Worley Ltd

Thank you for standing by, and welcome to the Worldly Half-Year Results 2020 . This will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. Depending on the number of questions, we may need to restrict each person to asking one initial question or one follow-up question. The session will conclude on the hour. I would now like to hand the conference over to Mr. Chris Ashton, Chief Executive Officer. Please go ahead.

Thank you, and welcome, everyone, and thanks for joining Worley's half-year results for FY23. I'm going to be presenting these today with Tina O'Rourke, our CFO. Just moving straight on to slide two, I want to acknowledge the Gallagher people of the Eora Nation as the traditional custodians of the land on which we meet today. We acknowledge and we recognize their continuing connection to the land and waters and thank them for protecting this coastline and its ecosystem since time immemorial and for their unique ability to care for country and their deep spiritual connection to it. We pay our respects to the elders past, present and extend that. all First Nations people present today whose knowledge and wisdom has ensured the continuation of culture and traditional practices. Moving to slide three, I just remind you to review our disclaimer shown here. Moving on to slide four. In terms of the agenda for the day, first I'll provide an overview of our business performance and strategic progress over the period as we move further toward achieving our ambition. Here, we'll then add further detail on our half-year results. And finally, I'll provide a market update and our outlook statement before opening for Q&A. Moving on to slide five. Look, I want to leave you with three key messages. First, we've delivered on the growth outlook we provided at FY22, and with momentum building strongly, we see a clear path to increasing revenue and margins in the medium term. Second, we're delivering on our strategy and benefiting from the increasing customer investment across all of our sectors. And finally, as a high-value and trusted provider of sustainability solutions, we're successfully unlocking long-term value from our diversified markets. Moving on to slide six. I'm going to take you through our business performance, illustrating the progress we're making against our strategy. Just moving on to slide seven. Look, we've got a clear purpose, a clear ambition, and a clear strategy which guides us towards our business of the future. And as you'll hear today, we're delivering the benefits of having the right strategy, the right skills, and the right leaders. Our customers look to us as a trusted partner to bring solutions they need based on our leading position in the markets we serve. We have a strong and long track record of delivering complex integrated projects which enable the energy transition. And we deploy scarce resources at a time when there is growing demand, which gives us significant competitive advantage. Moving on to slide eight. From a health and safety point of view, our values guide us as we support our people to live healthy lives, to respect one another, and to feel included. Keeping our people safe has and will remain our highest priority. We continue to enhance the way we work. In this half, we've embedded psychosocial factors into our life programs. We're developing our people through skills and capability building. In November, we launched our Appreciate program, which facilitates peer-to-peer recognition, which has really been well embraced by our people. We're placing particular emphasis on fostering inclusive leadership. We have many active global people networks. to support the communities in which we work. We were recognized recently for our work by the Canadian Council of Aboriginal Business. Moving on to slide nine. We continue to deliver on our ESG business commitments. We're pleased with the level of external recognition we're achieving, and we retained our AAA rating by MSCI for the seventh consecutive year, and our gold rating with EcoVardis ISS upgraded our ESG corporate rating to prime, which means our tradable bonds and shares qualify for responsible investment. And we received the best in class descriptor in relation to our S&P rating as a Dow Jones Sustainability Index leader. These ESG ratings highlight why we're increasingly being included in sustainability focused investment funds. Modern slavery, Risks remain a focus area for the business, and we continue to undertake a high level of due diligence checks of supplies and customers, and we're committed to increasing our level of transparency through our recently issued third modern slavery statement. More than half of our global workforce have internal accreditations in sustainability, helping us bring sustainable solutions to all that we do. 48% of our graduate intake in the Hartford women as we continue to make progress on our diversity commitments. And finally, cybersecurity remains a focus, and we retained our certification with ISO 27001. Turning to slide 10. Our first half-year results reflect our customers' confidence in our capabilities and experience in delivering integrated solutions which accelerate their We've continued to see improvement in key metrics as momentum in our markets continues to build. Aggregated revenue is up 19% on the prior corresponding period. This reflects growing demand for our services as customers look to us to help them develop their traditional and sustainability-related projects. Our underlying EBITDA of $283 million is up 13% compared to the prior corresponding period. In line with our expectations, Patients margins excluding procurements have been sustained period on period at 6.1%, including investment in areas such as global software platforms for which we will see the benefit in FY24 and beyond. Sustainability revenue now accounts for 39% of our total aggregated revenue. This includes integrated gas at 8% of total revenue, which we regard as a transitional market. We'll continue to assess how we define our sustainability work in consideration of the evolving global standards. Sustainability-related work is now 66% of our factored sales pipeline. Our backlog has grown 9% in the past year, illustrating historical growth in our factored sales pipeline, is now moving into backlog and revenue. And the Walling Board is determined to pay a final dividend of 25 cents per share unfranced. The group continuously reviews the business portfolio to align with its strategy and ambition, and it's important we focus our energy on businesses which deliver our strategy. Today, we announced the sale of a turnaround and maintenance business in North America, the details of which can be found in our separate air sex announcement this morning. These assets are treated as a disposal group held for sale in the balance sheet. After selling costs and the