Ventia Services Group Limited (VNT) Earnings Call Transcript & Summary

Thank you, Rocco. Good morning, and welcome to Ventia's half year results presentation. I'm Dean Banks, proud and privileged to be the Group CEO of Ventia. I'm joined today by our CFO, Mark Fleming. Thank you for joining us as we reflect on our half year 2026 performance. After our presentation, Mark Fleming and I will be pleased to take your questions. Before we begin, I'd like to respectfully acknowledge the Traditional Custodians of the land from where we are broadcasting today, the Cammeraygal people of the Eora Nation. I'd like to acknowledge their ancient and ongoing connection to lands, waters and communities and pay respect to Elders past and present. We also recognize and celebrate the heritage and culture of New Zealand, where our teams engage with the local iwi and communities across the country. I'd like to start, as always, with safety, which is our license to operate. We continue to strive to strengthen our safety processes and critical risk protocols, making every reasonable endeavor to ensure our workforce go home safely. Since listing, we have delivered material improvement across our core safety indicators. Our total recordable injury frequency rate improved by 17%, serious injury frequency rate improved by 38% and the associated serious claims rate has improved by 48%. These outcomes reflect strong leadership focus and continued investment in leadership and frontline training over the past 5 years. This slide illustrates the strong performance Ventia has delivered since half year 2022. Business momentum has been largely translated into progressive financial outcomes. We've delivered on expectations, delivering a 50% growth in NPATA, an improvement of 1.3% in our EBITDA margin, whilst continuing to convert profit into cash with average cash conversion above 90%. From a customer perspective, we've maintained an average renewal rate of 92%, demonstrating the importance of our long-term relationships. Over the same period, work in hand has increased by 22%. In terms of shareholders, earnings per share have increased by 76% and we've provided total shareholder returns of 350% over the 5-year period since listing. I will now take you through the headline financial outcomes for the half year. Mark will provide further detail around our financial performance shortly. The figures I referenced today are underlying and exclude the one-off positive gain in 2025 from the Toowoomba novation. Group revenue declined by 4.7% to $2.9 billion as a consequence of the reduction in Defence revenue. Outside of Defence and Social Infrastructure, our other 3 sectors all delivered year-on-year revenue growth. During the half, the Defence Base Services contract and the Defence Clothing Services contract were successfully mobilized. Together, these contracts represent $3.6 billion of work and provide a strong platform for future revenue. The business responded proactively to this anticipated Defence Base Services contract reset through disciplined cost management and operational efficiency initiatives, resulting in improvement across all other key financial metrics. EBITDA increased 8.2% to $273 million and EBITDA margin expanded by 1.1 percentage points to 9.4%, another record high. This margin performance reflects the deliberate shift towards higher-value end markets, robust commercial risk and governance and continued operational improvement across the portfolio. NPATA increased 7.4% to $128 million and cash conversion improved to 93.8%, demonstrating the quality of earnings and the strength of our cash management process. This performance is further supported by work in hand increasing to $21.1 billion, which underpins confidence in our future outlook. 