SciDev Limited (SDV) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the SciDev Ltd. 2026 Full Year Results Presentation. [Operator Instructions] I would now like to hand the conference over to Todd Scott, Chief Executive Officer. Please go ahead.

Good morning, everyone, and thank you for joining us. FY '26 was a year of contrasting performances for SciDev. Water Solutions delivered record revenues and earnings, but at the same time, we experienced a significant setback in Energy Services following the loss of a major contract. Just as importantly, we took decisive action to address underperforming areas of the business and strengthen the balance sheet. Today, I'll take you through the key outcomes from the year, the progress we've made executing the strategic reset outlined at the Investor Day and why we believe SciDev now enters FY '27 in a stronger position with a clear strategy, a leaner cost base and a growing pipeline of opportunities. The simplest way to think about FY '26 is that it was a year of 2 halves. The first half reflected the impact of the Energy Services contract loss and ongoing losses in our International Water Technologies operations. The second half demonstrated the benefits of actions we took to address issues of cost and performance. Across the year, we reduced our cost base by $4 million, exited loss-making international operations, tightened capital expenditure and working capital management and improved overall financial discipline. While full year revenue and earnings were below FY '25 levels, we finished the year with higher net cash, improved liquidity and significantly stronger second half performance. Most importantly, we believe the business today is materially better positioned than it was 12 months ago. There are several highlights across the business. Within Water Solutions, we secured the $19.5 million Rum Jungle contract, won a new chemistry contract with Newmont Boddington that commences in FY '27 and established a presence in Water Solutions for the data center market, leading to our first contract announced earlier this month. In Energy Services, we established a new Master Services Agreement with a Tier 1 service provider and generated our first revenues under that relationship. Strategically, we exited direct operations in the U.S. and U.K. water technology business and moved to a channel partner model, removing a source of ongoing losses. Financially, recurring revenue increased from 30% to 38% of total revenue. Net cash increased to $6.8 million and second half underlying EBITDA more than doubled compared to the first half. This slide demonstrates why we're increasingly confident about the direction of the business. Revenue in the second half was lower as the lost xSlik volumes were no longer present. However, despite lower revenue, underlying EBITDA increased from $1.1 million to $2.5 million and margins expanded significantly. That improvement was driven by 3 factors: first, the execution of the Rum Jungle project; second, the benefits of the cost reduction program; and third, improved quality of revenues across the portfolio. Importantly, we delivered positive operating cash flow in the second half, consistent with the commitment we gave to investors at the half year results. For us, the key takeaway is that the recovery is not dependent on revenue growth alone. The underlying profitability and cash-generating capability of the business improved materially during the year. I'll now spend a few minutes on the financial performance of the businesses before asking John to cover off on balance sheet and cash flow in more detail. When analyzing the FY '26 results, it's important to understand that almost all of the earnings decline can be attributed to 2 specific factors. The first was the loss of the xSlik contract within Energy Services. The second was continued losses in International Water Technologies prior to the exit from those operations. Outside of those 2 items, almost every part of the business improved. Water Solutions delivered record EBITDA of $4.2 million, increasing earnings by $3.6 million compared to the prior year. Corporate costs declined by approximately $1.6 million and recurring revenues increased significantly. That gives us confidence that the actions taken during FY '26 address the core drivers of underperformance rather than simply cutting costs around the edges. This waterfall summarizes the year quite well. The strongest contributor was Water Solutions, where revenue growth, engineering project delivery and stronger chemistry performance delivered record earnings. We also generated meaningful savings through the corporate cost reduction program. Those positives were more than offset by Energy Services contract losses and the losses associated with international operations. Looking forward, the key point for investors is that the negative drivers are largely known and addressed while the positive drivers continue into FY '27. The composition of SciDev is changing. Water Solutions is now our largest contributor to earnings and has become a centerpiece of our growth strategy. Across mining, infrastructure and data centers, we're building a broader integrated platform that combines our engineering, chemistry and optimization capabilities. Energy Services remains an important earnings driver. However, the future growth profile will increasingly reflect the expansion of Water Solutions. That diversification is intentional. It creates a broader earnings base, reduces concentration risk and gives us exposure to several attractive end markets. Water Solutions was a standout performer in FY '26. Revenue increased 13% to $48.3 million and underlying EBITDA reached a record $4.2 million. Process Chemistry benefited from infrastructure projects and mining contract renewals, while Water Technologies was driven by a solid base of O&M contracts, the Rum Jungle project as well as stronger sales from our Hydra-IQ water quality monitoring systems. Beyond the numbers, what excites us most is the strategic position we've established. We're building an integrated water solutions platform around engineering, chemistry, data and optimization capabilities, which includes Hydra-IQ and OptiFlox. We're also beginning to establish a meaningful position in data centers, a market where the team has extensive previous experience and where we see significant long-term growth potential. Energy Services faced a challenging year following the loss of the premium xSlik contract. Despite that, the business remained profitable and generated $4.8 million of EBITDA. One particularly encouraging outcome is the continued strength of CatChek. CatChek now accounts for more than half the segment revenue and continues to demonstrate resilience and competitive differentiation. We're also making progress with new partnerships and product development initiatives, including enhanced oil recovery applications, CatChek variants and advanced delivery systems. While the market remains challenging, we're focused on rebuilding growth through partnerships, product innovation and expansion into attractive basins. At this point, I'll hand over to our Interim CFO, John Gardiner, to discuss the balance sheet, cash flow, recurring revenue profile of the business.

