Worley Limited (WOR) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Worley Fiscal Year 2024 Results Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Ashton, Chief Executive Officer. Please go ahead.

Good morning, everyone, and welcome, and thank you for joining our full year results today. I'm delighted to be able to present these with Tiernan O'Rourke, many of you who will -- you will know Tiernan, our CFO. So on the call today, I plan to provide an overview of the business performance and the strategic progress we've made over the last year, and then Tin will add further detail on the full year results before I conclude with the outlook, and then after that, we'll open for any questions. So just turning to Slide 2 and acknowledgment of country. I'd like to acknowledge the Gadigal people of the Eora Nation as the traditional custodians of the land on which we meet today. We value the strength, determination and resilience of all First Nations people and communities around the world, and we are committed to the ongoing journey of listening and learning and extend that respect to any First Nation people joining us today. Moving on to Slide 3. I want to leave with 3 key messages today. And the first of those is that we've delivered a strong and consistent growth in revenue, earnings and margins despite some of the headwinds that the world has faced this year. You'll note our strong cash result and earnings growth at a higher rate than revenue despite that challenging macro environment. The second point is that we've consistently delivered on our commitments for 3 consecutive years through the disciplined execution of our strategy. And third, we expect a moderated growth in FY '25 as macroeconomic headwinds continue. However, we see evidence of the prolonged secular upturn that we've referred to over the last 3 years and we continue to work toward our strategic target of achieving high single-digit EBITDA margins in coming years and maintaining our double-digit EBITDA CAGR as part of the group's strategy, subject, of course, to the impact of any market conditions. The Worley Board is determined to pay a final dividend of $0.25 per share unfranked. Moving on to Slide 4. What I want to do is take you through the business performance and the strategic progress. So we'll move on to Slide 5. The success of an organization such as Worley is down to our people. Energized capable and empowered. And that's something we'll work on as a leadership team each and every day as we lead the organization. But the most important thing is about keeping them safe and keeping them well and that remains our highest priority. Our Total Recordable Frequency Rate was 0.10 across the group, improving from 0.14 at the end of FY '23. But it's not just about focusing on the physical well-being of our people, we're also creating a secure and supportive environment leading to better mental health outcomes. We've improved the gender balance of our graduates and our intake in FY '24 is 56%, up from 48% last year, and we've improved gender representation and senior leadership positions to 17.7% from 16.3% last year. And importantly, voluntary annualized turnover for our professional services people continues to trend downwards across the business. Our purpose underpinned by our value continues to guide and inspire our teams around the world, providing a strong value proposition for our people as well as those who are seeking to join Worley. Moving on to Slide 6. We're consistently delivering on our strategy and the commitments we've made over the last 3 years. The evidence of this is through our increased earnings, margins and cash flow. Our aggregated revenues of 18% and underlying EBITDA is up 24% on the prior comparative period. This year, our revenue and earnings represent the highest in Worley's history with increases across all regions and each of the 3 segments of energy, chemicals and resources contributing to the results. We've delivered EBITDA margin excluding procurement of 7.9%, which is at the top end of our forecast range for FY '24. We've delivered double-digit EBITDA compound annual growth rate and have grown earnings as we focus on higher-value work, improve the terms and conditions under which we're executing that work as well as focus on project assurance and managing our overhead as we grow. And this is the result of our strategic actions and focus on the building blocks toward margin expansion. We have a disciplined approach to capital management, which continue to support our growth plans. This year, we've delivered a cash result above our target range with a normalized cash conversion ratio of 99%. All of this has been delivered against a backdrop of rising geopolitical tensions and uncertainty around government policy persistent high inflation, which is preventing military policy from supporting business growth as well as many more factors. Worley's business model has shown incredible resilience, allowing us to achieve our FY '24 result despite all of this, including the effects of delays such as that with Venture Global's CP2 project and scope reductions on Anglo American's Woodsmith project as examples. This highlights the strength of our underlying business and our focus on active project assurance, a process which assists in the dynamic management of project changes across -- project/mix changes across the portfolio. as well as dealing with any project opportunities and delays. I'm really pleased with our continued progress across our ESG business commitments. This year, we established our human rights and diversity and equity and inclusion committee, a senior management body, which drives and supports our continued progress in this area. Modern slavery, an area of increasing importance, remains a focus area for our business, and we received an A rating from Monash University for our FY '22 Modern Slavery Statement. We're on track to meet our net 0 Scope 1, 2 greenhouse gas emissions reductions target. And for the first time, we've disclosed our complete Scope 3 emissions across all relevant categories in line with our focus on improving data availability and transparency. We've laid a solid foundation, which underpins our trajectory towards long-term growth. And looking forward, we remain focused on our target of double-digit EBITDA CAGR and positioning Worley for enhanced earnings and margins. and we continue our commitment to deliver strong environmental, social and governance performance and to operate responsibly consistent with our purpose. Turning to Slide 7. FY '25 is expected to deliver growth but at a more moderate level compared to that of FY '24, in line with our leading indicators, which show moderation in the short term. As we mentioned at Investor Day in May, we're seeing some projects in our pipeline pushing out to the right, impacting both the award date and opportunity factoring for the likelihood of the project proceeding. And this has contributed to a slower pipeline growth than previous periods, although it's still up 12% on the prior corresponding period and up 5% still, excluding VG, and that's not unusual to be expected in a prolonged cyclical upturn. Net 0 commitments of our customers remain intact across the globe, and many of our customers are navigating a path to net 0 as they work through the economics of the transition amidst unprecedented geopolitical and macroeconomic circumstances. We continue to selectively target higher quality work, which reflects the value we bring to our customers. Our gross margin trends indicate new work is routinely being [ won ] at higher average margins. And this is supportive of our earnings growing at a faster rate than revenue. We had a strong second half of bookings, which flow from the pipeline into backlog. Just moving on to Slide 8 and the drivers of backlog change. Although we've seen some project delays and cancellations, we have a healthy backlog of $13.8 billion, supporting the delivery of our strategy in FY '25. Sustainability-related work is now 56% of our backlog at $7.8 billion. We continue to win more work than we're delivering. Over the second half of FY '24, we delivered $6.6 billion of backlog and added $6.8 billion through new wins and scope increases. It's important to note that the majority of Venture Global's CP2 project remains in the factored sales pipeline with only a much smaller scope under a limited notice proceed booked in the backlog and that will continue until we receive Full Notice to Proceed. As I mentioned, we've seen a $1.2 billion in project cancellation and scope decreased this year, for example, Anglo-American's Woodsmith project, which is slowing down. While this is more than FY '23, it's remained steady since Investor Day, and the result is a 2% reduction on the prior corresponding period. However, importantly, the long-term demand, the energy, chemicals and resource contributions into the global economy is positive. These thematics have not changed and reinforce the strategic direction we're taking and the strategic pivot we've made. Moving on to Slide 9. The intersecting macro trends, including geopolitical shifts, the energy trilemma, cost of capital, project economics are delaying some customer CapEx decision in the short term. Over the past year, we've seen a number of our customers announced near-term rebalancing of their own portfolios towards transitional and traditional project investments. This is to maintain profitability and is in response to the variable support from government for the energy transition. This rebalancing has not been symmetrical with some of these capital allocation decisions being delayed while the world grapples with geopolitical issues. Customers in each of the sectors in which -- will need to make capital allocation soon to ensure the success of the energy transition over the long term. And importantly, we're not seeing a shift or a slowdown in the commitment to the energy transition from our customers, and Worley is ideally placed to assist with all forms of such capital decisions, sustainable, transitional or traditional. And as I mentioned earlier, the long-term fundamentals remain supportive of our strategy. Energy demand continues to grow, and we're seeing customers work to extract value from existing assets while they reevaluate their portfolios. And the extraction of value from their existing assets provides great opportunity for Worley to grow. In the chemicals market, long-term growth is driven by the energy transition, increasing population and consumption and tends to track a multiple of GDP. The longer-term outlook is particularly positive in petrochemicals, driven by the need to decarbonize and adopt lower intensity feedstock. In resources beyond the short-term imbalance demand will exceed supply across all future-facing commodities, copper, aluminum and battery materials will be the big winners. Our response to navigating short-term market dynamics is to remain aligned with our customers. In 2020, we began the journey of a shift to working with our customers and not just for our customers. And we have a strong and diverse customer base who we continue to support across all their traditional, transitional and sustainable work. And we're developing differentiated solutions to drive down the levelized costs particularly where project economics are challenged and deliver lifetime value for our customers' assets. Moving on to Slide 10. In FY '24, we had $13 billion in bookings with $8.1 billion in sustainability-related work. The Board recently visited our JESA joint venture operation in Morocco, where we're working with OCP to deliver a Power-to-X green ammonia program. When these projects are delivered, Morocco will become a global hydrogen hub and we'll be one of the first companies to ever deliver a Power-to-X green ammonia project at the scale. We are seeing some energy transition projects moving to later phases. For example, the Shell Polaris carbon capture facility at Scotford, and we continue to partner with our customers to support their portfolio of projects across traditional, transitional and sustainable work and recently announced a new strategic alliance with BP for their global site projects. These wins highlight the diversity of our customer base and demonstrate our customers' long-term trust in our relationship and our expertise to deliver their capital projects. I'm now going to hand over to Tiernan, who's going to give us further details on the FY '24 results.