2025 was an exceptional year for work winning with 4 contracts awarded at or above $1 billion. Against that very strong comparator, half year '26 has delivered another robust period of work winning, with 7 material contracts awarded across the half compared to a historic average of 4 per half. These awards have helped increase our average contract tenure to 6.2 years, bringing further stability to our business and reflect our exceptional 98% customer renewal rate across the period. In Defence and Social Infrastructure, we secured a 5-year extension at the Australian Marine Complex Common User Facility in Western Australia. We also secured a 1-year extension on our Defence maintenance contract with options to extend for a further 4 years. These important extensions further cement our role as a long-term partner to Defence and put us in a good position to support their growth plans. In Infrastructure Services, we secured a 9-year renewal with Yarra Valley Water in Victoria. We also signed a new panel agreement with Powerlink Queensland with an estimated value of $150 million and a 2-year extension with Transpower in New Zealand, further demonstrating our extensive capabilities in the energy sector. In telecommunications, we were awarded 2 contracts with Optus with a combined value of $110 million. These agreements span integrated programs across the Optus fixed and wireless networks. In transport, we secured new road maintenance contracts with Vic Roads in the Grampians and Eastern Metropolitan regions with a combined value of $340 million. And in August, we were also awarded 2 intelligent transport systems maintenance contracts valued at $160 million over 5 years, which further expands our presence across the Victoria transport network. Taken together, these awards demonstrate the resilience of our diversified portfolio across sectors and geographies. Our strategy has aligned Ventia over the past 5 years by giving our people a clear framework. At its core, our aspiration to redefine service excellence is about focusing on building deeper customer relationships and embracing innovation whilst creating sustainable outcomes that help differentiate Ventia. In our latest Customer Have Your Say survey, 89% of customers said Ventia enables them to achieve their goals and our Net Promoter Score increased to 140%, reflecting stronger customer advocacy. Innovation is the second pillar and a key driver of operational performance. It helps us become a better informed and engaged organization that introduces solutions to enhance stakeholder experience. VenSpark, our AI idea management platform helps to bring ideas together from across our organization. Since its launch last year, more than 550 ideas have been submitted. One such example is VenLens, which uses AI to analyze field images to review work orders, increase compliance reporting and maintain better records of asset condition. It is a great illustration of how we are using AI to unlock efficiencies across our operations. Sustainability is the third pillar of our strategy and is embedded in how we create long-term value from our climate transition ambitions through to how we measure social impact. Our fleet electrification program is nearing completion with 97% of passenger vehicles now electric or hybrid and full transition is expected by the end of this calendar year. We now operate 606 electric or hybrid vehicles across our fleet, contributing to the 27.2% reduction in Scope 1 and 2 emissions from our 2021 baseline. Overall, our group strategy strengthens our competitive advantage and supports long-term value creation for customers, communities and shareholders. Before I hand over to Mark, I'd like to leave you with a few observations on what the half year '26 result demonstrates about the strength and momentum of the business. We have again delivered on expectations with a record EBITDA margin of 9.4%, reflecting our continued shift towards higher-value work and pursuit of continuous improvement. Cash conversion remains strong, driven by disciplined and transparent capital management. We achieved a 98% customer renewal rate and increased work in hand to $21.1 billion, reinforcing the resilience of our contracted revenue base. Our performance also enabled us to increase returns to shareholders with a 9.8% uplift in the interim dividend and a 14.4% year-on-year growth in earnings per share. Ventia is well positioned for the future with strong momentum and a clear pathway to create value for our shareholders. We remain on track to deliver full year '26 guidance. I will now hand over to Mark to provide additional financial detail.

