Saunders International Limited (SND) Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining Saunders's FY '26 Investor Webinar. I'd like to begin by acknowledging the traditional owners and custodians of country throughout Australia and pay my respects to elders past and present. My name is Lana Havenhand, and I'll be moderating today's session. I'm joined by Saunders's 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. The team will take you through Saunders's FY '26 results, key developments across the business and the market opportunities ahead. We'll then move to a Q&A. You can submit questions through the Q&A function at any time throughout the presentation. We'll then group similar questions together and do our best to address as many as possible. As always, if a question is price sensitive or relates to information that we're unable to disclose, we may not be able to provide a response. And with that, I'll hand over to Angelo.

Thank you, Ana, and good afternoon or good morning, everyone, depending on where you're joining us from today. Thank you for attending our FY '26 results presentation. As we have quite a number of new and potentially first-time Saunders investors on the line, I'd like to start with a brief overview of Saunders and importantly, how the company has evolved over the recent years. Our diversification strategy, including the integration of Saunders Aqua Metro in FY '26 has seen Saunders evolve from a specialist bulk fluid storage provider into an integrated infrastructure services business. Today, Saunders engineers, builds and sustains critical infrastructure in high compliance environments across Australia in the broader region. We have continued to strengthen our position across our key markets. and customers supported by broader capability and an increasingly integrated delivery model. This is central to our growth and delivery strategy. Our vision is to be the most trusted partner for critical infrastructure delivery particularly where specialist capability, safety, compliance and delivery certainty are critical -- our growth strategy is focused on niche parts of 4 key markets. defense and government, water, energy, resources and industrials. Each is supported by long-term infrastructure investment thematics importantly, by different underlying drivers. This provides sales with both opportunity for growth and greater balance across our portfolio. In defense, investment is being driven by spring capability. fuel resilience and broader critical infrastructure investment, supported by increased Australian and U.S. defense expenditure. In the water market, population growth and aging infrastructure are driving continued investment in network expansion, asset renewal and water security. In the downstream energy sector, fuel security and aging refining terminal assets are supporting long-term investment in renewal, maintenance and life cycle services. And finally, in Resources and Industrials, there remains strong activity currently in the expansion and sustainment of gold processing infrastructure on the back of high gold commodity pricing. We will provide more color on each of these markets shortly. Collectively, this diversification are key markets broadens our opportunity, reduces resilience on any 1 market and supports more resilient growth in earnings over time. Over recent years, we have deliberately built Saunders for sustainable scale and growth. We have continued to expand our capability into new markets and strengthened our ability to deliver larger, more complex project scopes while remaining focused on the high compliance environments where we have a genuine competitive advantage, we believe there are 4 key characteristics that differentiate Saunders. The first is our high-end clients expertise. We have deep experience operating in regulated security-sensitive and live operational environments where barrier to engage and client value proven delivery. The second is our integrated delivery model. bringing engineering, construction and asset services together, reduces interfaces for clients and allows Saunders to take greater accountability across the infrastructure life cycle. The third is our trusted -- is the strength of our trusted relationships. Many of our opportunities come through long-standing client relationships, repeated work and earlier engagement, improving both opportunity visibility and conversion. And finally, we continue to strengthen our technical and delivery leadership, giving us the capability to pursue larger multidisciplinary projects with confidence. Together, these attributes position Saunders not ability to grow earnings, but to scale with discipline and build a larger and more durable organization. FY '26 was an important year in strengthening that platform, and we've proudly achieved a few key first. One of the most significant milestones was completing the integration of Aqua Metro. This established a scalable national water platform for Saunders, broadened our life cycle capability and increased our exposure to annuity style earnings. We have already begun converting that platform into longer-term opportunities, expanding beyond our established Victorian both by securing 2 10-year Sydney water delivery contracted panels. These are important new beachheads, creating new markets for Saunders into New South Wales. You're also able to see from the slide that our continued focus on defense was another area of significant progress. During the year, we secured 4 defense fuel infrastructure contracts. And recently, after the end of July, we announced our first direct head contract with the Australian Department of Defense. This is an important strategic step for us. It demonstrates our ability to move from specialist subcontractor scopes into larger, more integrated head contractor opportunities with the federal government. Collectively, these milestones have expanded our addressable water and defense markets increased visibility over multiyear programs and broaden the platform from which Sanders can grow into the future. We'll now turn to the FY '26 financial results. I'll hand over to Alex to walk you through the performance in a little more detail.