Thanks, Chris, and hello, everyone. Our financial results today show 3 things: first, that positive earnings momentum continues, as Chris has outlined, in line with our longer-term aspirations; second, margin expansion this year has positioned us for further upside in FY '25, even in a moderated growth year; and third, the conversion of operating profit to cash is strong, indicative of ongoing effective capital management. Turning to Slide 12 on key financials. Our aggregated revenue of $11.6 billion is up 18% on FY '23 pro forma. A reminder that the pro forma reference here relates to the divestment of the North American turnaround and maintenance business in May of 2023. Our professional services revenue has increased 16% over the year, reflecting the quality of our underlying order book as we support our customers across their traditional, transitional and sustainable portfolios. We also continue to see strong growth in our procurement revenue at margin, principally due to the current mix of projects, some of which have material procurement requirements. Looking at group profit, we've delivered an underlying EBITDA of $751 million, and this is double-digit growth of 24% on FY '23 pro forma. This was predominantly driven by an increase in the quality of earnings from a bigger contribution from professional services revenue, improved pricing and our continued focus on project assurance while simultaneously maintaining cost discipline as we grow. Statutory NPATA for the year is $367 million compared to $104 million in the prior corresponding period. As discussed at the half, this was impacted by the write-off of the net exposure of $58 million or $49 million net of tax relating to the historic services provided in Ecuador. This is included in the statutory profit result but has been excluded from the group's underlying result for the full year as we did at the half due to its one-off and historic nature. Importantly, there were no other adjustments made in arriving at the underlying results this year. Our underlying NPATA is $416 million, up 27% on FY '23 pro forma. Underlying EBITDA margin on revenue, excluding procurement, is 7.9%, as Chris has mentioned at the top of -- at top end of our August '23 results day forecast range and, of course, reconfirmed in other disclosures since. Turning to Slide 13 on drivers of EBITA change. These EBITA margin walks show our progress towards raising margins, excluding procurement, to high single digits. In both these walks, you can see that the margin is predominantly driven by rate improvements that continue to flow through from backlog. Our pricing discipline is being sustained. The other key contributor to our margin is our project/mix with professional services now making up over 80% of our EBITDA. Our focus on project assurance through the life cycle of all of our projects is also ensuring that sole margins are delivered efficiently. Turning to Slide 14 on investment strategy. Our 3-year $100 million strategic capital investment program in organic growth is now complete. We believe we've developed a differentiated solutions from that, and this gives us an early mover advantage in these developing markets. We won $7.6 billion across our targeted growth areas since the start of the program, which demonstrates how it has been highly accretive for the business. At this point, of course, you'll be asking yourself, so what's next? Well, we've created sustainable competitive advantages and intend to protect them. We'll continue to consider organic investment on an annual basis where we see accretive returns aligned with our growth strategy. This includes continuing to scale these businesses we've already built. For FY '25, we expect to allocate circa $30 million of incremental capital across these areas, which will also contribute to our margin improvement. We're able to do this because of our strong capital management position, which gives us a broad range of options to continue to invest through the cycle. We're being deliberate in identifying and investing in opportunities that create value for our customers. while delivering improved quality of earnings. We introduced our strategic levers at Investor Day, which helps frame our annual investment going forward and the time frames over which we expect these levers to contribute to earnings growth but also to margin expansion. As Chris mentioned, we're anticipating moderated growth in FY '25, but we recognize the importance of making investments now that will drive accretive returns in the future. This is particularly true for areas such as digital and AI, where we are planning to focus investment in FY '25, and this positions us for returns over the medium to long term. You can see other areas of investment focus in the graphic on the right-hand side of this slide. Turning to Slide 15 on general capital management strategy. We continue to build on our strong capital management position, which is structured around funding our growth and delivering increased value to shareholders. We present our capital management plan in a consistent way and have done for a few reporting periods now so that you can see the decisions we're making regarding our free cash flow. Our reported cash conversion ratio for the year is 118% of underlying EBITDA, which reflects strong underlying cash flows, positive cash flow behaviors but also a transition to increased advanced billings on a number of important contracts as we strive to achieve better terms and conditions in this market. This improvement can obscure the underlying cash performance in the period in which they occur. So we also provide an underlying cash conversion ratio normalized for the impact of the effect of advance billings. This underlying ratio is 99% this period, above our target range of 85% to 95%, delivering a very strong balance between investing in working capital for growth and prudent cash flow management across all our business activities. The reported day sales outstanding is down to 59.3 days from 63.0 days last year, noting that the write-off of the net exposure to historic services provided in Ecuador contributed 3.4 days of this improvement. Even without this effect, DSO is at the lower end of our target range. We have good liquidity. We maintained our strong credit rating, and we have access to flexibly flexible competitively priced debt. Leverage is a standout in this result. It has reached 1.5x supportive of future growth and importantly, down from 2.2x in the prior corresponding period. And for those of you who've been around a while, 2.5x at 30th of June 2022. We have prudently used cash flow to reduce risk, increase liquidity and provide appropriate funding for business growth. It gives us the capacity to not only invest in our future but to reward shareholders with an appropriate dividend stream; and also, should we choose to do so gives us the ability to undertake some other capital management activities to drive EPS accretion. And you can also see that we are creating future capacity with growth across a range of facilities, including substantial bank guarantees surety bonds, essential for the success in large-scale project delivery that Worley does. Our weighted average cost of debt for the year is 4.3%, up from 3.9% last year due to continued high interest rates, but with -- within our FY '24 target range. For FY '25, we have adjusted the basis for calculating WACD, which is now on a gross basis to include deferred borrowing costs, and we expect it to be within the range of 4.3% to 4.6% at FY '25. Our underlying tax rate was 33.6% in FY '24 in the middle of our target range, and we expect this to be similar in FY '25. Turning lastly to Slide 16. In conclusion, I'd like to remind you of our value proposition. Our diversification across the energy, chemicals and resources markets, together with our global footprint, makes us more resilient to short-term impacts in any one of these sectors. I think our consistent delivery of earnings in recent years is testament to this. Our leading position in markets we serve enables us to benefit from the energy transition and demand shifts. As Chris highlighted earlier, the long-term fundamentals across all our markets remain strong and we continue to support our customers across their traditional, transitional and sustainable projects. Investment in the energy transition is still in early stage with a significant increase yet to come. Our early mover advantage has positioned us in new and attractive sustainability-related markets with low competitive intensity and high barriers to entry. We've also seen this fundamental shift in how we do business. We're partnering with our customers to help them bring down costs as well as delivering projects in new and innovative ways. Importantly, we're delivering more value to them, and we're sharing in that value ourselves. And as I've mentioned, we have a strong capital position on which to execute all of these growth plans. I'm happy, therefore, to report that Worley's financial position is in very good shape. I'll now hand back to Chris to take us through the outlook. Chris?