Thank you, Todd. A key priority throughout FY '26 was improving capital discipline and strengthening the balance sheet. The result of those efforts is evident here. We finished the year with net cash of $6.8 million and total available liquidity of $13.8 million. Operating cash flow improved significantly during the second half, supported by stronger earnings from Jungle milestone receipts and more disciplined working capital management. At the same time, capital expenditure was reduced and remains well below reported depreciation because of the long-lived nature of many of our assets. The balance sheet today provides sufficient flexibility to support organic growth opportunities while maintaining a conservative risk profile. The other important trend is the continued improvement in earnings quality. Recurring revenue increased to 38% of total revenue in FY '26. This revenue comes primarily from long-term operating and maintenance contracts, build-own-operate assets and multiyear chemistry agreements. If CatChek revenues were included, that proportion would be even higher. Growing recurring revenue remains a strategic priority because it improves visibility, enhances earnings quality and creates a stronger platform for long-term shareholder value creation. I'll now hand back to Todd to discuss strategy and outlook.

Thanks, John. As we move into strategy and outlook, the message is straightforward. Our objective is not to be everything to everyone. Instead, we are concentrating resources on markets where we have a genuine right to win and where our combination of engineering, chemistry and optimization capabilities creates differentiation. The progress made through FY '26 gives us confidence that this strategy is already starting to gain traction. We've deliberately focused on a smaller number of attractive markets where we have established customer relationships, proven delivery capability and transferable expertise. Mining, infrastructure, utilities and data centers sit at the center of our Water Solutions strategy. Supporting those markets is an integrated platform of engineering solutions, chemistry and optimization services. Recent wins such as the Newmont Boddington gold copper mine and our first data center agreements provide early evidence that this platform approach is resonating with customers. The market opportunity remains significant. Today, we estimate the Australian Water Solutions market opportunity across the priority sectors at approximately $2.2 billion. By 2040, that opportunity is forecast to exceed $6 billion with data centers representing the fastest-growing segment. The key point isn't just market size, is that these markets are becoming increasingly driven by water scarcity, water quality, recycling, treatment and regulatory requirements, all areas where SciDev possesses -- demonstrated expertise. At the Investor Day in June, we outlined a 5-point plan. Today, we're able to demonstrate meaningful progress against every component. We've diagnosed the cause of underperformance. We've exited noncore loss-making activities. We've reduced costs. We've strengthened the balance sheet, and we've begun rebuilding a path to sustainable growth. While there's still work ahead, we're pleased with the progress achieved in a relatively short period of time. Looking ahead, our priorities are clear. First, deepen relationships with Tier 1 mining customers by expanding the range of services we provide; second, establish a meaningful position in the Australian data center market; and third, gain stability in the Energy Services businesses through new partnerships and targeted product development. These initiatives leverage existing capabilities with customer relationships, giving us confidence they represent practical and achievable growth opportunities. As we enter FY '27, we're encouraged by the opportunities ahead. In Water Solutions, we have the Newmont Boddington contract commencing, continued project activity in mining and the first revenues from our major data center customers. In energy, we continue to focus on our strategic partnerships, new products and selective geographic expansion. While market conditions remain mixed, particularly in Energy Services, the overall pipeline across mining and data centers provides increasing confidence in the growth outlook. Before we conclude, I'd like to acknowledge our leadership team shown here. The progress achieved during FY '26 is a result of the tremendous effort from the team from all parts of