Thanks, Angelo, and thanks to everyone for joining today. The headline result of FY '26 is a clear step change in the scale of the business. FY '26 delivered record revenue, a stronger balance sheet and improved underlying earnings. Whilst FY '26 had a statutory loss with H1 FY '26 earnings impacted by project delays and extreme weather events, H2 FY '26 saw a return to improved profitability and full year revenue increased 42.5% from FY '25 to a record $305.6 million following the acquisition of Aqua Metro. Business profitability also improved in FY '26 and with an adjusted EBITDA of $9.8 million, up 5% and in line with revised guidance after excluding $2.3 million of business acquisition and integration costs. Cash and cash equivalents finished the year at $29.8 million, an increase of 35%. This puts Saunders in a strong position to provide flexibility to continue investing in enhanced capability expansion and growth opportunities. Underlying earnings also improved with adjusted NPATA increasing 22% to $3.9 million. This is excluding amortization. Then translating this into shareholder value, adjusted EPSA increased 6.3% to [ $2.85, ] which also excludes amortization. The Board declared a fully franked dividend of $0.01 per share, representing a payout ratio of 35% of adjusted EPSA and in line with our dividend policy, which is available on our website. This ratio supports ongoing growth and investment. Turning to the balance sheet. We finished FY '26 in a strong financial position. Cash was $29.8 million, of 35% on the prior year, and net cash was $22.3 million. H1 FY '26 operating cash was impacted by the acquisition of Aqua Metro while H2 operating cash delivered a cash conversion rate of 79%. Importantly, we maintained a strong net cash position despite the debt raised for the acquisition of Aqua Metro and continued investment in the business. At year-end, we had $45 million of bank guarantee capability, which was subsequently increased to $50 million in August. This provides additional capacity as we mobilize on larger projects and support our forward order book. And net assets increased 21.3%. Our capital management priority is straightforward. We maintained balance sheet strength continue to fund organic growth and consider selective acquisitions will strengthen our service offering, market access or reoccurring earnings quality. If we now take a look at the revenue mix, you can see how Saunders has changed over the past year. Water is now a meaningful contributor to group revenue, broadening our earnings base alongside the existing multi-sector business. Program and annuity style revenue increased significantly from 15% of revenue in FY '25 to 42% in FY '26. We are particularly proud that we've made a step change in our project portfolio changing mix is important because it gives us greater visibility over our forward work in hand and support a more resilient earnings profile. If we look back over the last 5 years, Group revenue has grown at 24% CAGR since FY '22, which demonstrates the increase in scale over that period. So to conclude on FY '26, we have a more diversified revenue base a greater contribution from longer-term annuity style work and a stronger platform for sustained growth. I'll now hand back to Angelo to take you through work in hand and the opportunity pipeline.

Thank you, Alex. We ended FY '26 with record work in hand of $571.9 million, up 8.1% and a record pipeline opportunity -- opportunity pipeline, sorry, of $5.1 billion, up 27.5% over the previous year. Our deep penetration into our key markets and clients which is being carried on the back of our broadened delivery capability has been the primary reason for our pipeline of opportunities and the reason for its growth year-on-year. We are, of course, driven to position for these opportunities early. Importantly, as you can see from the graph, the pipeline is well diversified across both market and geography. The water market is now the largest component of the pipeline with significant opportunity also across energy, defense and government and resources industrials. Geographically, the pipeline reflects the national footprint and presence that we have built with opportunities both current and emerging across Australia and the Indo-Pacific. We are also seeing a growing mix of larger, longer-term and multiyear opportunities, all of which support greater visibility and earnings resilience into FY '27 and beyond. Timing, of course, will always depend on client investment decisions and government policy, but the scale and breadth of the pipeline provides confidence in the opportunity that is presented to our business. Before we move into the individual markets, I'd like to briefly touch on our ESG progress. The safety of our people and subcontractors remains our highest priority. During FY '26, we reduced our total recordable injury frequency rate by 20% to an improved 3.9 per million hours worked. And our Office of the Federal Safety Commission accreditation was renewed for the maximum 6-year term. We continue to strengthen the environmental governance and reporting while progressing our Innovate reconciliation action plan and engagement with First Nations businesses and communities. We also continued investing in leadership and workforce capability and we're pleased to be recognized during the year as a veteran employment supporter, which is particularly important for our defense opportunity pipeline. Across the broader organization, we strengthened supply chain due diligence and model slavery risk management, whilst continuing to support regional employment and procurement across the local communities in which we operate. All of these, of course, are foundational areas and are extremely important because they support safe, reliable delivery and to help build our strongest Saunders. I'll now hand over to Trevor to take us through the defense and government market.