Yes. Thanks, Tiernan. Look, I want to take you through the outlook, and we'll move to Slide 18. Look, at a macro level, Worley is managing 3 key risks: the attraction and retention of highly skilled people to meet the demand; inflation and supply chain disruption and their impact on the economics of business; and the ongoing geopolitical tensions affecting normal operations of global markets. High cost of capital and variable support from governments for the energy transition is resulting in some projects being deferred and cancellations, as customers rebalance their own portfolios and reassess capital allocation decisions. We're actively focused on mitigating these risks every day through the strength of our diversified global business together with our focus on project assurance and our ability to rapidly deploy or redeploy our people to match our customers' needs, as they rebalance their portfolio investment. We expect FY '25 to be a year of moderate growth compared to that of the last financial year as these macroeconomic headwinds continue. Importantly, the world remains committed to achieving net 0 and we still see significant growth opportunity ahead as those commitments are met. The global commitment to net 0 create a prolonged cyclical upturn of activity in all of our key sectors in the energy -- for all of our key sectors of energy, chemicals and resources. And while it's expected to be peaks and troughs throughout the transition period over time, the overall trend continues to be upward and positive. Moving on to Slide 19 to the group outlook. We're targeting low double-digit EBITA growth and expect the underlying EBITA margin, excluding the impact of procurement, to be within a range of 8% to 8.5% for FY '24, still projecting growth. We expect the second half of FY '25 to be stronger than the first half as the rebalancing process proceeds during this financial year. We expect some growth on procurement volumes due to project/mix and timing. As a leading global solutions provider in the markets we serve, we're encouraged by the new work we continue to win as we support our customers across their traditional, transitional and sustainable work. Just on to Slide 20 and the key messages. And yes, before we move into Q&A, I'd like to remind you of the key messages I opened up today. First, we've delivered strong and consistent growth in revenue, earnings and margins despite headwinds. Second, we've consistently delivered on our commitments for 3 consecutive years through the disciplined execution of our strategy. And third, we expect moderated growth in '25 as headwinds continue. However, we see evidence and continue to see evidence of a prolonged cyclical upturn. So that ends the formal part of the presentation. I appreciate everybody joining. What we want to do now is open it up to questions, and Tiernan and I will share those between us. So over to the moderator to manage the question process.