allocation of intangibles and before tax, A non-cash post-tax loss of $196 million has been recognized. The transaction supports our strategy to deliver high-value solutions in growth markets and our ambition to grow our revenue from sustainability-related business across the portfolio. Moving on to slide 11. The charts on this slide show our half-and-half trends and growth rates compared with the prior corresponding period. I'm pleased with the positive momentum across our key metrics. The true sign of progress is in our underlying earnings, which was up 13%. Earnings this half were almost as high as the second half of FY22, which, considering our usual half and half seasonality impact, further demonstrates our growth. Our headcount is at 9% over the last year. Our ability to ramp up quickly in response to customer demand is aided by our global integrated delivery team in India, which has grown 23% across the same period. And we have the framework and capability to place and hire 3,000 people per month, and our time to hire has remained relatively steady throughout Part 1 of 23. Our other leading indicator metrics suggest strong future growth. Backlog is up 9%. and factored sales pipeline is up 34% over the past 12 months. Moving on to slide 12. Our growing pipeline, bookings, and backlogs show a clear path to increasing earnings in the near to medium term. Our factored sales pipeline provides a snapshot in time of all open opportunities factored for the likelihood of the project proceeding and being awarded to warning. Our pipeline continues to grow, up 16% in the half. Our role in 12-month bookings represent the value of all project wins from the prior 12 months at specific points in time. This chart shows our project wins are clearly trending upwards. They're up 23% in the half to almost $14 billion. Bookings are added to backlog, never any revaluations. We've seen backlog grow by 7% in the half. Clearly, the trend across all these three charts is increasing the proportion of sustainably related work which now contributes 40% of our backlog, just up from 28% just six months ago. These factors are very positive for growth in the years ahead. Moving on to slide 13. Our bookings are up across all of our sectors. Our $6.9 billion worth of revenue won in the first half marks a 32% increase on the prior corresponding period. Our average sustainability-related project size is increasing, indicating sustainability projects are increasingly moving into subsequent phases. Our global scale and diversified business is highlighted by the selection of significant project wins, which are listed here on the right. These range from strategic awards and early phase works, such as the Woodsmith Project for Anglo-American in the UK, to the EPCM Fertilizer Project with Martin in Saudi Arabia, to our ongoing work with BP in the Gulf of Mexico. Our traditional work continues to be an important part of our future, although we are seeing our sustainability work growing at a higher rate. We remain committed to our critical role in supporting our traditional customers move toward a low-carbon future, helping them become cleaner, more efficient, and digitally enabled. Turning to slide 14. Worley has unrivaled experience in shaping the global energy transition. Our first half result reflects the confidence our customers have in our capabilities and experience to deliver integrated solutions which accelerate their transition to a sustainable future. This trust has been well earned. As you can see here, we're developing and managing some of the world's largest and most innovative assets. Internationally, we're a global leader in nuclear power technology design and project management delivery, as well as a global leader in solar, onshore and offshore wind, hydroelectric generation facilities, and we own the technology and deliver about 80% of the world's sulfur removal facilities. Our breadth of capabilities is unique, and when coupled with our global experiences, experience puts us at the center of some of the planet's biggest challenges. This has put us at the forefront, leading the way in shaping the energy transition both in the global arena and also here in Australia. Moving to slide 15. If we look to some of our home market here in Australia, we work across all aspects of the energy sector, major resource projects and infrastructure development and management. Let me take a moment to put that into context. We operate about a third of Australia's power generation fleet, and we're one of the largest independent wind farm operators. We're the NGO record for many of Australia's major iron ore, offshore and onshore oil and natural gas facilities. We're a major enabler of Australia's small, medium, large businesses into the energy, chemicals and resources industries around the world. And we're Australia's largest exporter of high value services. For this reason, we believe we're well placed to support Australia's decarbonisation agenda and protect its critical infrastructure. The growth in our sustainability-related work demonstrates our capabilities and networks are becoming increasingly important and valuable to both the global and Australian customers with which we work. I'm now going to provide you with a deeper picture of the work we do by looking at a few specific wins from the HOT. Moving to slide 16. Norvolt is developing a lithium-ion battery gigafactory in Sweden. supply batteries for about a million costs. Whilst we're involved across most of the battery materials value chain, the development of active materials is one of our key strengths. Moving on to slide 70. Our work with ENOA, a subsidiary of NEON, supports the creation of a circular economy. This award highlights the strength of our end-to-end offering, which starts with our expert consultants in the early phase of the project, who bring an innovation mindset to help tackle complex challenges. By delivering on such early-phase scopes, we are often able to secure the latter-phase work. Moving on to slide 18. Our strong relationship with BP, spanning both traditional and sustainability-related work, is highlighted through the Quinana and Kazan Gas Project Award. We've been working for now for over 25 years, and now we're completing the feed on its conversion to a renewable fuels facility. Part of a larger program of decarbonization work, we're executing for BP across their global portfolio. Turning to slide 19. We've been working with the QA Oil Company for over 20 years, and this award continues that relationship. In addition to the extension of our traditional services, We'll be implementing projects to drive efficiencies and new technology solutions to develop solar, power, and water projects. Turning to slide 20, I'm going to hand over to Tiernan, who's going to provide further detail on our half-year results. Tiernan, over to you.