Thanks, Angelo, and good afternoon, everyone. I'll start with defense and government before Manish takes you through water. I will then return to cover energy and resources and doses. Across these markets, the common thread is sustained infrastructure investment and strong demand for trusted delivery and complex high compliance environments. Defense and Government remains a significant long-term growth market for Solidus. We are seeing an increase in sovereign infrastructure investment driven by a strength fence expenditure as well as increasing U.S. investment throughout Australia and the Indo Pacific. While fuel remains a core strength for Saunders, the longer-term opportunity extends into broader defense state and critical infrastructure, including water and power resilience. Today, our defense and government pipeline is up 25% on FY '25. Our strategy is to build from the core specialist fuel infrastructure capability we have developed over many years and from there, scale into larger integrated scopes and broaden our participation in defense programs. Saunders now has credentials as provisionals subcontractor and a head contractor materially expanding the opportunities available to us and improving our margin potential. This map shows how our delivery footprint aligns with Defense's priority investment areas. Saunders has now worked across 18 defenses domestically and internationally, giving us a strong base of experience in high compliance defense environments. We also have a [indiscernible] concentration of activity across Northern and Western Australia where defense infrastructure investment is increasing. Our remote delivery experience, fuel infrastructure capability and self profile model positions us well to deliver in these actions and be the delivery partner of choice. Our footprint also gives us a pathway beyond individual projects into broader estate works, sustainment and focused programs at work. The 2 projects on this slide illustrate the progression we are making in defense from specialist infrastructure delivery through to broader head contractor capability. I'll focus briefly on MA of -- our Butterworth in Malaysia, where Saunders was awarded a $23 million contract by the Australian partner Defense. This is Saunders first head contract, an important milestone for the group. Our scope includes the construction, installation and commissioning of defense fuel infrastructure in complex international operating environment. The project extends our defense and in the Pacific credentials and strengthens our position to pursue larger critical infrastructure programs. I'll now hand over to Manish to take you through water.

Thank you, Trevor, and good morning, everyone. In the next 3 slides, I look our water market opportunity and how we are building a national platform by strategic positioning and converting these opportunities into long-term programs. When you look at the market opportunity, water has become Saunders largest and important long-term growth markets with a pipeline of approximately $2.3 billion. The sector is benefiting from sustained investment driven by population growth, aging infrastructure and the need for water security. We hold positions on multiyear water authority panels across Victoria and New South Wales, including the 2 10-year delivery contractor panels with Sydney Water and 10-year delivery framework with [indiscernible]. Our key differentiator is the integrated capability we can now bring to our customers in a high compliance market. The combined strength of engineering, civil mechanical, electrical, automation, tank construction and asset services all under one roof, creating distinct service offering for Saunders. Using these service offerings and we have established teams in the region. We are also looking to capitalize on adjusted market opportunities in defense, resource and mining to deliver essential water and waste water infrastructure. Moving on to our national platform, Building. As you can see on the map, Victoria remains an established operating region with strong utility relationships, long-term partnership contracts and a substantial delivery track record of over 300 projects shoutout. New South Wales is now an important growth region, supported by our Sydney water panels and a broadened project delivery. In Western Australia, we are now requalified for the delivery of the capital works within Water Corporation. In Queensland, we have secured 23 status to deliver civil works across the region. Our near-term focus is on increasing participation and expanding delivery footprint in New South Wales, Victoria, Queensland and Western Australia, where a significant order infrastructure investment is allocated. Beyond that, we see opportunity in South Australia where there is a sustained capital investment. Tim Jetkin is not simply a geographic expansion for its own site. We are looking to enter and growing regions where we can bring value to our customers with an integrated capability, smart innovation and delivery model to support sustainable growth. The next phase is about converting those positions into larger programs and increasing the proportion of recurring revenue, clearing efficiencies and delivering quality margin across the group. Turning to our long-term partnerships, 2 examples on this slide, Sydney project and Sydney Water M&E panels demonstrate how we are translating our or capability into both complex logic delivery and long-term programs by partnering with the word customers. I'll focus briefly on Sydney Water, where Saunders has secured 2 10-year delivery contact the pounds for triple and mechanical works. This has provided access to the significant capital was planned to be delivered in North, South and West region of Sydney. The works include delivery of treatment plants, pump stations and network upgrade under Sydney orders NEC collaborative constructing framework. With greater visibility of the pipeline, underpinned by the planned 10-year infrastructure capital investment, we're well positioned to convert this opportunely into large program of works. With that, I'd like to wrap up the water market update, and Trevor will take you through Energy Market next.

