SRG Global Limited (SRG) Earnings Call Transcript & Summary

Thank you, and certainly welcome, everyone, to the call this morning. Today is very much an opportunity to update the market on how SRG is traveling and talk a bit about our revised guidance, little bit of color around that. I also normally like to talk this time of the year around, the wind down to Christmas, but probably, as you'll see in here today, we're certainly not winding down at SRG over the next little period. So we might see today on Slide 2, which I always like to start with a bit about us. SRG, who are we? We are an engineering-led global specialist asset services, mining services and construction group. And it's that engineering-led technical smart company, that's the way that we like to think and pitch ourselves and the way that we operate. Our operating model is end-to-end solutions across the entire asset life cycle of engineer, construct and sustain and it's certainly an operating model that I'm going to talk a little bit more around the market dynamics that's achieving success. And what we want to be. Our vision is the most sought-after in what we do. We're a company that very much operates on deep relationships. We like to make the complex simple for our customers. And what you'll see in here today is how we're really working hard on those relationships that's bearing more fruit for SRG Global. If we move to Slide 3, which is, I guess, the key highlights of today's presentation. And it's -- first and foremost, it's about revising guidance upwards, an upward range of EBITDA of $42 million to $45 million, up from $38 million to $42 million, which was the guidance that I provided late August. Given we're getting close to the end of the first half, we are anticipating our first half EBITDA to be in the range of $19 million to $20 million, which has near on where we were for the full 12 months of FY '20.' As you would have seen and read over the last little period, we've announced over $0.5 billion of contract wins since the 1st of July. I think most importantly, that's primarily with repeat clients, and we're very targeted in terms of the clients that we work with. We have very deep relationships and nearly all this work is with repeat clients or targeted clients. I'll put a bit more color on that throughout the presentation. We now have record work in hand of over $1 billion, which is up 41% since 30th of June. So it's a very -- probably from an SRG perspective, not a surprise for us. This is certainly part of our plan and what we've been focused on, but it is certainly a significant uplift on where we were. Most importantly, there are further near-term contract wins that we expect with repeat and targeted clients. And we certainly don't plan on stopping. Our earnings profile of 2/3 annuity in FY '21 and beyond very much has us on strategy in terms of where we've shifted the business and it's really important that I touch on that for a moment. It's a bad thing having a very balanced business where we have a high level of annuity earnings in the group, and we can be very well balanced and targeted on the project-based construction side of our business aligned with our capability and our risk profile. And we're in a really strong position for sustainable growth in the long term across diverse sectors and diverse geographies, and that will certainly be a theme throughout the presentation. If we move to Slide 4, and I touched on this in the full year. We are really building momentum in this business. And you can see the continuation of that momentum. As announced, we have over $0.5 billion of new work since the 1st of July. And I often get asked, why are you winning? And why are you securing this work? And it's not a silver bullet. It's very much on the back of relationships. And really, all this work is with repeat clients. So that tells you some key things. One, about very deep relationships. But I think more importantly, we deliver for our clients, and that's really what's driving the success. We have a very diverse capability. And what we're really seeing in the market is that partners want to work with companies that are very diverse in what they can offer. They want less partners that can do more. And it's that diverse capability that's really giving us a key leverage point. We're bringing a lot of innovation, a lot of technology. We're doing some really smart things with data analytics. And in many ways, we're seen as a progressive company. So I mean, I guess it's really all of the above. There's no single reason why we're winning the work, but we're bringing a lot to the table on multiple fronts and then overlaying that with very deep relationships and delivering for our clients. And what you're seeing here is evidence of that. If we move to Slide 5, I think it's really important, we are winning in diverse sectors. What you see on Slide 5 is just the sectors that we've won contracts for in FY '21. These are not all the sectors that we plan, but we are winning contracts in diverse sectors and what provides us with is a really broad platform on which to apply our skills. I often talk about protection and opportunity. The diverse sectors on which we play in provide us enormous level of opportunity on where we can apply our skills. It also gives us a natural hedge in what, I guess, term protection in terms of different industry cycles. We're not wedded to one individual sector, which is a really strong attribute for SRG Global. As we move to Slide 6. We're also winning in diverse geographies. This is the geographic spread of just the contracts we've won for FY '21. And again, similar to the sectors, it gives us great spread. It gives us great opportunity. [indiscernible] which is another key part of our strategy to look ahead, how do we cross-sell other parts of that business into these opportunities. And certainly, what you've seen really over the last 12 months is very, very clear evidence of that strategy in action. As we move to Slide 7, and I've already touched on this, we have record work in hand. And it's work in hand of just over $1 billion. It's up 40%, it's very much part of that plan, it's part of our strategy, and we are ready. And we've put a lot of planning in place from a people perspective, from a recruitment perspective, from having the right systems in place and we are ready, well geared and everything that we're winning is with primarily repeat clients and with core business, core capability, core geographies on which we operate. And if you recall the full year, I talked about how we simplified the business to concentrate on core business, core clients, core markets, core geographies and this is very much the strategy playing out in action on the work that we're winning and the very positive work in hand we now have as a group. And most importantly, as we move to Slide 8, we have a very strong platform for further growth. We have record work in hand of $1 billion, high portion of that is annuity in nature, and you would have seen from a number of the contract with just the length of tenure of those contracts. But most importantly, we have a near on $6 billion further pipeline of opportunities across a diverse range of sectors and geographies which is a really good segue into what is a very positive outlook for SRG Global. From an operating segment