[Operator Instructions] Our first question will come from the line of Richard Johnson from Jefferies.

There's maybe 1 for you, Tiernan. I just wanted to ask you a little bit about the headcount, which was obviously up -- I think it was around 3%, off the top of my head, in last year. I'm trying to get a sense of what that means for the business going forward, particularly in relation -- although it's above the target, obviously, utilization, looks like it's dropped a little bit. So I'm just really trying to understand how I should think about headcount? And is the 1,000-odd people you had on CP2, what's happening to them in the early part of this year? Is that -- should that be in our thinking or have you stood people down?

Yes. Thanks, Richard, for the question. And it's an important one. I mean we've said consistently that whilst it remains an important driver of profitability, it's not the lean driver that it used to be. You've got to also look at how we mobilize people globally. We have projects that are coming on stream. We've got projects that are finishing. So our ability to mobilize people who are coming off projects onto new projects means that for every incremental project, we don't need to go out to the market and hire new people. So you just got to be a little careful at the increase in headcount reading through to 100% view on where revenue and earnings is going. A couple of other really important matters. One is that attrition continues to fall. So attrition has been falling all year through '24. And of course that means that we don't have to go out to the market. And not only does it mean it costs us less, but it means we don't have to hire additional people in the market. In addition to that, we also have been investing in better processes in digitization, and that's just helping our people to do their jobs better. Our win rate is slightly down as well. So we are winning the projects we want to win. So for all of those reasons, headcount remains an important metric. Importantly, we don't have a problem in hiring people. We still have the ability to hire people on time when we need them. But for all of those reasons, whilst a 3% increase is different to the increase you would have seen in FY '23, which I think was 7%, it still hasn't prevented us from growing our EBITDA and earnings the way we've just announced.

That's very clear. And then just finally, and this might be one for Chris. When we think about rates, which has obviously been such an important driver of growth over the last few years, not least because of the structural change in the market, I mean, how much further is there to go on that? Or how are you thinking about it, particularly if you were to assume at least parts of the business are showing some signs of slowing?

Look, I guess the rate that we can, I guess, demand from the market a function of really 2 things: demand-supply, but also competitive intensity. And we're still operating in an environment, Richard, that's from a competitive intensity perspective is the lowest it's been in my career, in 35 years in the industry. It's the lowest it's been. So I still think that there's a way to go in terms of our ability to command the rates we've got or further enhance them. But it's the way we deliver the work that is becoming more important and our productivity and our efficiencies and being able to translate that higher margin work to even higher margin bottom line.

And Richard, apologies, I didn't answer the second part of your question on Venture Global. Just to let you know that because we're still operating on a Limited Notice to Proceed contracts, we are still doing engineering work with the full cohort of engineering people. They're the only people that we brought on to the contract because we were only doing engineering. As you know, we went -- we haven't started construction because we didn't get FERC approval or the project didn't get FERC approval. So that engineering work is forecast to continue for the rest of the calendar year, demobilizing towards the end of the calendar year. Our expectation is that we will remobilize those people to other work.

Our next question will come from the line of Brook Campbell-Crawford from Barrenjoey.