Thanks, Manish. Energy sounders most established market, supported by ongoing investment in Australia's field security. The federal government of $10.7 billion fumsecurity and resilience package and the need for an additional 2 to 3 million liters of fuel storage will underpin investment across the sector. We estimate our 10-year serviceable market opportunity at approximately $2.5 billion to $3.6 billion. Saunders has a strong platform from which to capture that opportunity, having delivered more than 2.2 billion liters of storage capacity over the past decade. Our focus now is to expand our offering to clients through brownfield upgrades, main services, automation solutions and broader life cycle services. Our energy footprint is national with experience across major hazard facilities, including refineries and field terminals. These are complete highly regulated environments where safety, compliance and delivery certainty are essential. Saunders brings the specialist accreditation, systems and experience required to deliver successfully in these settings. Importantly, we are already embedded with international and global energy operators in Australia. That gives us a strong platform to expand our scope within existing assets and better support clients with their whole life cycle needs. The projects on this slide demonstrate how that strategy is translating into broader and more consistent work. At Ampol's Living refinery in Queen Solders has secured circa $24 million tank turnaround, Asset Services and structural mechanical piping works in FY '26. The work is being delivered under a long-standing services agreement supporting ongoing refining operations and upgrades. It is a good example of how our specialist capability and client relationships can lead to broader scopes and repeat delivery. Turning now to Resources and industrials. Our approach in this market is deliberately selective and commodity led. Today, Gold is driving strong activity, particularly in Western Australia where we are seeing significant investment in process infrastructure. Saunders has built strong credentials in this market, including securing 5 sell projects in WA over the past 18 months. Importantly, our capabilities in process infrastructure, automation and brownfield delivery are transferable across commodities. That gives us the flexibility to follow investment as market cycles evolve. Western Australia is our strongest resources and industrials position to, supported by repeat delivery across Matigold processing projects. Also had experience in the Northern Territory and New South Wales demonstrating the portability of our capability across regions and project types. Our focus is to build greater depth around established clients and asset positions, including larger packages, adjacent scopes and sustaining capital work. At the same time, we retain the flexibility to pursue opportunities in other commodities where our capabilities are well aligned. The projects on this slide demonstrate 2 different pathways for growth. At KCGM in Western Australia, Saunders has delivered multiple work packages over 18 months with a combined value of approximately $80 million. That work has strengthened our position in gold processing and sill infrastructure. and demonstrated our ability to mobilize and deliver at scale. [ Coal bridge ] in New South Wales demonstrates another pathway, extending our civil infrastructure capability into an adjacent resources opportunity. I'll now hand back to Angelo to take you through the next phase of growth for Saunders.

Thank you, Trevor and Manish, for providing a little more color on our key markets. As you've heard today, FY '26 materially strengthens Saunders. We have greater scale, broader capability and deeper positions across our 4 key markets. Importantly, we have also greater visibility over the opportunities ahead, allowing us to engage earlier and position more effectively major programs of work. I'd like to by looking at how we convert that stronger platform into the next phase of growth. The photo in the background is the new Western Sydney International Airport which will become fully operational in a few months' time. All of the critical infrastructure on this project was delivered by Saunders. In the foreground of some of the key macro environment and market thematics that we believe will provide a strong foundation for continued organic growth. I will briefly touch on these. Our end-to-end self-perform capability gives us greater control over project delivery and allows us to take on larger, more integrated scopes. Fuel security of [indiscernible] remains a significant opportunity with continued government and industry investment in fuel resilience and strategic storage of jet, diesel and unleaded fuels. In the water market, population growth, particularly in the corridors of our metropolitan cities, together with aging infrastructure and network constraints are driving long-term expansion and renewal investment. At the same time, sophisticated clients are increasingly looking for fewer subcontractor interfaces and greater accountability, which play directly to our integrated delivery model. We are also seeing selective opportunities in adjacent high compliance markets also with the increasing investment that include data centers, hospitals and airports. Importantly, for Saunders we now need to move too far away from what Saunders already does well. The opportunity for us is to decisively apply those capabilities more broadly across a larger client and critical infrastructure base. And now to the outlook. On the back of an improved H2 FY '26 performance, Saunders entered FY '27 from a stronger position with greater scale, resilience and visibility. Our balanced portfolio across defense and government, water, energy and resources and industrial markets position the group to benefit from the expected public and private sector capital investment in Australia's critical infrastructure. As a result, we expect year-on-year revenue growth in FY '27, underpinned by our record work in hand of circa $572 million. Importantly, the improvement that we have delivered in our H2 FY '26 NPATA margin is expected to be sustained throughout FY '27. We also expect our growing base of multiyear water panel agreements to increase recurring annuity-style earnings as we pursue and enter new markets and deepen our relationship with water utility clients around the country. In the energy market, accelerated investment in fuel security and resilience is creating further opportunities across strategic fuel storage associated critical infrastructure. With a record opportunity pipeline of $5.1 billion, and 42% of our FY '26 revenue from program annuity-style work, we entered FY '27 with a stronger earnings base. While the outlook is positive, it is not without risk, including project timing, weather conditions and government funding priorities. However, our internal focus is absolutely clear: execute our record work in hand well position and to convert our growing and targeted pipeline and, most importantly, continued building for earnings resilience and long-term growth. Thank you. I'll now hand back to Lana for any questions.