Thanks, Chris, and good morning, everyone. My section today will focus on three key areas. First, what drives our results. Second, our revenue and margins and where they're both going in the near to medium term. And finally, an update on our strategic investments. Turning to slide 21. Our financial performance, as Chris has already outlined, improved again this half consistent with our outlook last August, with aggregated revenue of 19% supported by both of our regions. Revenue in the Americas is up 21% compared to the prior corresponding period. Customers continue to spend, especially in relation to sustainability projects. The Inflation Reduction Act is providing tax incentives, leading to a noticeable increase in new opportunities, particularly in low-carbon hydrogen and carbon capture-inducing storage. In the NAPAC, investment continues to focus on energy security, building resilience into the supply chain and accelerating the sustainability shift as a long-term thematic. We're building trust and partnerships with our key customers as a result of our ability to support them with their decarbonization goals, technology, standardization, and replication. The growth in our revenue and margins is reflecting this shift in sentiment. For me at GroupCoffit, we've delivered an underlying EBITDA of $283 million and a half of 13% over the prior period. On cash, our underlying net operating cash flow is $129 million, a 17% increase compared to the first half of FY22, albeit last year was a somewhat disrupted period. Cash outflows in this current first half were impacted by the planned movements in working capital, the fund growth, and at the corporate level, the cost of company-wide multi-year software license renewals, which were negotiated early and paid up front, to maximize available discounts and avoid further inflationary impacts. Cash collection at the half is at 67% of online EBITDA, consistent with phasing and growth, with day sales outstanding steady at around 63 days. We expect cash collection to be within our target range of 85% to 95% of EBITDA, leverage is at 2.4 times, and within our covenant definitions. We've now delivered $367 million in annualized savings through our cost savings initiatives, which are delivering long-term benefits. And we are now very close to our target run rate of $375 million. Moving to slide 22. In the top EBITDA award, we are comparing second half last year with first half and so it's a good test of our momentum. You can see that while earnings are growing from volume, there is a mixed impact, the result of procurement revenue increasing substantially as we expected. Also, most of the benefits from our cost savings initiatives have already been realized in previous years, and we've spent approximately the same amount on our strategic investment as in the prior half. In the bottom EBITDA margin wall, we show underlying EBITDA margins without the impact of procurement revenue. Overall, the reduction in margin compared to the previous half is explained by our typical half-on-half phasing impacts, particularly caused by the European and North American summer, and seasonality in maintenance activities. Leading me, the first half professional services margin is up 0.5 of the percentage point on the previous year's second half margin, as better pricing flows through. We've also been adjusting some of our costs to accommodate the growth into mentioned earlier, that are required to drive future activity in the business. These company-wide multi-year deals were signed in the first half to take advantage of discounts and started to be expensed in FY23, at the same time as we are still decommissioning old and unsupported applications. These old apps are still licensed in FY23. This creates short-term extra costs which has lowered the first half margin somewhat. This increase, though, will normalize in FY24 when the transition process is complete. Importantly, cost increases are not linear as we grow, but we have very good visibility and control over them. With disciplined pricing, rate increases are already in the backlog and delivering aggregated revenue at higher margins. This margin expansion trend is mirrored in the factory sales pipeline. Moving to slide 23, there are three main areas which indicate we'll benefit from margin improvement in the near to medium term, each of which is additive. First, competitive advantage. Our global scale and our leading position in sustainability markets, combined with our strong track record in delivering large-scale projects, is only increasing importance to our customers as the quantity, scale of their sustainability and traditional investments increase. Higher margins are being seen in the increasing number of sustainability projects progressing to EPC and EPCM phases. As you know, we are reporting on a quarterly basis on the volume of small contract wins, many of which will progress to larger EPC and EPCM contracts. Growth in these contract volumes has been consistent this year, as you've seen from our analysis. Second, supply and demand dynamics are facilitating gross margin improvement across our traditional and sustainability professional services contracts. Growing market demand is contributing to higher margins and a higher volume of sole sourcing of contracts, due mainly to increased urgency of delivery, further improving the profitability of sustainability contracts. There is an increasing demand for Worley's experienced resources, And third, we expect it to benefit from further operating leverage in the medium term. We've almost reached our target run rate, as I mentioned. Other than the timing of the transition costs that I noted earlier, costs are being optimized as we grow. We're seeing the impact of our competitive advantage and disciplined approach to pricing come through in our backlog. Our average gross margin excluding procurement in backlog increased. Furthermore, our backlog is being converted to revenue at a in FY22. Much of the current backlog will translate into aggregate revenue, therefore, in FY24. Our factored sales pipeline has seen a similar rate of increase in average gross margin, but placing particular focus on eliminating low-margin contracts, to either boost the margins to market levels or to cease undertaking the work and reallocating scarce resources into higher-margin work. Evidence of this is that contracts with low margin in the funnel have been managed 2% in the last 12 months. And that's half of what it was 12 months ago. We're maintaining strong win rates across both sustainability and traditional work, even as we increase our prices, and are focusing on optimizing this advantage as the market evolves. In summary, beyond FY23, we expect to deliver an underlying EBITDA margin higher than the last two years' average margin before procurement, and we estimate FY24 average margins to be 7% plus, coupled with revenue increases as well. Lastly, on slide 24, from the start of FY22, we committed to an investment of $100 million over three years to help accelerate our organic growth in targeted sustainability-related markets. On the left of the slide, you can see some of the areas we're targeting with this investment and the emerging value we're creating. The growing pipelines and the value of the wins demonstrate we're investing and succeeding. On the right, we've provided information on where the investment is being spent in FY23. This half, we focused on planning, capability building, and digital enablement and solutions. The second half will further focus on advisory capabilities, new solution development, and partnerships. This current commitment will be completed by the end of FY24, and unless there are further gains to be made from continuing investment, this cost will cease from then. I note for completeness that there has been no change in how we define above and below the line items, nor to our reimbursable contract focus, the details for both of which are outlined as usual in the appendices. In summary, as the CFO I can say, this I'll now hand back to Chris to complete the presentation.