First one, just around the first half versus second half sort of growth rates. Do you mind providing a little bit more color on that as you've outlined on Slide 19? And specifically for the first half EBITA margin, can you confirm if that will be in the range you're talking about for the full year, which is 8% to 8.5%?

Yes. What we expect is that the first half, second half will be similar to FY '24 at 45%, 55%. In terms of the mathematics around first half, second half EBITDA margins, clearly, if you exit FY '24 at a 7.9% average, it means that the exit run rate was higher than that. To get to an 8% to 8.5% for FY '25, the first half EBITDA margins, as normal, will be lower than the second half just because of the nature of the work that we do in the first half, second half, which means, again, that the average second half margin should be above that range. And part of what we're seeing is that we have the visibility of all of this, of course, by looking at our backlog and our pipeline, and we know what we're -- how disciplined we are around our pricing. So yes, mathematically, you can work out that the answer to your question is yes.

And just second one for me. With respect to the $30 million investment in FY '24, you called out -- most materially that will be driven by digital and AI enablement. Do you mind just providing some examples really of what's being done there? What are you investing in to help sort of improve the broader business?

Yes. The first thing I'll say, it's not the only part of our investment. In addition to the circa $30 million in the strategic investments, we have another circa $90 million of transformative investments in the business. So this is improving processes and systems. So we are making significant investments in the future in the business in FY '25. In line with previous disclosures around the circa $30 million in strategic investments, it will be more of the same: investments in training, in people, in systems around these growth units. But specifically in digital and in AI; in AI, particularly, we have approximately 200 use cases that we're currently focusing on. That will take a long time beyond '25 for us to get through all of those. But at the Investor Day, I think we mentioned a number of the examples of that, for example -- an automating tendering -- automated tendering process, which will have a significant reduction in the amount of time that billable engineers work on tender documents. The quality of those documents is significant, but it allows us to produce them much quicker and then redeploy those engineers on to billable work. So they are the kinds of investments that we will make on a very disciplined basis, but the 200 use cases, which, as I said, will take some time to deploy, will all have similar type of returns, and we will only invest if we have a return.

Our next question comes from line of John Purtell from Macquarie.

Just have a couple of questions, please. Just in terms of your backlog, it was down over the last 6 months. So how do we correlate that to [indiscernible] in '25? I appreciate your staff numbers are up slightly, but look, generally, backlog and revenue, there's been a correlation there in the past.

Yes. So let me maybe start, John, then Tiernan jump in. So look, first of all, our book-to-burn is greater than 1. So while the backlog is down on what it was on the prior corresponding period, our book-to-burn is above 1. So I'm not overly concerned around ability to deliver what we're talking about in FY '25. Look, if we look at what makes up the delta between the last backlog we report and this one, it's -- we've had a couple of big projects go into slowdown or canceled. So just -- there were big ones or bigger ones and so that's driving the impact. If we look at what we're winning, we're actually still continue to win above our burn rate, which is what obviously the important thing is. So look, obviously, we'd all like to see a continued trend of upwards trajectory on the backlog. But in this specific case, John, I'm not overly concerned about the delta between what we previously reported and this one, given the nature -- given the fact that it's a couple of bigger projects, yes. Tiernan?

Yes. I'd add that the backlog, John, is still substantial in terms of supporting FY '25. We have said that FY '25 will be a moderated growth year. So you don't need the same extensive backlog that we went into FY '24 with to deliver the result in '25. Importantly, the phasing of that backlog is very similar to FY '24. About 58% of it will be -- is expected to be delivered in '25. So that's a pretty good backing for FY '25 from the start. We're clearly monitoring the activity in the first couple of months of the year, and our lead indicators are certainly confirming our expectation for FY '25. Certainly not going to be an easy year, but it's certainly going to be a growth year. The pipeline also is still healthy and growing, particularly around sustainability, you would have seen for -- in the material, you may not have had a chance to see it yet, but the number of sustainability wins is up yet again on the quarter, very marginally up, but nonetheless, still at very high levels. And the phasing, whilst it has slightly changed, in that a lower percentage is expected to be awarded in the next 12 months, it's still over 60%. And that gives us some confidence that those back the FY '24 outlook. Similarly, we're not a product-based business necessarily, we're close to our customers, and Chris mentioned it in his speech. We're close to our customers. We're working with them. So it's not like we're just waiting for other people to be active with us. We are proactive with our customers. So we know how they're thinking, what they're thinking, we're helping them to think and that also gives us some confidence about the intentions in FY '25 to give us the ability to talk about the outlook that we have. The last thing I'll say is that the -- in the outlook, you can see that again, and I'll remind everyone that we don't just lean into the basic ECR market, we address a much bigger market than that because of our focus on the energy transition. And so that market, the bigger market that we lean into as a group is growing at about 5% a year. And that's what we need to deliver the outlook that Chris has just taken you through. John?

And just a follow-up. Specifically on resources, do you still see a positive outlook for your resources business despite the volatility we've seen? And maybe just more broadly, Chris, which regions of the world are you most positive on in terms of activity?

So look on the resources side, we know what the long-term trajectory is. But look, in the near term, in the immediate term, we're seeing some pretty exciting projects. And it's not just in the traditional areas of say, Western Australia. We're seeing Latin America, Argentina, Chile; interesting, the Middle East, John, Middle East and seeing opportunity set growth there. So look, I'm comfortable that there is sufficient growth opportunity, not just with the players that we've worked with traditionally, but also in the more traditional areas geographically, but in some of the emerging geographies as well.