Thanks, Angelo. We'll now open the floor for questions, and we're allowing approximately 15 minutes for the Q&A. Please submit your questions through the Q&A function on your screen. I'll direct all the appropriate member of the leadership team. where we receive similar questions, I may consolidate them so we can cover as many as possible. And as a reminder, if a question is price sensitive or relates to matters that we're unable to disclose at this time, we may not be able to provide a response today. But we'll start with the first question. And this is from [indiscernible]. Any update on the near $800 million worth of tenders that we're expecting a near-term outcome at the H1 FY '26. Are they starting to drop?

Thank you, [indiscernible] for that question. You might recall for those of you who attended our last half, we gave an update of circa $800 million of tenders that were expected in the short to medium term, and we contexted that by saying the short to medium term was between then and Christmas. Those -- that value is definitely still in place. Some of those -- some of that is under evaluation as we speak. There's been, obviously, things like the my laser tender was awarded, of course, in defense, and there are a number of water -- larger water and defense contracts still in play. In addition to that, there's been a number of projects that we've secured since that last update. We haven't put them out as market updates because they haven't been material enough in size. But certainly, in scale, they have been -- and I think that's evidenced by the increased working hand number that you see that we've reported in this period. I think our work-in-hand number has gone up by about $49 million or thereabouts on the prior year. Don't look at the numbers, not even certainly $40-odd million in that period. So they're definitely still in play is some.

Thanks for Angelo. We have an additional question, sir. When do you expect the federal government fuel security packages to start impacting your revenues?

If I had a crystal ball, of course, I could give you a clearer answer on that. We understand, of course, that all of the energy majors been putting their proposals and submissions together to both state and federal government. So they're well afoot at the moment. Of course, from our perspective, we want to build the infrastructure for all of the fuel majors depending on who's successful in working with the government on that. I guess, if I had a crystal ball, you might have recall me saying in the past that before the war broke out, there was a number of energy majors that were well progressed on building additional storage and that will afoot. So there might be some early movers on that. But certainly, the majority of that government spend it was really dependent on government timing. But we do know in the background, of course, that lots of the energy majors are thinking about how much storage they can build and where they can build it.

Thanks, Angelo. Another question from [indiscernible]. Do you intend to provide any guidance throughout the year?

Obviously, we haven't provided direct numbers today other than indicating certainly that our revenue -- we expect our revenue to grow in our NPAT to continue the performance we got in H2 of FY '26. Notwithstanding of that, of course, we've got the AGM in 2 months. And by that stage, will be through our first quarterly results and may be in a better place to provide indication then...

Thanks, Angelo. We now have a question from [indiscernible]. Have you received any work or had any partnerships with Aaron's Group, your third largest shareholder.

Thank you, Riz. I think ams Group is our second largest shareholder. Third largest -- second -- close. Obviously, from time to time, there might be some complementary opportunities to do some stuff together. We have had some discussions in the background and look for those opportunities where it makes commercial sense to both parties.

Angelo -- we have a question from Stephen Scott from Veritas. Can you perhaps talk about maintenance stapled on your initial projects?

Thank you, Stephen. Obviously, we can build new infrastructure the level of maintenance on those is typically quite minimal. Obviously, we just built the Western Sydney Airport as an example that I gave. Maintenance activities on that facility will be quite minor. We're finding more maintenance opportunities coming out of some of our water panels and some of our energy managers that we've had long-term relationships with. We clearly call it minor projects or minor maintenance work, but we're certainly always looking for those opportunities to provide some more asset services.