Chris? Yeah, thanks. Thanks, Tiernan, for that overview. I want to now take you through our outlook in line with our commitments to provide increased transparency in our disclosures, which is in response to feedback we've received from yourselves. We continue to provide more detail regarding the progress we're making against our strategy and the drivers of our business now and into the future. Just moving on to slide 26. Look, our market update shows we've positioned ourselves in high growth areas. We're outperforming the overall ECR market. The weighted average growth in FY23 for our addressable market remains in line with that which we communicated at our FY22 results in August, namely 13% to 15%. And our earnings growth over the first half demonstrates we're well on track to achieve this. Our sustainability-related work is a key contributing factor in driving the growth. Moving on to slide 27, look, these are the building blocks that underpin our medium-term outlook. Our leading indicators show continued growth in our addressable market. Meanwhile, we're expecting increased market share on the back of the strategic investments we've been making. Margin expansion will be driven by our nimble approach to supply and demand dynamics, and we are clearly and actively prioritizing higher margin opportunities. This is further supported by the significant shift we're seeing in sole source work and long-term partnerships with our customers. Our investments in technology and digitalization will enhance asset efficiency and business productivity. These building blocks provide a clear path toward our aspirations to have 75% of our revenue from sustainability-related work by 2026. And we expect this to drive revenue growth and further margin expansion that Tim has referred to. Moving on to slide 28. This is quite a different outlook statement in how we presented it today to that of the past. Deliberately so, based on feedback we've received from yourselves. In FY23, we expect an underlying EBITDA margin, excluding the impact of procurement, to be similar to FY22 as we continue to invest in the business. We're managing inflationary impacts through the reimbursable nature of our contracts and remain optimistic that in the absence of any deterioration in economic conditions, FY23 earnings will be broadly consistent with consensus. In the medium term, We have the visibility through our backlog, factored sales pipeline volume and embedded margins that revenue will increase and EBITDA margins will continue to expand to over 7% excluding procurement. And over the long term, we see further EBITDA margin expansion potential. The picture's good. Turning to slide 29. Before we move to Q&A, I'd like to remind you of our key messages. We've delivered on the growth outlook we provided in FY22, and we see a clear path to increasing revenue and margins. Second, we're delivering on our strategy of benefiting from increasing customer investments across all sectors. And finally, as a high-value and trusted provider of sustainability solutions, we're successfully unlocking long-term value from our diversified markets. So that concludes the presentation. Thanks for joining the webcast. And Tim and I look forward to answering any questions you may have.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you are on speakerphone, please pick up the handset to ask your question. The first question is from James Byrne of Citi. Please go ahead.

Good morning, Tim. Can you hear me okay? Yeah, we can hear you, yeah. Great, yeah. I just wanted to dig into the FY24 EBITDA margin outlook of greater than 7% and maybe just pick apart some of the drivers there. So, you know, backlog, for example, significant more sustainability-related work in that 40% up from 28% in the last half. Sounds like that's going to be quite... You said half of the backlog will be delivered in the next 12 months, but can I assume that that sort of sustainability-related work doesn't really benefit FY23, and that's a large driver of FY24? And then secondly, there's that impact to margin that you flagged in your chart of movements 0.6% sort of downward impact on margin from other costs. And I wanted to understand sort of how one-off that would be or whether it's going to flow into future periods as well.

Yeah, thanks, James. That's an important question. And I think you've got it. I mean, you've got the building blocks there. What's important is that the backlog increase in margins is already flowing into FY23. However, we are setting ourselves up for the future. So those other costs, which I mentioned were not linear, will essentially hit on a run rate basis 23 and result in us having a flat margin in 23. Those largely disappear into 24 because the business is larger. And as a result, we get a step up in the margin in 24 at the same time as revenue is increasing. So that's the building block is that the costs are in transition. They're short-term, and by the time we get to 24, they'll have normalized to deliver the revenue that we are forecasting into 24. So I think importantly, you can see on that slide where the 0.6 is, that the margin has actually gone up 0.5 of the percentage point in the half. And that's the important bit is that the backlog is starting to flow. But as we said in the presentation, the majority of the contracts with the higher margins will start to flow into from the beginning of FY24.

Got it. Okay. My follow-up then is just on headcount. If I quote you guys from six months ago, you talked about we're starting to see our earnings growth become somewhat disconnected from our headcount as evidenced by our productivity measure. Your headcount's obviously increased a bit. But, you know, anecdotally, I've heard that you have turned down work because of labour constraints, and maybe that's geography specific to Australia, but can you help me out with some logic here? So industry gross margins do appear to be widening. Maybe that's partially offset by the impact of higher labour costs, but because you've obviously... spent the last few years, you know, moving some of your labour to India, for example, where there aren't the same sort of constraints as developed markets, would you expect that your operating margin could actually increase more than the broader industry?