Our next question comes from line of Rohan Sundram from MST Financial.

Just 1 for me around, Chris, give us a bit of color on how your conversations with customers have changed over the last 6 months? And with customers reassessing their portfolios and pivoting back to traditional to some extent, how are you seeing that impacting your business?

Well, the conversation with the customers are still a mix of sustainable transitional and traditional. And when we talk about transitional, a lot of that is how do you make your traditional assets more sustainable? Could be CCUS, could be water usage, energy efficiency, whole slew of things. But what they're talking about is the need to continue to grow, need to continue to address the energy transition. But the challenge with some of the pure sustainability projects, for example, in hydrogen, currently, there's not an upscale take off the hydrogen and the economics of some of the hydrogen projects are not quite there. So they're talking about the need to while they've got to continue to look at and work on that portfolio of sustainability. If you look at a medium term and near-term investment, there's definitely, I would say, a rebalancing or a focus on near-term returns associated with the traditional and transitional. But there's a sense of calm with them with our customers. There's not a sense of panic. There's no backing away from their commitment to net 0. It's just a question of being very pragmatic in how they're going to get there. So I think I'd say the conversations are steady with maybe a little bit of a different emphasis across the 3 buckets of sustainable, transitional and traditional. But it's something which is seem to all customers. They're all having a sensible revisit of what they need to be done from an investment perspective. But I'm not seeing any panic and I'm not seeing any backing away of their ultimate commitment to net 0.

Next question come from the line of Scott Ryall from Rimor Equity Research.

My 2 questions are on Slides 41 and 42, just so you can prepare. So on 41, this goes through, I think, in and some of the stuff you were talking about before around the ability to grow profit ahead of headcount. And in that chart, I note hasn't got a scale, but it obviously is moving in the right direction. I was wondering if you could just touch on -- get a little bit of color around the automation side of things. But just touch on how much further you think work can go -- through the GID can go? And what are the more, leaving aside automation of tender documents, which is something you talked to before. Is there any other areas of automation that you're seeing particularly interesting, please?

Yes. What's interesting about this, Scott, is that the GID and automation does overlap. So it's not easy to divorce one from the other. But let's start with GID because it's more immediate. At the full year, GID contributed 15.6% -- sorry, 14.9% of total hours worked to the business. In FY '25, we're stepping that up again. So we can continue to increase the headcount in India. And in fact, we will continue to consider alternative locations in sort of a follow-the-sun mechanism to give us -- to spread the risk a bit because we do have a lot of people in India now over 5,000, about 5,600. But it's possible given the quality of the engineers and the number of engineers that universities in India produce to increase the total number of hours anywhere between 15% and 20% of total hours worked. With the customers increasingly as the economics of projects become an obstacle are willing to allow us to utilize GID in a greater way. And we have ongoing discussions internally as a group executive to make sure that, that happens. It doesn't affect the quality at all of the work. And in fact, customers like it because we share the benefit. So I think you'll see a continuation of that. But meanwhile, if we are investing in automation, then that also will have an effect on the amount of work that every individual has to do. I mean we talked about this in the Investor Day that it would be nice to think that 50,000 people that we currently have could do the work of 75,000 people. I mean that's an aspiration. that one has to have in an environment where resources ultimately will be constrained. And as I said in answer to Richard's question, we don't have a problem in hiring people at the moment, but that's because our value proposition is very different. As you mentioned, we don't provide the scale, but importantly, the EBITDA per headcount has increased. It increased 15% this year. And that means that what we're doing is we're getting much better at choosing the right projects, working on the projects the right way, using technology appropriately and working with our customers to do all this properly. I mean these are partnerships, and that has produced that improvement. So I think -- and look, I think the attrition rate says a lot because we are starting to invest in our people. I shouldn't underestimate the environment that we provide to our people, particularly around development. And the more we develop our people, aversely, that has a positive impact on our productivity and our ability to grow. So they are the kind of things that not only dislocate somewhat headcount growth from earnings growth, but also should give you some confidence that we can scale the business effectively into the future.

Okay. Great. And then the second question is on Slide 42, with all the helpful charts on backlog and change in backlog. And maybe its an extension to John's question from before. But EMEA looks like the area where you've seen the most pronounced drop on a geographic basis. And I was just wondering if you could talk to that specifically in what you're seeing there. But also, given your definition of backlog on Slide 44, can you just explain to me how -- what happens when a client cancels a project? Do they -- presumably, there's some remuneration for any work you've done for them already. But what's the basis on which someone cancels the project? Because that usually, I would have thought, would have come after the project is fully funded. It'd be great just to get some color around that, please?

The first thing, Scott, to say is that it's normal that cancellations occur in this sector. I mean, this is just the nature of contracting. So a cancellation typically occurs in the early phases of the contract life cycle. So we will do an early study -- first of all, we'll do consulting and we -- one would hope that in our affected sales pipeline, we're telling our customers honestly, that a contract will be economic or won't be. So you cut out a lot of things at the contracting side, but then you do the early studies and some feasibility work and some FEED work. So it can be -- a contract can be canceled at any time during that period.

But you're including the value of the contract in your backlog at that stage, right?

Yes. That's right, yes. But if I'm...

But I'm just wondering, you've got $1 billion -- more than $1 billion worth of scope decreases and cancellations in your backlog walk in the second half, so that's -- I'm just trying to get -- the circumstances. Sorry, sorry, I've interrupted you.