perspective, Asset Services business has significantly increased its footprint in diverse sectors. And if you recall back in the full year presentation, the quality of the client base that we have, not only in Asset Services but across the board, is [indiscernible]. And the key part of this strategy is cross-selling other part of the business. And one of the recent contracts we announced the 8-year Refractory Services contract with South32 was very much that cross-selling capability coming into plays. An 8-year contract, $100 million in value is very much off the back of a 6-year contract that we secured 12 months ago for the Asset Services work for South32. And by the way, we increased that by further 2 years to 8 years as well as part of that deal. And that's been very much the strategy of our company. We've got really good diverse capability. It's about how do we bring in other parts of that business with the deep relationships that we have. But you can only do that if you're delivering. And we are not winning work off the back of not delivering to clients. It's one of the key reasons we're succeeding. Our Mining Services business is operating in high demand, high-quality growth commodities, almost exclusively in gold and iron ore and what we're seeing in that business is a real demand with new clients. But probably more importantly, we're really growing with our -- organically with our existing clients. And then certainly, the deep relationships we have and some of the other things that we can bring to the table around innovation and technology and data is really helping our clients in this space improve their business, which is in turn leading to more opportunity and more growth for us. Our Construction businesses are positively linked to the government infrastructure stimulus programs. I think in many respects, that's almost in its infancy. There's been quite a bit of work already coming up, and particularly on the East Coast of Australia, there's a lot of that stimulus still to come in. What we're seeing from an operating model perspective, it's more moving down that sort of collaborative contracting model, which is very much the way that SRG Global operates in terms of really working well in advance of projects coming to market with our clients in terms of how do we innovate and make this a better project for our key clients. And that's certainly a collaborative model, align style arrangements are certainly becoming much more in vogue than they previously were. But certainly, from an SRG perspective, that's really the modest upper hand that we've had in the way that we've traditionally operated. And these are in sectors like transport infrastructure, water infrastructure, really aligned with the core capability of SRG and the risk profile that we like. On the international side of our business, it's really focused on the specialist civil engineering part of the group in dams, bridges and tanks. I guess, it's been a pretty interesting period and I think from SRG perspective, we saw quite positive signs on the vaccine front. We think this is a market that will really open up for us again, pending the success of these vaccines, certainly not really in our thinking in the FY '21 financial year. But I guess with some of these positive signs on vaccines, we think this market will really open up for us again in FY '22, really in the last now 10, 11 months, we're really focused on executing our existing projects in the international space. It's not so much been around the work winning front. And that will open up again pending the successful vaccine, which clearly looks more promising, but I'm not a medical professional. So I'm not going to talk much further. On that front, I will say that existing projects we have internationally, particularly in the dam, bridge and tank space, we're executing some world-class projects in that space. And that's something we'll showcase in our half year results presentation on some of the quality work that we're doing, which is really leading-edge type work. So a very positive outlook from an operating segment perspective. From a business outlook perspective, I very much touched on some of these points already. Now I've talked about our guidance of $42 million to $45 million, which is up from $38 million to $42 million. Our record work in hand of $1 billion with further near-term contract wins expected with repeat clients. We are in a very strong liquidity balance sheet position to support our growth working capital requirements. And I did touch on that in our full year results presentation that we have very good liquidity. We've done a lot of good work in that space and that we are well funded to fund the growth trajectory that we're on. Our earnings profile of 2/3 of early in FY '21 and beyond is very important for us in terms of having that bounce business and really having that good portfolio where we have the base underpinning work, the long-term contracts and then to be very targeted on the other side of that business really aligned to capability, key clients and risk profiles that we like. And that very much has its own strategy for where we're going as a company. I think from that perspective, it's continued execution of what is a very clear strategy. It's been a clear strategy for some time. And what you're now seeing is that strategy bearing fruit, and we will continue to execute that clear strategy that has us in a very strong position for long-term sustainable growth. I would like to wrap up with, I guess, the investment proposition of SRG Global, which is really why people are on this call. We have an end-to-end asset life cycle capability and I think that's really important to understand that asset life cycle capability along engineer, construct and sustain because that's very much where the market is moving and the market demand in terms of companies that can do more, so they have less partners on site. And that's certainly -- that diverse capability that we have is really giving us a point of difference. We operate in diverse market sectors and geographies, and I will talk about that protection and the opportunity in the broad platform on which we can play in, but also that natural hedge as different industry cycle. We have a high level of annuity earnings in the group, which should in time attract the appropriate multiples for that level of annuity earnings, but allows us to be a very balanced and targeted business on the construction side of the group. We have a very strong growth outlook over the next 3 to 5 years with multiple levers to grow both from a geographic perspective, and also from the business segment perspective as well. And a very attractive valuation models. We're not trading much north of net tangible assets and not much north of 3x EBITDA, which is extremely attractive valuation multiples, and with dividend paying stock, and we continue -- intend to continue to be a dividend paying stock moving forward. And certainly, from my perspective, there's real momentum in SRG Global in terms of the strategy and the pathway that we're on. And we are well on the track to becoming the business that I know we can be. Pretty short, really brief update. I'm conscious of people's time. But maybe it's a chance to open up for any questions that our investors may have. And Roger, our moderator will moderate.