Thanks, Dean, and welcome, everyone, to our half year results. This slide highlights our performance across 5 consecutive half year periods since listing at the end of 2021, with all key metrics showing strong improvement over that time. Revenue is 15% higher than HY '22, reflecting robust work winning and enduring customer relationships. The decline year-on-year was driven by the transition to the new Defence Base Services contract. With that contract now mobilized, we expect a return to revenue growth from the second half of FY '26. EBITDA increased by 34%, reflecting strong business performance and operational discipline. Margin expanded significantly in HY '26 to a record high of 9.4%. NPATA has increased by an impressive 50% as a result of sustained business performance, strong cash conversion and our capital-light business model, while earnings per share has grown by 76%, underpinned by disciplined capital management. Overall, Ventia has delivered consistent and reliable growth since listing, demonstrating the resilience of our diversified portfolio, the strength of our customer relationships and the ongoing demand for our services. Looking more closely at our financial performance for the year. I won't go over the headline numbers that Dean has already covered and I'll focus on the underlying numbers. Depreciation expense increased by 12.9%, reflecting the increase in investment in plant and equipment, primarily underpinning our rigs and wells business and recently mobilized contracts. Amortization expense decreased as some of our software and acquired intangibles were fully amortized. We expect that amortization will begin to increase from the second half of this financial year following the implementation of our new SAP system. Net interest expense increased by $7.6 million as a result of an increase in the interest component of lease liabilities under AASB 16 and an increase in net debt due to the buyback and capital expenditure. Finally, our earnings per share grew by 14.4% compared to the same period last year, which is higher than NPATA growth due to the reduction in shares on issue as a result of the on-market share buyback program. Ventia's portfolio is diversified across sectors, geographies and contracts. While revenue declined in DSI, we saw revenue growth in the other 3 sectors. Likewise, while margin declined in telco, we saw significant margin improvement in the other 3 sectors. Our Defence and Social Infrastructure revenue declined by 20% to $999 million, predominantly reflecting the transition to the new base services contracts and scope reductions in housing and communities contracts. EBITDA reduced by 10.3%. However, EBITDA margin improved by 1 percentage point due to proactive cost management in advance of the expected revenue reduction. As Dean mentioned, we successfully mobilized the new base services contract in February and the new Defence Clothing contract in May. As a result, we expect a higher run rate in Defence for both revenue and EBITDA in the second half. Infrastructure Services saw revenue increase by 6.3% to $733 million and EBITDA reached $75 million, up by 24.6%, assisted by a 1.5 percentage point increase in sector margin. This was driven by continuing growth in the Energy and Water segments and the ramp-up of some new contracts in the higher-margin rigs and wells business. We expect these positive trends to continue into the second half. Telecommunications revenue increased by 5.9% during the half, albeit lower than the second half of 2025. EBITDA was up slightly to $97.9 million and EBITDA margin remained within our target range at 12%. This performance reflects the mobilization of new contracts over the last 12 months. Our Transport business saw revenue increase by 5.3% and EBITDA increased by 29.3% as a result of additional volumes and operational improvements. Overall, the group delivered a solid first half performance. The result highlights the benefits of diversification and our continued focus on operational excellence. Now to our capital allocation framework. Cash generation remains strong and our credit profile is robust. Net debt-to-EBITDA increased closer to the middle of our range at 1.4x. At the same time, we continue to invest to grow our business. This half year, we saw an increase in our CapEx to $53.6 million or 1.9% of revenue. As indicated previously, we expect CapEx to move towards 2.5% of revenue this year due to our SAP upgrade. The upgrade is progressing well and we expect the final implementation to occur by the end of the second half. From FY '27 onward, we expect CapEx to return to a more normalized level of 1% to 2% of revenue. Finally, we've delivered strong returns to our shareholders. We've increased our interim dividend by 9.8% and we've continued to make steady progress on our share buyback program, having purchased in excess of $185 million since commencement in March 2025. Ventia continues to deploy capital in a disciplined manner, balancing investment in future growth, maintaining a strong balance sheet and delivering increased returns to shareholders. The next slide illustrates the strength of our balance sheet. As at 30 June, we had $880 million of liquidity in cash and undrawn facilities, strong credit metrics and a lengthened and diversified debt profile. During the period, we successfully completed a $300 million Australian medium-term note issuance, diversifying our funding sources, extending our weighted average maturity and providing additional financial flexibility. This transaction was more than 3x oversubscribed, reflecting strong support from debt markets. Our S&P and Moody's ratings remain stable and unchanged and we're well within our banking covenants. These settings give us the strength and flexibility to grow organically, fund future opportunities and continue delivering long-term value for shareholders. We recognize the importance of dividends to many of our shareholders, and we remain focused on delivering a reliable and increasing dividend stream. This period, we have moved to 100% franking from 90%, which we expect to sustain going forward. We announced an interim dividend of $0.1176 per share to be paid on the 8th of October. This dividend represents a 75% payout ratio of NPATA within our target range of 60% to 80%. I'm also pleased to confirm today that we have upsized our buyback by $50 million to a total program size of $300 million. In making this decision, the Board and management considered the consistent cash-generative nature of our business, the strong balance sheet and our positive outlook. We'll continue to remain focused on increasing our overall returns to shareholders. I'll now hand back to Dean.