I'm getting to answer the number of your question. One part of your question was, do we get compensated? In most cases, we -- because of -- again, the answer to an earlier question, because we have the ability to mobilize people, we are able to demobilize and mobilize people to other contracts. You can see that in our productivity level. I mean, our productivity level doesn't change. It's about 88%, 89%. So we have been very effective in the cases where contracts are -- whether it's a scope decrease or a cancellation, we've been very effectively able to remobilize people to other places. One of the reasons for that, Scott, is that we don't -- we sell most of our projects out of multiple offices. It will be a problem if all of the people on 1 contract were out of 1 office because it would be harder to mobilize those people to a new contract. But when you're mobilizing people from multiple offices, virtually and physically, mostly virtually, you're able to demobilize people at no cost. But there are cases where the contract style allows us to be reimbursed for demobilization cost if the cancellation was on the part of the customer. The last part of your question was around EMEA. And I should also say that $1.2 billion of scope decreases in cancellations, the vast majority of that was scope decreases. About $200 million of that was cancellations, which means that the cancellations were very small projects. $200 million for us in -- across multiple projects, and we're probably 5 or 6 projects there is a very, very -- they are very small projects, indicative of our early phase contracts, which leaves us with the bulk of it. As you say, a lot of it is in EMEA, which really relate to just different economics, different timings, different directions, different strategies of our customers. And again, the same issues apply to us in terms of having to demobilize people that originally were mobilized for the scope that was originally intended. So it's really about $1 billion of scope decreases that we've been dealing with. And I think all of the other metrics tell you that because they're stable and because headcount is still growing and because productivity is flat, we haven't had a problem in redeploying those people.

Our next question will come from the line of Nathan Reilly from UBS.

Just I guess a couple of questions around the CP2 LNG project. It sounds like you're planning to -- so I guess, push ahead with that project later this calendar year. Can I just get an update? Is that sort of FID outlook subject to DOE export approvals? Or is there something else that give you the confidence that, that project moves forward?

So DOE approval has not required to move to site. DOE approval is only required to export the LNG, and VG have always said they would move to site and begin building without export approval from the DOE. What we've been asked to do was plan around an end-of-year mobilization to site, Nathan. So that's the plan. But the project is not -- the project moving to field is subject to -- was subject to FERC approval, it's export of the LNG that's subject to DOE approval.

Okay. And you've given some comments there just in terms of earnings contribution expectations for '25. But assuming this hit your order book at the end of this year, calendar year, can you maybe talk through how you're expecting revenue phasing for the project as it moves to delivery phase through '26 and '27? And extending on that, can you just give us an idea of how you think the project will impact your margin target, your high single-digit margin targets? Just trying to get a sense of whether the project would actually be dilutive to that target?

Yes, Nathan, on the first question, the reason we've provided specific guidance on CP2 for FY '25 is because we originally intended to mobilize the site in February this year or at least late last year, earlier this year. So we were going to have a different profile of earnings delivery in '25 because we would have been ramping up from early calendar '24 into construction. And then we would have been simultaneously doing engineering work and construction work. Because of the delay and because of the later mobilization to site, that means that the engineering work will ramp down, as I mentioned, to Richard earlier, and the construction work will either ramp up from late calendar '24 or early calendar '25. So no overlap. So that does affect the -- marginally and it's not -- it's marginal for the group, but it affects what we had originally planned for CP2 in FY '25. We really need to get to sites to really start to deliver earnings in a consistent way for the next few years. So I think it really will be FY '26 before you will see a full run rate of CP2 in our earnings. And for all the reasons I mentioned, it's why we wanted to mention that the EBITDA contribution in FY '25 will be lower than '24. And the purpose of that is that we talked to all of you about what you've included in your models. And a lot of you don't model it specifically. But if you do, we just think that that's important that you get that information. In terms of margin, we always said when we won the contract that it would be supportive of our margin journey and that remains. Clearly, we've got to ensure that we renegotiate the contract once we get Full Notice to Proceed, that will happen in the next -- sometime in the next 6 months. But our expectation is that the project -- all signs are the project is moving forward. Obviously, FERC approval is a very good start. And we'll be able to give more color on that at the half year, but we're very positive about our ability to deliver the contract. Certainly, the experience we've had so far and the size of the project and its contribution to our -- not only our earnings in dollar terms, but also in margin terms.

Our next question will come from the line of Alistair Rankin from RBC Capital Markets.

Just first one actually on the normalized cash conversion for the year. You had a really solid conversion of 99%. Could you just run through what the key drivers were for this and how that strategy has sort of contributed towards achieving such a strong conversion?

Yes. Thanks, Alistair. Look, I think prima facie, we're just getting better at managing our customers and at managing the cash flow cadence within the group. One of the things that I've been very pleased about during FY '24 is the focus on cash conversion rather than just on DSO. Chris changed behaviors by incentivizing those who matter around incentivization by focusing on cash conversion, which means we have to not only look at cash inflows, but also cash outflows. And I think that changed the way we focus, and I mentioned it quite a few times in what I said earlier that it changed our behaviors as a group, which meant that our DSO and our DPO were consistent throughout the year. So that was a really big driver. We also are educating our customers. I mean Chris and I are out there talking to our customers about we're not a bank. They've got to pay their bills. We have consistently delivered DSO at the low end of our target range in the early 60s. That's a very good rate, particularly when you work, where we work. We work a lot in the Middle East, where DSOs are higher than the average for the group. So that means there are many places where we're doing even better. And then I think the process is -- the investment in the processes that I've talked about, it's giving us more visibility of the forecast around cash flow. What's really pleasing about a 99% normalized cash conversion is that we are still investing in incremental working capital and delivering 99% normalized cash conversion. So I think it's a whole range of things, but I think it's just discipline. And we look at the competitive environment and a lot of our competitors are not faring as well as we are. It certainly helps that our contract strategy is around reimbursable style. That reimbursable style lends itself to a better cash production if you are disciplined around focusing on...

