yes. No problem, you'll see within the financial statements now with that segment reporting lens, with that water business and then the multi-sector business. Looking at the multi-sector business, Obviously, Aqua Metro is not the full water business. There is water business that we had prior to Aqua Metro, so it's not a like-for-like comparison, but the base business has had a revenue increase of circa 5% from H2 to H1 FY '25 to FY '26. So we have seen that continue to step up, and we see that continuing into H2 FY '26. Looking at the second part of the question around where we see Aqua Metro performing for full year FY '26. I'm not going to go too much into the earnings forecast on that business. However, we have called out previously. I think at the time at the AGM that there were some project revenues being delayed from the Aqua Metro business. So I would say that the revenue guidance that we gave at the beginning of the year is unlikely to be met.

Thanks, Alex. While I have you, we have a question in relation to balance sheet movements. Are you able to outline the key drivers behind the increase in other current assets from $0.8 million to $5.2 million?

I can take that. I might go back to the screen, perhaps, you can...

Not a problem. I'm happy to take that question. So as I mentioned, the balance sheet has been impacted by the acquired balance sheet following the acquisition of Aqua Metro, that other receivables or the other current assets balance in the balance sheet there does represent some acquired balance sheet in Aqua Metro, which includes a number of contracted cash back receivables that we acquired with business.

Thanks for that, Alex. The next question relates to margins and bidding strategy. So under new leadership, are there changes to bidding, contracting or pricing to improve returns? And what work is underway to lift margins? And how will that -- how will recently awarded contracts impact the second half of FY '26 earnings?

Absolutely, of course, with new leadership, spotlight is on everything that we do and how we do it. Certainly, the award winning is no different. We've had a tremendous spotlight on that over the last 3 months since I was appointed from October 1. We don't see any great shift in our approach to bidding other than we want to unlock the natural competitive advantage that we believe we have from having an end-to-end capability. The easiest way for me to describe that is in a project typically, historically, for instance, Saunders may have built the tanks and Saunders would have done the pipeline and Saunders else would have done the control systems and Saunders would have done the E&I. And each of those has margin on margin huge interface risk in terms of delivery. Obviously, we want to leverage that position as an end-to-end services provider to derisk that project, to derisk the pricing of that project, to derisk the capital cost of that project for our clients. And so we're always looking to use that as a competitive advantage, of course. I don't think that's any great secret in the market, of course. But as we sort of been -- over the last 12 months, we've certainly been involved more in some early contractor involvement with our clients. And we see that as a value proposition that we absolutely want to utilize to deliver margin improvement in the business.

Thanks, Angelo. We have 2 final questions. This one relates to MSA and panel agreements. So what percentage of revenue typically is represented by MSA and panel agreements? And what percentage of revenue is recurring going forward?

Yes. I think I might answer that question, and you may want to add a little more color to that. Certainly, the historical Saunders business, excluding Aqua Metro historically was it sort of a more broadly traditional contracting dollar business. Over the past few years and particularly last year, I think we mentioned that Saunders had secured 7 or 8 master services panel and framework agreements, particularly in the energy sector with some of our longer clients in that market. We're obviously leveraging that to obviously to secure more work with those customers. With the acquisition of Aqua Metro, they have probably 4 or 5 key multiyear panel agreements that extend out to 2031. Of course, we're always looking to extend those and the opportunities that we're chasing in the market are looking to secure more of those types of program of work across Australia. I think the breakdown between the annuity-style earnings and the traditional is probably getting close to 35% recurring and 65% traditional, Obviously, one of our strategies internally is to try to balance -- is to continue to balance that portfolio. We're very pleased with what we've done in the last 2 years to do that. Certainly, as we continue to grow in the water market, we see that number balancing even further.

Thanks, Angelo. We have one final question. This relates to new markets. Did Saunders water and energy capability extend to supporting the primary water and cooling infrastructure for data centers. And is this a market that the company is actively considering?

I might put that question to either -- Trevor, you work in data center and you obviously worked in the water. So it's a bit of a cross blend of the 2.

Yes. The answer is yes. We are already operating in data center projects, and we have secured a project that is exactly pulling water for a data center in the half.

And Manish, did you want to add anything further to that?

No, I think Trevor answered that.

Okay. Wonderful. Thank you. Well, that closes today's conversation and questions. That's the end of our Q&A time for today. Thank you all for your thoughtful questions. They're all very much appreciated. I'll now hand back to Angelo for any final remarks before we close.

Thank you, Lana, and thanks again to everyone who joined today's call. We absolutely appreciate your time, interest and engagement in Saunders' H1 FY '26 results. On behalf of Saunders, thank you again for your continued support, and we look forward to working hard for our shareholders, and we'll continue updating you on our progress during the year. With that, we'll bring the webinar to a close. Thank you.