Thank you, Mark. As communicated at our recent Investor Day, Ventia is focused on realizing opportunities associated to 4 strategic growth markets, namely Defence, digital infrastructure, energy and water, each offering significant structural tailwinds. Oxford Economics estimates Ventia's Defence business will have an addressable market of $16 billion by 2030, driven by meaningful investment into programs like AUKUS, the Northern Force posture and ongoing Defence estate and remediation work. Ventia is in a good position to expand our current market share of 10% through our current interface in geographies such as Henderson Precinct in WA and Defence bases across Australia. Digital infrastructure is forecast to have a $19.8 billion market by 2030, supported by increasing connectivity and AI adoption. The expansion of core networks across fiber, mobile and fixed line and the growth in demand for satellites and data centers are all significant market opportunities for Ventia. For energy and renewables, the 2030 addressable market is estimated to be $21.9 billion, driven by demand for grid decarbonization, battery storage systems, renewables and high-voltage substation demand. We have a long history in operations and maintenance of transmission and distribution and more recently, have introduced specialist end-to-end high-voltage and substation capabilities, giving us confidence in our ability to grow in this capability. The uptick in the investment cycle for water has commenced, driven by the need to address aging infrastructure, population growth and climate resilience. Water assets built in the 1960s and '70s are reaching end of life, driving refreshed master plans with multiyear renewal and modernization programs. Collectively, these markets provide Ventia with an unprecedented and significant growth opportunity. Case studies are the most effective way to showcase the work we are already delivering across each of these strategic growth markets. In Defence, we secured an extension of our Defence maintenance contract, taking us through to December 2029 with options to extend for a further 4 years. Under this contract, we provide maintenance and support for some of Australia's most advanced Defence assets and a 24/7 nationwide recovery service. This extension reflects Defence's confidence in Ventia and builds on a trusted partnership spanning more than 35 years. In the digital infrastructure market, we have successfully delivered 13 edge data centers for Telstra's Aura network program. Traditional network exchanges are being transformed into edge computing sites and there will be an increasing requirement to build and maintain this new type of infrastructure moving forward. In the energy sector, Ventia is building critical grid connection infrastructure for the Kowhai Park solar farm in New Zealand, including 2 high-voltage substations and a 5.5 kilometer of cabling, supporting renewable energy generation in Christchurch. In respect of water, we recently secured a new 9-year contract with Yarra Valley Water to deliver network and asset maintenance services, extending a trusted partnership we've built over the last decade. To scale our partnership, in 2025 alone, Ventia completed over 10,000 work orders in support of Yarra Valley's water assets. These examples demonstrate the depth of Ventia's capability and track record of successful delivery in all 4 of our current growth markets. They also reinforce our confidence in the opportunity to expand our presence and create long-term growth. In closing, Ventia enters the second half of 2026 with strong momentum, a resilient portfolio and a clear pathway to continued earnings growth. The business is performing in line with expectations. Our strategic markets continue to provide attractive long-term opportunities and we remain focused on delivering sustainable value for shareholders. We remain on track to deliver full year NPATA growth of 7% to 10%, supported by strong cash conversion and operating discipline across the business. Importantly, the continued shift towards higher-margin work is expected to support a long-term EBITDA margin above 9%, reinforcing the quality of earnings profile we have been building. Our balance sheet remains strong, giving us flexibility to invest in future growth. We continue to return capital to shareholders via the upsized share buyback. As these are my final results as CEO of Ventia, I would like to briefly reflect on progress since listing. Over the past 5 years, we have strengthened safety, deepened customer relationships, grown work in hand, expanded margins and delivered strong shareholder returns. We have built a high-quality business with a clear strategy and a solid foundation for continued growth. That progress reflects the dedication of our people and the trust placed in us by our customers, subcontractors, suppliers, Board and shareholders. I'm incredibly proud of what we've achieved together and grateful for the support I've received during my tenure. As announced in June, Mark Ralston will formally take over as CEO from next week. Mark has been with Ventia for more than 12 years and brings a deep knowledge of our operations, customers and markets. I'm delighted to see him appointed as my successor and view this internal appointment as a key legacy of my tenure. I'm pleased to be handing over a business with strong momentum, solid fundamentals and a high-quality pipeline. Ventia is well positioned for the future and I leave knowing the company is in capable hands. I'll watch its progress from afar with confidence in the years ahead. Once again, and for one final time, thank you. I will now open the call for questions. Over to you, Rocco.