Let me take that one. So, look, yeah, we have turned down work. We've turned down low margin work and work where the customer wanted us to take terms and conditions that we're no longer prepared to take So it wasn't because of labour constraints. It was actually quite the opposite. It was about allocating the labour to where we get higher margin and terms and conditions that reflect the risk-weighted return. We're no longer willing to take unacceptable terms and conditions and we're no longer willing to take low-margin work because we don't have to. And that's the essence of it. And that's the confidence that I hope you see or feel in the conversation we've had today We do not any longer have to take a contract just to generate revenue, just to keep people busy. We have the ability to allocate a highly skilled resource and point them at opportunities and customers that give us the margin return and also give us terms and conditions. What we're actually seeing is the amount of sole source work that we're now getting is increasing with our big strategic partners and it's increasing under frame agreements, global frame agreements we've got, and those customers we're going to point the resource to. You know, they're pivoting, they're good terms and conditions contractually, they're favorable margins. So, yes, we have turned down work, absolutely, and we'll continue to do that if it's low margin and it's contractual terms that we don't like.

I might just add to that, James, that headcount's up 9%. in the year, and the global integrated delivery service in India is up 23% on an eight-count basis. So we are still able to bring in the resources that we need, and we can be selective, as Chris has talked about. Importantly, the utilization issue you talked about, we're operating and have operated for the last, now, three years at over 90% utilization. level of utilization. If you push people any higher than that, you know, they'll blow up. So we have to make sure we continue to bring people in and be selective because there's no point in taking contracts where scarce resources are allocated for, in some cases, a number of years if the margin is not appropriate.

Got it. So then just as an extension of that, so with GID up 23%, you've got this other cost into IT. and you flag market share gains, could I assume that those market share gains that you're targeting are in professional services, which is inherently higher margin?

That's correct. In fact, and if you look at the announcement we made today with the North American turnaround and maintenance business, that's a really good business. I want to be clear. And I'm delighted that it's been bought by Cannon Industrial Services. But it's a low margin business. It ties with working capital. It's a low-margin business, and our focus is to build, grow our professional services business, which is of a higher margin. So, you know, we've talked about portfolio rationalization, and the announcement today is very much a reflection of a deliberate strategy to manage the portfolio with an intent of focusing on the high-value services we offer, and with that, increase our margin.

Great. Thank you.

The next question is from Richard Johnson of Jefferies. Please go ahead.

Thanks very much. Ten, just continuing on the detail on your 24-7% assumption, can I just clarify what we should think about procurement revenue in that year? Do you just assume it's flat year-on-year, or what was your thinking there?

Yeah, Richard, I would probably assume that it's going to be, it varies quite significantly and certainly depending on the mix of contracts, but it's going to be, as you've already seen, much higher this year than it was last year, to such an extent that it's likely that it will be sustained at that level. I don't think it'll go hugely higher unless there are some other contract wins and there may be other contract wins, but if they're that large, we would announce those contract wins and then you would have to factor that into the procurement. On the basis of what we have now, it's probably going to be about the same.

Right, that's very helpful. Thanks. And then presumably the number that you're giving adjusts for the disposal?

No, it does not, which is why if you look, Richard, in the in the separate ASX announcement about the turnaround business sale. Unfortunately, the deal was literally signed overnight, which is why they coincided. We would have preferred to do it a bit earlier, but that was just the way it dropped. But if you look at that ASX announcement, there is a pro forma. where we've done a pro forma analysis on FY22 numbers, Richard. So you can actually see the impact of it, but the numbers that we're quoting, you know, still include, you know, because the completion won't occur until later in this half. But the point, I think, the underlying message is that,

the disposal of that business, which had a dilution impact on our numbers to date, that will disappear and that will add momentum to our growth projections from a market point of view. And if you notice, we said 7% plus.

Yeah. So very simplistically, if it was 7% on a like-for-like, it would be 7.5%.

In the pro forma, you'll see that we've indicated that the reported EBITDA margin at 30 June 2022, which was 6.0%, would have been 6.5% without that business.

Got it. Okay, so it adds 50%. Okay, that's very helpful. And then can I just clarify, Chris, that maintenance business, are those margins at a cyclical low? I mean, or kind of how does it look relative to its cycle?

So it's interesting and it's a good question because the turnaround aspect of that business is mandated by regulation in the US. So the customer may be able to delay a turnaround but they can't cancel it. And so they're always planned so it's not as if they don't go up and they don't come down. The long term demand on that resource is pretty steady So the margins have been typical. Typical margins of the past will be what we expect and led, again, to the consideration of the sale to be what you would see in the future. The assets are certainly being used more now post-COVID. So you'd expect it to be. So just to give you an example, this is a good business full of good people doing good work. But it's very manually intensive. It can be painting. It can be removing insulation. It can be mopping up spills of oil. It can be chipping away concrete. On the maintenance side, on the operations side, it's the basic operations of the facility, which has not been high-margin work for us anywhere in the business globally.