Yes, sure. Thank you, David. That's a terrific presentation. So a few quick questions that come through. We'll attempt to go through as many as we can. First question is around the work in hand. $550 million with the work in hand wins -- contract wins is impressive. Questions around competition, how competitive you've been on price in winning these contracts, assuming historical margins or not? Or is the business tighter and now you're winning on a reduced margin?

I think I mentioned in the presentation, there's no silver bullet to how we're winning, but we are not winning on price. Certainly, the margins that we're winning these contracts are very much aligned with our historical margins in the different operating segments. So you'll see there's no difference from the historical margins in the different segments.

Yes. I think your points are well made, David, about winning with repeat clients and key clients that we've worked with for a long period of time.

Yes.

Yes. So that's terrific question. I know you've dealt with those, but a question or 2 around the appropriate capacity to fund work in hand and future growth aspirations? Probably just reaffirm what David said before, around we do remain in a very strong balance sheet position. I think it's very pleasing. Even with the contract wins that we've had of late and funding the working capital requirements for them, we continue to remain in a very strong balance sheet position from a liquidity perspective, and we will have and do have very much appropriate capacity to fund the current work in hand and in fact, our future growth plans as well. So that hopefully puts that to bid. And the question around, can you provide some color or clarity around the near-term contract wins? And what is the capacity with the business to continue to grow and win more work going forward?

Certainly, from that perspective, and I mentioned in the presentation, it is not a surprise that we're winning and certainly be part of the plan and part of the strategy that we argued to grow. We have the appropriate systems and structure in place to manage that growth. And I think the reality when I talk about the collaborative contracting is we work quite briefly with our clients and have a very early knowledge on what's coming up and how we manage from a people perspective, from a capability perspective, from a mobilization perspective. So certainly, we have the capacity with the work in hand that we have, and we have the capacity to grow further, and that's certainly the structure that we have in place.

Yes. Okay. One or 2 questions around people. Do you have the right people to execute the work? And is recruitment of people movement an issue for the business?