That's very helpful. I might just shift across to the Americas where, on Slide 31, you showed that there was a very material increase in margins from first half to second half. And you mentioned that the increase is driven by project/mix plus an increase in procurement and construction. Could you just give a little bit more color on what has been the driver of this material increase and maybe even extended the APAC region as well because I know that, that had a pretty solid increase in margin half-on-half as well?

So I think there's a combination of matters here. Interestingly, APAC has very limited construction and fabrication. And construction and fabrication, whilst it has a reasonable margin, it's much lower than professional services. I think across the board in both these places, it's mainly because our -- the percentage of professional services revenue has increased. And professional services revenue has the highest contribution of margin. It's diluted by the involvement of construction and fabrication. And in North America, that's where we have the most of construction and fabrication. But what's really interesting is the construction and fabrication margin has also increased, and it's increased because of scarcity. I mean, if you look at our Canadian construction and fabrication yards, they're full, 65 acres of yard full of construction activity because there's just a huge amount of activity in North America. So I think you've got this combination of matters that you get increased PSR contribution, you've got an increased focus on contracts where we get the most value because we're pricing up. You get a better contribution from construction and fabrication. And yes, I think the combination of all of that has certainly allowed us to improve. In APAC, it's the same issue, even though they don't have construction and fabrication, it's the -- Chris answered the question earlier around resources, it's a focus on a number of the growing areas like iron ore and copper and battery materials, for example, all just evidence of the ongoing discipline around pricing.

Our next question will come from the line of Shaurya Visen from Bank of America.

Congrats on the results. Chris, just couple of minutes on your capital management, right? Now if I look at your leverage at 1.5x, well below the low end of your target range. How should we be thinking about the use of that capital? I had a follow-up post that, but perhaps let you go first?

Well, there's a number of avenues. And if you look at the capital management slide, which is -- lets me just go towards the slide in the past, which talks about capital management, Slide 15, we're looking at whether it's -- we haven't made any acquisitions. Worley has not ever had an acquisition strategy. We've got a growth strategy. And if an acquisition helps us drive that, we consider it. We haven't made one. But look, bolt-on acquisitions are still something that we would consider. We have an M&A team. We look at -- monthly, we look at the universe of potential acquisitions. So there's that. Obviously, we talk about net debt reduction, dividends, organic investment, which Tiernan has talked about, -- and obviously, the other one is does it make sense to look at our leverage ratio and what we've gotten consider buybacks. So -- we think that there's a range of options available to us. I think the leverage gain at 1.5 gives us access to an opportunity set, which possibly has been different in the past. And so we're going to consider a full range of options and look at what makes sense from a creative point of view in terms of allocation of that capital. Tiernan?

I would just add a bit tongue-in-cheek that it is you guys who didn't want us to operate between 2 and 2.5. I was very comfortable with our cash flow at 2x to 2.5x leverage. But I couldn't convince you that, that cash flow is sustainable, but I think we are now. So we decided to move down the load -- and we wanted a trend to around 2x. But as Chris said, we were always going to do that on the basis that we would invest inorganically, organically, et cetera, for whatever EPS accretive opportunities that we have. So I'm not -- we are not uncomfortable at 1.5x. It gives us a lot of firepower and we want to put capital to use. So we're looking for opportunities. But as we've been doing for 3 years, discipline is the name of the game. We have to be disciplined. We're looking at lots of opportunities. But in this environment, with high interest rates, multiples are high, accretion is not -- is difficult to get. So while we can, we'll enjoy the low leverage, but it's -- don't assume it will stay there forever.

We'll looking at the full range of options.

That's very helpful. Tiernan, a quick one for you. Just one quick clarification on your backlog. If I'm just looking at the slide, Slide 8, right, that $1.2 billion, can you just clarify, did you say that of that $200 million with cancellations and the $1 billion was related to Anglo's Woodsmith? Is that reading okay?

No. That's incorrect. And by the way, we're going to have to move on after this question with that will be the last question. But no, just to clarify what I said was that about $200 million relates to cancellation. The other $1 billion is scope decreases, which includes a whole range of contracts as normal, right? It's higher than it was at the same time last year for sure, but we've evidenced that and talked about that as to why the outlook is where it is. But it's not just Woodsmith. It's a whole range of other contracts in the energy transition across the group, not just -- there's no concentration.

So look, I know that we need to bring this to a close, we're a little bit over the scheduled time, but I want to just leave you with a reminder that we've had a phenomenal FY '24. It's been really a tremendous year in an environment that has not been without its challenges, not just for Worley, but for many companies in many regards. FY '25, we are still projecting an improvement in quality and quality of earnings. And I think that's a great statement to be able to make as we head into FY '25. Appreciate your interest, appreciate your time, appreciate your support and look forward to talking to you many of you over the next few days. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.