Got it. Thank you. Are there any other obvious assets that you've got that drop into that category as well?

Well, you know, we're committed to evaluating our portfolio and driving toward the higher value, higher margin work, and we'll continue to do that as we continue to evaluate the portfolio. So I think that gives you an indication.

That's very helpful. Thank you very much. That's it from me.

Thank you.

The next question is from John Patel of Macquarie. Please go ahead.

G'day Chris and Tianan, how are you? Yeah, good thanks John. Just had a couple of questions please. Just in terms of Chris, if you could sort of sketch out, I know there's a lot of detail there in the preso, but if you could sketch out which regions you're seeing most positivity at present and then secondly, obviously strong revenue growth in the first half. Should we expect similar rates of revenue growth in the second half to what we've seen in the first?

Yes, so just in terms of their intensity of activity, we're seeing intensity of activity increase across the globe. What's interesting, you know, the different regions of Europe, it's been on this sort of energy transition sustainability journey quite a while. The only thing that we're seeing slow down in Europe is chemicals investment because of high gas prices for feedstock. APAC, again, India, 23% increase in our GID in India. Interestingly, what's been remarkable, John, in the U.S. is the impact of the Inflation Reduction Act. And we're seeing that as being a catalyst for increased levels of investment interest in America. So what we're seeing is increased activity levels across the globe in all of the regions. But over the last six months, it's kind of different. Starting points have been slightly different with the Americas. the impact of the Inflation Reduction Act really coming in and positively impacting investment decisions by our customers. We're already in conversation with customers, John, who are specifically referring to investment as being unlocked as a result of the IRA. In terms of revenue growth for the second half, you know, we, yeah, look, we expect to see revenue growth in the second half. Yep.

So we did say that the addressable market was growing at 13% to 15% this year, so acknowledging that the second half phasing is always stronger, but we are expecting to see continued strength in revenue growth in the second half as well.

Thank you. And just a final one on resources that obviously grew strongly in the period. just in terms of the drivers for that, that impacted?

Yeah, look, just the, well, one is the demand for our services provides opportunity to recruit people and our utilization has remained high, so we're hiring people and we're putting them to work. I think also, you know, our purpose, our ambition is allowing us to attract people across all the demographic, across all the region. So, yeah, look, it's just increased demand, and also some, you know, we think about hiring ahead of the curve, but, you know, hiring people in, and we're able to put them to work straight away. So, just overall demand increase on services, John, if I understand your question. Just to check, did you mean headcount, or did you mean the resources sector?

Yeah, the resources sector.

Oh, resources sector. Well, I'll tell you what, the Americas is just John, it's beyond anything I've ever seen before. And it's trimmed by geopolitical tensions, the drive to be more independent in terms of critical resource. But if you think about some of the majors that are investing, the big resource majors, we're seeing focus of them in the Americas, not just North America, not just in Canada and the US, but also in Latin America. So yeah, for sure. Step change in interest. and investment commitments in North America. Big, big opportunity for us, John.

Thank you.

The next question is from Nathan Riley of UBS. Please go ahead.

Yes, good morning. Can you hear me?

Yeah, we can hear Nathan, yeah.

Hey, Tim, can I just get a quick update on your views around dividends and also sort of capital allocation and leverage targets going forward, just noting that you're guiding to a lower sort of payout ratio going forward?

Sure. So on dividends, as you've seen, the board has determined to pay a 25 cents And I think that is evidence of the confidence they see in the business, and certainly we as management see in the business. I think we have a long-term target now for dividend payout ratio of 50% to 70%. And I think you will see in the ASX that we said that in the medium term, with the growth of the business, I'd expect to see that the business would grow back into that range, because at the moment, that 25 cents on a half, it was 85% payout ratio. So post-COVID, we're growing back into our target range. I think in the next couple of years, we'll grow back into that range. And then over time, we probably will trend down to the lower end of that range. So we are a strong cash-producing business. In terms of capital allocation, we do have investments, right? There are investments in our growth units. There's investments we can make to improve our outlook, to generate more risk-adjusted returns. So we will need capital. So I think it's a balance between rewarding our shareholders with adequate dividend payout, but also putting surplus cash back into the business and therefore keeping our leverage down. On leverage, as you would have seen, our leverage just kicked down marginally into the range of 2 to 2.5. And that's the target range now. You will see us pulling 2 to 2.5 times as our target range. And similarly, as the business grows, and particularly now post the turnaround business sale in the U.S., which proceeds from which will go down to pay down debt, we will trend back to the lower end of that leverage range in the medium term. And that's a good position to be in because it gives us the flexibility to flex that leverage muscle as we grow and as we need to invest. So it's all a bit of a balancing act there, but I think it's all coming, certainly from what we can see, it's all coming into balance as we get all the discipline right.

Good one. Thank you. And in terms of your opportunities to allocate that capital going forward, post Jacobs, the ECR acquisition, how are you thinking about M&A versus organic investment?