the business. Their work has positioned SciDev for the next phase of growth. To conclude, FY '26 was a year of decisive action and strategic repositioning. Although the headline financial results reflect a challenging period, the underlying trends are encouraging. We have a stronger balance sheet, a lower cost base, improving earnings quality, record Water Solutions performance and a growing pipeline in attractive end markets. Most importantly, we believe SciDev is now focused on the areas where we have the strongest competitive advantages and the greatest opportunity to create long-term shareholder value. Thank you for your time this morning. Myself and my management team would now be happy to take your questions.

Our first question comes from James Tracey with Blue Ocean Equities.

I'm hoping you could provide a bit more color on the data center contracts that you've won. At the last Investor Day, you outlined the data center strategy, you didn't have any contracts at that stage, won 2 since then. I guess, I'm wondering how significant the clients are that you're working with and how you see the opportunity and how those clients could evolve over the medium term?

Thanks, James. Appreciate the question. And certainly, it's a market that we are just as excited about ourselves as I think the market is -- our investors are. In context, this is a market. Data centers is a market that we weren't even engaged with 6 months ago. So the fact that we've signed 2 contracts already is really encouraging for us. In terms of the customers themselves, they are -- how I say, household names. Unfortunately, we can't disclose because of client confidentiality of the names that we're working with, but they are certainly names that you would know and understand. The 2 different projects that we're working on are relatively different, but both meaningful. The one engagement we had was early-stage consulting work for a very large data center that's in the process of being approved. They're going through that process and would be a very meaningful project when it gets -- if it gets across the line. And the other bit of work that we're doing has been an engineer, one of our engineers, which has been embedded into the client to really help with all the work that they're doing. As you can imagine, these data center clients have a significant amount of work going on and particularly in the water space, a large problem they need solutions for. So we're encouraged by all that. That's a bit of color. I'm very lucky to have Ronan Duffy with me here in the room that can give a bit more detail on that and what he's seeing in the pipeline and what he thinks this might lead to going forward.

Yes. Thanks, Todd. I suppose, James, good question. What we're seeing in the market is there's an awful lot of development and feasibility stage. We're supporting our clients in this where we're looking at full site water management plans, access to resources on the site and off the site and then dealing with small projects like wastewater treatment, mobile plants. We sort of cover the construction side of the delivery of the developments and also then the operational side, which could be down to the small project of [ admin ] water -- potable water and wastewater supply equipment. We're also dealing with fire suppression and storage of water for that. And then also the other big thing on remote sites we're seeing is requirements for commissioning water, which is Ultrapure standard that they don't have access to on site. So we're designing plants and help them with, I suppose, how we deliver that for the client. So even if it's in [ air-cooled] site we are seeing a lot of scope for us to support our clients in that space. And look, there's a lot of work on the feasibility side. And we're also engaged with them soon to do some desktop reviews of safety water management plans and also how they are delivering their current design and then looking at even existing plants and how we can optimize the current water that they're dealing with and give them a decent quick turnaround on the back of that. So with our HydraCool systems that we have developed and trademarked, we are checking all these boxes and supporting our clients really well. And I think the market is showing us really positive signs. Our pipeline is growing really quickly. And we're getting really early engagement, which gives me great confidence that we will be successful in winning projects as they develop through the DEA process.