[Operator Instructions] And today's first question comes from Nick Daish at RBC.

Dean, congrats on your time with Ventia. My first question is just around seasonality. I'm just curious on what you would view as being a typical or a normal level of seasonality within your business. My sense is that it's likely largely in transport, which is your smallest division. So just curious, I think historically, in the last few years, it's been about 42%, 58% -- 48%, 52%, sorry. Is that about right moving forward? Or what would you view as normal, please?

Nick, first of all, thank you for the question. I'll probably open and then hand to Mark to give a bit more detail. I mean we've always said seasonality in our business is relatively limited. And that's really driven by the fact that the holiday periods where we see a bit of a slowing down in revenue occur in the first half in January and in the second half in December. Apart from that, we do see a lot of customers, obviously, with June year-end. And sometimes we can see an uptick, therefore in that particular period. But you're quite right. Historically, the first half has been a little bit lower than the second half, but it's been relatively marginal. We probably expected it to be a bit more profound this year, but we're now starting to see that probably it's going to be consistent with previous years. Mark, do you want to add?

Yes, sure. Look, just to build on that, I think last year, at the NPATA line, the seasonality was 46%, 54%, so 46% first half, 54% second half. We're actually anticipating to be quite similar this year, 46%, 54% or thereabouts. And obviously, it can vary 1 or 2 percentage points either way, but a similar amount of seasonality as in prior years.

Great. Very clear. Second one is just around Defence, obviously, mobilized the new contract at the start of this year. I'm just curious on the mobilization and demobilization costs that you've taken above the line during the period. And just trying to get a sense for the quantum given they will not repeat in FY '27, please?

Yes. Look, I mean, again, I'll hand over to Martin, Nick to give a bit more detail. But I think the first thing to say is that we've always operated under the principle that we want the business to be as clean as possible from a financial perspective. So we try to keep everything within normal trading. So we've never put any numbers around that particular category. But clearly, there's a cost to that. And there are costs to other things that occur in the period like, for instance, in the last 6 months, although a lot of people are not talking about it now. We had the fuel crisis come through as well. So we try and take them within trading and there's obviously puts and takes in that, that we consider as we go through a period of time. But Mark, do you want to add a bit more detail?

Yes, I think that's right. So we don't call out specific numbers. As Dean says, that's the approach that we've taken. There's always one-off costs and one-off benefits. And the other one I'd call out is the SAP upgrade cost this year, but we've included all of those within our results and that's the approach we take. Sometimes that is a benefit for us in the half and sometimes it's a negative. But there, as Dean said, swings and roundabouts.

The one thing I'd just probably reiterate, Nick, is that both contracts for Defence that we mobilized in the first half, the team have done so successfully. So Defence Base Services followed by Defence Clothing in June of this year. And both of those are building momentum. So we expect them to perform better for the organization as we move forward.

[ Suffice it to tailwind into '27. ]

And our next question today comes from Cameron Needham at Bank of America.

First one, just on group EBITDA margins. You've gone from 8.3% to 9.4% despite your revenue coming off by about 5%. You've highlighted mix and efficiencies being tailwinds. But just intrigued, I guess, how much of that 1.1% improvement would you describe as structural versus timing and mix benefits? And then I guess if we just think into the sort of medium term, would you say that sort of 9% plus is now a reasonable through-the-cycle margin level for the group?