Well, hopefully we've demonstrated today that we also have a D in the M&A. So, you know, divestments in terms of portfolio management is important. I think we still are of the opinion that we don't need to buy for scale, but we do need niche capabilities, and that is certainly an area we are looking at. We're not talking huge amounts of capital, but that leverage target of two to two and a half, if we operate at the bottom end of that range, some of these smaller opportunities would be able to be absorbed within that target range. able cash from the business. So I think it sets us up pretty well where we don't have large leaks of capital. Of course, if we had very large leaks of capital, then we would certainly think differently about whether we would need an equity injection for that. But at the moment, we don't see opportunities that way. We see a lot of opportunities organically. And then, as I said, maybe adding on some smaller M&A opportunities. But At the moment, the multiples are still quite high and we haven't bought anything, but we're still very active looking for those opportunities.

Understood. And just a final question just on the $100 million strategic investment, which you've obviously outlined prior. Just that $30 million that you've put into the business last year, can you give us an idea or are you able to track just what the financial returns on that investment have been just in terms of some of the opportunities? that investment has thrown up for you?

Well, yeah, look, maybe let me come in then too. If you look at our future-factor pipeline, you know, 66% sustainability, you know, that's a reflection of the early mover advantage in positioning, the money that we've invested has brought. So what we're seeing is the return on that investment, you know, incurred to date, is giving us the condoms of sustainability revenue, both growth in both our backlog and our future pipeline that we've talked about. And we do, you know, we do look at it on a more granular level. And if one of the slides in the pack talks to, you know, the amount of revenue that has been generated in each of the areas more specifically, but it's giving us a lot of traction, Nathan.

Okay, thanks for taking my questions. Much appreciated.

The next question is from Rohan Sundaram of MST Financial. Please go ahead.

Hi, Chris and Tina. Just the one from me on the – just how are you seeing the competitive landscape at the moment? You talked about maintaining high win rates. Has there been any improvement in that or are you stabilising it high and has there been anything in the market dynamics that is working in your favour?

Well, I think there's a long-term trend in the market which has worked in our favor and that is the fact that there's less competitors in that space now than there was three years ago, five years ago, ten years ago. You know, there's been an ongoing consolidation or strategic decision made by some traditional competitors to pull out of the market. So, you know, the market dynamic, the competitive dynamic that we operate in today, I'd say you know, with a stronger position, you know, than we would have been just a few years ago given the larger number of competitors. But also, you know, we began our shift and focus on energy transition and sustainability, you know, over two years ago. And, you know, we made a set of strategic bets that weren't necessarily, you know, guaranteed. And I remember two years ago, or two and a half, three years ago, when we first talked about our strategic pivot, the kind of conversation we have on these calls. But those strategic bets have paid off. It's given us early mover advantage. It's allowed us to align very strongly with the pivots that our customers are making. So there's two things. One is less competitors out there. And the fact that we made decisions and investment early on has given us very strong early mover advantage with our key customers. And the fact that 50% of our work now globally is sold sourced reflects that.

Okay, thanks, Chris. Is there much difference between your win rates between the traditional work and the sustainability-related work? Just wondering if you're competing against the same names or a whole new subset of competitors in sustainability but still winning your fair share.

Well, actually, we're on a global basis. It's the same set of competitors, whether it's in or traditional. You're all going to get some niche players in markets, sub-markets, but if you look at what we do and the kind of customers we work with, they want to work with the big players. And so what we're seeing is win rates there and thereabouts the same across both because the traditional business is still important to our customers. Like the announcement by BP last week, later the week before, it's still an important part of the business. You know, hydrocarbons are going to be needed for a long time. We think gas is going to have a more prevalent role. But, you know, wind rates, especially when work's been sold sourced, it's about the same.

Thanks, Chris.

The next question is from Daniel Butcher of CLFA. Please go ahead.

Hi, everyone. Just want to clarify a couple of things around the North America sale first. Thanks for the pro forma data. You didn't mention what the backlog impact was. I was just wondering if you could steer on that. And secondly, just wanted to clarify the 7 cent FY24 margin target. Did that include the N sale, which was your margin by 50 bits?

Well, let me answer the second question first and then add the first question to 10 and The 7% plus that was thought about in 24 and beyond does not include the positive impact of the asset sale. And that's just because the asset sale... You can imagine we worked on these materials for several weeks leading up to this event. And what we're seeing is... Or what we ended up in the position was that we couldn't include the asset sale impact on the results until it was... signed and it actually didn't get signed until overnight in the US. So to answer your question, is this not included in the 7%? And that's why I've said 7 plus percent. We think that the benefit of the asset sale will flow through beyond that in 2024. And then on backlog impact on the American channel,

It's pretty significant, obviously, because it's a big revenue business, so I'd like to get the exact number, but the aggregate revenue of the business in Aussie dollars is about $1.1 billion, so it would be a couple of billion dollars, but I'll come back to you with the exact number.

All right, thank you. And just curious on that, I mean, I understand you're moving towards higher margin work, but I imagine this is pretty low capital intensity work, so... even if it has a lower margin on revenue, if the risk profile on it isn't high, if it doesn't require much actual capital deployed, why not hold on to that lower margin work as well? Just wondering if you could elaborate on your thinking there.

I mean, it has working capital investment, but it also has other capital investments. It requires tools that, as you know, I work in a similar business when I was at Times Square, so There are a lot of incremental capital requirements for that business, not only working capital, and working capital is slow. It's a real challenge to extract working capital with these large, long data contracts with very tough conditions, a lot of documentation, but there are also tools, there are a number of other components. So it's a very involved business which ties up, as Chris said, a lot of capital And as a result, the return on invested capital is quite low. You have to have a very low cost of capital to be able to earn a decent return on this.