Just on that topic, I mean, it sounds like most of these data center projects are in the planning stage or the feasibility stage. How would you anticipate that the addressable opportunity for you evolves as some of these projects go from planning to construction to operation and what would the typical metrics kind of look like on a typical data center?

Yes. I suppose what we're doing is -- and this is the good part for me is we have the early engagement piece. So we have seconded one of our engineers into one of the major companies to help them through the feasibility stage. We're then seeing desktop reviews and even auditing what they're planning to do within that feasibility stage. We then are moving into -- we can deliver to the construction and operation of that data center development. And then we're also capable of delivering the O&M ongoing operation of that facility or multiple facilities. Yes, so we're sort of in really early engagement, and then we'll be there even post development completion to operate and maintain the water treatment equipment.

Yes. And, I guess, the other question on this topic is there are data centers in Australia and to date, there hasn't been much water treatment done for those data centers. What's different with, I guess, the data centers that you're looking at now?

It's the chip type. Obviously, the chip type is running at a higher temperature is drawing more loads. So the traditional chips were about 35 kilowatts. Now the new versions are up to 90 kilowatts. So everybody is looking at a hybrid cooling technology, whether it's cool air, whether it's liquid to chip and also adiabatic. So I suppose from my perspective, we're seeing a lot of engagement in that hybrid model. Also just to comment, we're also seeing existing sites where trade licenses have changed, and we're getting inquiries coming through on looking at existing sites and how to optimize their water use and then meet changing criteria on discharge.

So I guess regulation is becoming a bit more stringent as community concern rises around some of these issues.

Exactly. Yes. And look, the plan for everybody we're talking to is to be in recycled water 100%.

[Operator Instructions] Your next question comes from James Tracey with Blue Ocean Equities.

Just switching topics slightly back to the core business. One observation that I've had of the market from looking at competitors is that because of the concept in Iran has been big increases in commodity prices -- chemical commodity prices for the first time in many years. I'm wondering, do you have the ability to pass that on to your customers, in which case, could that provide a benefit to your revenue growth? And possibly what's the impact on margins there of that, if you're seeing that?

To a degree. So we certainly have the ability to pass that on to our customers. I think for new contracts, certainly, that goes into the pricing. We have a very -- on the mining chemistry side of things, a very good relationship with Nuoer who goes to great lengths to allow us to get volumes that will benefit ourselves and them. And similar story on the energy chemical side. I'll let Chris speak more to that in a moment, but it is a volatile space. I think one thing we've seen is that our customers, certainly in energy have been very mindful and very conscious of -- particularly around commoditized chemistry around the margins and the prices that they're paying during the recent volatility. We've been able to, I guess, hold margins more easily in CatChek. But on the energy side of things, that's been a part of the challenges that we faced with that commodity chemistry in friction reducers. Chris, if you're on the line, maybe you can speak to that.

Yes, sure. Thanks, Todd. And thanks for the question, James. So I would agree with what Todd said, but just to echo a bit more, part of what we're seeing is certainly some of the raw components that we deal with, especially when it deals with ocean freight, we've seen certainly an increase there. We have been able -- because that is measured on a worldwide indices, we've done a really good job of being able to pass along most of those increases to our clients to a part where at times, we have seen a margin percentage or 2 growth. As Todd mentioned, some of the more domestic or commodity products that are produced here within the U.S. Those products have moved a bit with the increase in oil prices and some of those things that we have been seeing throughout the market. Those prices have since cooled just a little over, say, the last 2 or 3 months. We expect them to cool a little bit more throughout the rest of the year. But we've all been able to manage at least the gross profit target that we've been looking for, certainly not been able to grow much in that -- on that gross profit line with the friction reducer or more commodity-type products.