Look, I certainly think that the Board is opening up, probably opening up a bit more, I'm not going to talk to the WI Premier, but he must be getting pretty close, I think, to opening up WI as well. But certainly from a people's factor, it's been challenging in terms of -- from a mobilization perspective, but -- and that's something that we've managed well from attracting the right talent. Clearly, the market's a lot hotter than it used to be. But certainly, from our perspective, we're attracting the right talent. And then I think one of the, I guess, key value propositions of SRG Global to people is that we're quite a diverse business. We're not too big, so you have the ability to make a real difference and make an impact, and I like the diversity, the opportunity to have a say and really drive and own the business. And so that's why we are attracting the right people and the capability is there to deliver. And I think as we've simplified the business over the last 12 months, it's really freed up the resource base to focus on really opportunities that posted perhaps closing out some things as well. So it's not without its challenge, the people front, but it's one that we're managing well at this point in time.

Okay. Thanks, David. Maybe just few more question here around FY '20, there was obviously impairments made in the business then, restructuring costs, provisions for credit losses due to COVID. Is there any likely to be carryover of any of those things into FY '21? Is there a strong EBITDA growth likely to the bottom line?

It's -- and I'm pretty sure I've said this before that FY '21 is a very clean year.

Yes, yes. Yes, a question around managing risks and controlling risks. How we're going about that?

Yes. Certainly, I've just read the questions and I see some mixed reviews on Glassdoor, which I did monitor Glassdoor, but I'm not sure if it has saved that question. If I look at Glassdoor closely, they're actually referring to a U.S. automotive company for SRG. And in case you're wanting to look at it a bit closer because it's not actually referring to SRG Global in certain. I think from a people perspective and a safety perspective, that performance is strong. And we've put a lot of, particularly into the frontline leaders. And I think that's the most -- to me, the frontline leaders are the most important people in any business because they're the ones that touch people on the ground every day. And we've put a lot of work into our frontline leaders from a capability perspective and from managing the people. And that to me is -- I really say that corporate functions very much the support for the business. We're very focused on the key risks in the business from a safety perspective. And I think I will refer to it as the glass ball and so when you can't afford to drop all the other balls that you bounce in business around, but the safety is the glass ball. And to us, it's really focusing on the key risk. There's not the sort of 100 different risks or one other key risks of the business, and that's something that we've managed well as we continue to introduce new types of technology that mitigates that risk -- those risks further. I think from people respective that question mentions employee satisfaction. I mean, I think at the end of the day, it really comes down to how are you retaining your key talent and attracting new talent. And I think the culture and the environment that we're operating in for SRG Global is one that people really enjoy coming to work and that's certainly a very constant feedback that we have.

Yes. Yes. And maybe just a few more on capacity and how are you able to handle the revenue growth?

For us, we have the right overhead structure to run this business and to grow this business and certainly our strategy is very clear on growth, and we have the right structure in place to manage that growth and we have a -- the next step up from a resource perspective is more at the operational levels, more contracts, more projects come up, that's where you require more people. But probably, I think it's important for the investment market to understand when you're cross-selling other parts of your business and winning cross-selling opportunities, you have the existing infrastructure on these sites. So you can leverage that infrastructure into other contracts, and that's certainly been a key part of our strategy, and that's something that is really allowing us to leverage the infrastructure that we have to grow the business further.

Yes. Are you seeing any pickup in wage inflation across geographies or in diverse sector?t ?

A little bit in certain -- yes, in certain sectors, I think, yes, the mining sectors got a bit hot up. Certainly, constructions as -- particularly as a stimulus kicks into here and certainly, the -- there is wage pressure there, and it's something that in reality we manage that through contracts and then having the right sort of mechanisms in place to review contracts, but also factoring that into our pricing when we bid for work.

Question around dividends? How do you propose to manage dividends going forward?

I think I've made it very clear that we're a dividend-paying stock and I want to talk to the half or the full year because we're -- the half year is a few months away from what dividends will be. But I think in reality as we grow, I'd like to see that and I'm sure we'd like to see the dividend grow with that, but we intend to continue to balance the business in terms of funding growth and also paying dividends as well, and we certainly see that continuing.

Okay. I think it covers most of the questions. So I think, David, thank you very much for the presentation.

Yes. I think certainly on behalf of SRG Global, I want to wish everyone a great Christmas or New year. It's that time of the year to really watch out for your families and from a safety perspective on the roads. And certainly, we have 3 weeks to go, and we're certainly winding up, not down, but obviously, around this call truly Christmas and New Year, and I hope you all get to enjoy the special time with your family.