In summary, we believe there's only upside to the business financially with the disposal of this asset. It's a good business. It's just not in the... It doesn't support the strategic direction of Wall-E today.

Thanks. And maybe just to follow up on one of the previous questions in relation to your payout ratio towards the lower end, I think you said we need capital to grow the business, and obviously part of that might be small incremental M&A, if not larger things, but can you elaborate on how much is needed for organic growth, whether it's investment in working capital or receivables or anything else to grow the business in line with your 75% sustainability target by 2026?

Yeah, you can work it out, Daniel, from some of the other things we've said. We've reduced our target cash conversion to 85% to 95% for that exact reason. And as I mentioned, it's one of the reasons why operating cash was down this period, because when we bring on resources, we effectively take it, and we're adjusting time resources, a hirer, so we might hire a month or two before a project starts. They get into the project, they do some work, and they build, maybe a month later, and then we get paid around 60 days later. So there's an investment for every new incremental dollar of revenue of around three months on average. And that's what brings the average investment of cash down to the 85 to 95%. So the majority of that is is working capital. But as I mentioned, there may be opportunities for niche acquisitions and there will always be opportunities to bring in technology. Technology investment will certainly be required. Most technology investments these days are software as a service and therefore will be expensed rather than being capitalized and amortized as in the past. So there's a combination, but I would say the majority of the investment is working capital.

And to state the obvious, you know, paying over the lower end of the dividend ratio is against a higher profit number. So, you know, I know that's obvious, but just bring them together.

Yeah, and, you know, we're not predicting what future dividends are going to be. That's a board decision, but that's target range, right? The target range is 50% to 70%. over the longer period of time. So, you know, we'll be in or around that target range over time.

Well, that's great. Thank you, everyone. Thank you.

We're happy to take questions. Sorry, I know we're on the hour, but if there are any more questions, I'm happy to take them.

There is one more question from Scott Ryle of Reimer Equity Research. Please go ahead.

Thank you very much. It was just a follow-up question on a couple of the queries before around slide 24, Chris and Tim. With respect to your thinking about acquisitions and bolt-on acquisitions and the strategic investments that you've made, I wonder if you can just comment on whether or not in these areas notwithstanding the fact you say the acquisitions that you've looked at are quite expensive, but are there actually any acquisitions in these new areas that you could make, or is this just an investment that you're needing to make to go into some of these markets that are obviously future-facing, high growth, high margin, as you've suggested, and there's just not the acquisition targets around, so the investment by its nature needs to be a little bit more organic. Is that in the thinking at all? I was just wondering if you could give a bit more colour around the strategy there and whether that means that they're easier to execute on, I guess.

Well, look, first of all, Worley has never had an acquisition strategy. Never have one. We haven't had one. We don't have one. We'll never have one. What we have is a growth strategy and where an acquisition opportunity helps accelerate and deliver that strategy would consider it. General areas, I would say, just, you know, something about the technology. You know, we have our technology solutions business. You know, technology is going to be an increasingly important aspect in the future as the world needs it to deliver on their net zero goals or their sustainability goals, the strategic commitments of our customers. So, We do see technology playing an important role of the future. As Tina said earlier, you know, we don't need anything for scale. You know, we're in 46-plus countries. You know, we've got 50-odd thousand people. It's not for scale. So it will be niche areas that we believe we can leverage into the broader offering of the organization. But, you know, We've got a number of areas that have been taking the 100 million and investing it over the last 18 months. And we believe those are the sub-markets or the sectors which provide higher levels of sustainable, profitable growth. If we can get more of that share sooner through an accelerant type acquisition, then we'll consider that.

Yeah, I'd say two further things on that. Slide 24 is organic development of our growth units. As Chris said, sometimes that's slower than you would like, but from a financial perspective, it's much more accretive because you're not paying a premium. So the first thing is it is an organic growth strategy, and you can see what we're spending the money on. By the time we get to the third year, the end of the third year, we should be well set up organically. to grow the addressable markets that we've identified because we have all the skills to do so. The second thing I'll say is that doesn't mean we're not looking, as Chris said, for opportunities in these areas because there may be bolt-on capabilities that would augment the capability of the organic team that has been grown. And remember, in many of these areas, we already have capabilities, so we're just augmenting them organically. All we're saying about the inorganic opportunities is that at the moment the multiples are such that they are not accretive given our cost of capital. So I can see that multiples are starting to come off the boil and there may be opportunities and certainly there may be resources and capability and technology that would be very useful to augment that growth strategy. So I think it's a two-pronged attack. It's a It's an inorganic watch and wait and watch very carefully, but it's also a proactive organic development.

Okay, great. Thank you. That's all I had.

Thanks, everyone, for your time. I know that some of you will be meeting over the next, well, today and the rest of this week, and I look forward to meeting you in person. Thank you.

Thank you. This concludes the question and answer session. If you have any questions that were not addressed, please feel free to send any further questions via email to investor.relations at worley.com. That concludes our conference for today. Thank you for participating. You may now disconnect.