Yes, Cameron, again, thank you for the question. Look, we've been quite bullish about margin in previous periods and felt that it was going up, largely driven, as you say, by mix with our 2 highest margin sectors, infrastructure services and telecommunications seeing growth, which obviously means that every dollar there is accretive versus the group average. That said, back to your point, is this structural? I think there are lots of things that have changed over the last 5 years that have been trying to drive to this outcome. The first thing is that 5 years ago, our distribution curve across projects probably had 3 or 4 projects that were outperforming versus the market in terms of margin and they've largely been corrected by renewals in the market. And we had a lot of contracts that were underperforming largely a consequence of the acquisition of Broadspectrum. And we've really addressed those unfavorable and onerous contracts by either improving the performance or replacing them with contracts that are better in our portfolio. I mean we're at a point now where we've only got one contract left from that legacy that will mean about a $1 million release per annum for the next 15 years, unless, again, we can improve it further. So we've really cleaned up the business from that perspective. But also structurally, we've been trying to drive towards higher-margin work and not just in Defence, digital infrastructure, energy and water, where clearly, as demand comes on, you can get better commercial terms. But if I go back 3 or 4 years in telecommunications, the team didn't see the benefit of margins on wireless work that they did on fixed. So we really focused our attention on fixed network work where we get a better return. I think if you look at Defence and Social Infrastructure, we've really pushed more for hard FM and soft FM, where cleaning and catering attracts a more modest margin. And lastly, in resources, we've really been looking at our activity on more labor hire type work for mechanical and electrical fitters. We're moving more into that energy and water space where we can appreciate better margins. So I think it is structural. Of course, with that as well, we do look at continuous improvement generally and try and drive efficiencies. And I think transport is a great example of that, where there's probably no material change, but actually just better operational control over activities we delivered. So all in all, a really good result on margin. And I think we're very confident that we've got a sustainable margin moving forward and we'll continue to strive to improve as we move forward.

Great. I appreciate the color. And then a quick second, if I may, just on the battery storage opportunity. We've got, call it, between 4 and 5 gigawatts being built out across the [ NEM ] over the next 12 months. I appreciate you spoke a little bit about this at the Investor Day. But I guess just intrigued given your existing capabilities, where exactly do you see Ventia sort of participating in that spend? And I guess maybe just a little bit of a mark-to-market in terms of what you're discussing with customers and what proportion of the work that you're seeing is recurring services versus some of the shorter duration construction work?

Yes. Look, I mean, for us at the minute, it's quite minimal. So we've got the capability. We've demonstrated capability and we've delivered battery storage. But the market is still very transactional. People doing one project at a time, whereas actually where Ventia really comes into its fore is when we see bigger opportunities with more strategic considerations around battery storage across geographies. So we've got the capability, and we aim to try and work with partners on that. But I don't think in the short term, we're going to see considerable margin or revenue drive from that. That said, I think in the future, it will come. And of course, one of the points that you raised there was the question about when we start to see maintenance of those assets. I mean, clearly, assets have got to be built before we can see revenue stream from them. And often when they are built, there is a warranty period from the OEM as well. So there's probably a bit of a lag to the opportunity. But I think like this whole transition around energy, battery storage, AI requirements, data, it's just growing and growing as a phenomenon. So there's no doubt that the market opportunity is just going to come, but I don't think it's probably short term. I think it's a bit more medium- to long-term opportunity.

And our next question today comes from Nicholas Rawlinson from Morgans.

Congrats, Dean, on your time at Ventia. I know there's sort of swings and roundabouts, as Mark mentioned, but would you mind quantifying the gain or loss on the sale of PP&E? It was a pretty big line in your cash flow. So kind of just keen to understand if there's any impact on earnings either way, please?

Nick, thank you for your comments. Thank you for your question. It sounds like a really difficult one. So I'm definitely handing this one over to Mark. So Mark, over to you.

Yes, I don't think there was anything particularly unusual this period. We did invest in some rigs assets and we retired some older rig assets. So that's probably the biggest driver there. But I wouldn't say that's a material item. And again, as you say, it's one of the things that you'll see from time to time as we recycle our capital.

And look, investment in rigs is good for us because that means growth. And we're finding good sensibility about the way we depreciate that asset over a contract life as well. So if we can have more investment in that space, I think it's good news for the business.

Okay. That's helpful. And just on the corporate cost guys, like down more than 25% on the PCP. Could you just run us through how you managed to bring those costs down so materially? And how should we think about forecasting this line moving forward?

Yes. Thanks, Nicholas. One of the other things that Dean mentioned was in terms of one of the drivers is efficiency. And certainly, that has been a focus in the last 12 months when we've known that this Defence Base Contract was going to reduce for some time now. And so we've been preparing in terms of our cost base. And that includes both looking at the GSI business, but also looking at our corporate functions. And so we've done quite a lot of work in rightsizing our cost base for the reduced revenue and that's what you're really seeing coming through there. So looking forward, yes, I do think that what you see in the first half is a reasonable base for going forward.

And congrats again, Dean.