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Edited Transcript of ASL.AX earnings conference call or presentation 29-Aug-19 10:59am GMT

Full Year 2019 Ausdrill Ltd Earnings Call

Canning Vale Sep 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Ausdrill Ltd earnings conference call or presentation Thursday, August 29, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Mark Alexander John Norwell

Ausdrill Limited - Group MD, CEO & Director

* Peter John Bryant

Ausdrill Limited - Group CFO

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Conference Call Participants

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* Ben Brownette

CLSA Limited, Research Division - Research Analyst

* Daniel Porter

Wilsons Advisory and Stockbroking Limited, Research Division - Senior Resources Analyst

* Josh Charles Kannourakis

UBS Investment Bank, Research Division - Research Analyst

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Presentation

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Operator [1]

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Thank you for standing by and welcome to the Perenti Limited Fiscal Year 2019 Results Presentation. (Operator Instructions)

I would now like to hand the conference over to Perenti. Please go ahead.

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Mark Alexander John Norwell, Ausdrill Limited - Group MD, CEO & Director [2]

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Thank you, and good morning, everyone. My name is Mark Norwell, and I'm the Managing Director and CEO of Perenti, formerly know as Ausdrill, and welcome to our FY '19 results call. Joining me today is Peter Bryant, our group CFO; and Engelbert Bets, our General Manager of Corporate Finance and Investor Relations.

Today, I'll provide an overview of our group performance for FY '19 and then hand over to Peter Bryant to go through our financial results in detail. I'll then provide an update on our strategy and the outlook for the Perenti Group in FY '20 and beyond. We'll then open up the call for questions.

Slide 2 provides a summary of FY '19, our results and achievements, with the year in large extremely positive and has positioned us well for further growth and performance in FY '20. Firstly, we delivered underlying NPAT of $103 million, exceeding market NPAT consensus of $98 million by 5%, with a significant improvement in cash conversion at 89% for the year, generating over $200 million of operating cash flow. And we secured over $3.4 billion of new work since 30th June 2018, with work in hand of $7 billion.

In addition to the positive profit and cash results, we've also increased diversity of revenue, with FY '19 revenue including almost $1 billion from Australian operations compared to $400 million in FY '18. These financial results were not only above our -- all expectations, we delivered during the year a transformation as we position the business for the future.

Key items of note beyond the financial performance include: the integration of Barminco was completed, realizing synergies of $11 million whilst extending contracts, securing new clients and ensuring Barminco and AUMS executive stability. We're continuing to rationalize our portfolio by selling the EDA and Connector Drilling assets. As signaled at the half, we completed our balance sheet review, resulting in an impairment of $82 million, which was in addition to the $31 million we announced in the half year results for the EDA assets.

We implemented a new 2025 growth strategy based on our customers, people and technology. And in support of the strategy, a new group operating model was established, and new executives with deep mining experience were appointed. And recently, in support of our strategy, operating model and positioning the group for our next 30 years, we rebranded our group brand to Perenti. The Perenti brand is derived from the perentie monitor lizard, which is synonymous with Australia and remote regions where we operate. Perentie are resilient. So they actively embrace change and significantly is known as a fast and skillful mind when building their burrows. So clearly, the name is very fitting for our mining services company.

I'd also like to point out that this brand change is only to the holding company, while the group company, as per our internal efforts, and all of our existing and iconic operating brands, such as Ausdrill, Barminco and BTP, will continue to be branded as such.

In addition to the new brand, we changed our previous tagline of "Bringing More to Mining" to "Expect More." This new tagline is linked directly to our purpose, which I'll touch on the next slide. However, in short, it is about continually challenging ourselves to deliver more, to raise the bar in everything we do such as the spacing and career development of our people, delivering above our clients' production and quality expectations, being a good neighbor and a guest in the communities we work, and delivering higher returns to our investors. Put simply, our people, our clients, our communities and our investors should expect more from us.

Moving on to Slide 3. We have transformed from being an Australian drilling company to a global mining services provider, operating at scale above and below ground. In establishing our new group strategy, we focus on our aspiration, purpose and principles to ensure our people are clear on our direction. Our people are what makes us a great company, and we need to provide clarity to them. And secondly, it is critical in guiding our plans and actions to deliver sustainable growth for our investors. Our principles are more than words on page, they are there to guide our actions and behaviors every day in support of our purpose, to create enduring value and certainty for all our stakeholders.

While living our principles and delivering on our purpose, we will achieve our aspiration to become the indispensable mining services company. And this is why we introduced our new tagline, "Expect More."

On Slide 4, we have listed 5 examples of where our people have put our principles in practice, delivering several firsts. I want to detail each one of these, however, I will touch on a couple of significance. When we commenced in India through our Barminco business, it was identified that the mining regulations did not allow women to work underground. However, together with our client, our leadership team conducted a campaign to drive change for the regulations. This campaign was successful, as in January this year, the India mines department ratified the change in legislation to allow women to work underground. Since the change was formalized, Barminco is the first company in India to employ women underground on a full-time basis, with 2 female engineers and plan to increase to 4 female engineers before the end of the year.

In FY '18, we commenced using the photon assay machine for gold analysis in our MinAnalytical business. And in FY '19, we commenced the design of the robotic front-end for sample preparation. This will be a first by combining sample preparation in robotics, with photon assay, with full commissioning planned for FY '20 in Kalgoorlie. As you can see, through a couple of examples, it is great to see our people actively embracing and living by our principles to support our purpose and aspiration.

As detailed on the map on Slide 5, we have expanded our footprint in FY '19 through Barminco. The acquisition added India and Asia to the countries we operate. And by securing the $800 million Zone 5 copper project with Khoemacau, we added Botswana to our geographic portfolio. We are optimistic about commencing our first project in Botswana given it's regarded as one of the best, if not the best, African country to do business and is mineral rich with a crowd and deep mining pedigree.

We now operate in 13 countries across 4 continents and have over 30 years of mining experience, with over 25 years operating in Africa, gaining significant experience in navigating challenging regions. This experience is not easily replicated and positions us well to capitalize on the regions we currently operate and new regions we may enter.

One of the critical success factors in being successful in remote regions is investing in the local communities in which we operate. It's important that we look at our principle, walk in their shoes and deliver on our purpose to create enduring value and certainty when we're a guest in a local community. With this focus, we strive to get the support of the local communities, which benefits our business by having a capable and dedicated workforce, strong client engagement and support from a security perspective for our projects. Our experience of over 25 years assist in delivering and sustaining our business operating in excess of 50 projects and positions us well for future growth.

We now have over 8,000 fantastic employees and an area that attracts significant focus is better for the safety of our people as detailed on Slide 6. I'm extremely pleased to report that our lost time injury frequency rate, LTIFR, is at an all-time low of 0.2 across the group, down from 0.6 12 months ago. During the same period, we did have obviously a slight increase in our total recordable injury frequency rate, TRIFR, from 3.5 to 4.5.

On the back of the Barminco acquisition and organic growth, we had almost 8,300 employees at the end of the financial year, with 33% in Australia and the remainder internationally. Of our international employees, 90% are national employees, which links to our focus on supporting the communities in which we work. The safety and well-being of our people is paramount. And even though our lag indicators are generally positive, we can never be complacent. So we'll continue to ensure the safety of our people in FY '20 and beyond. It's our #1 objective. Moving forwards, we are also able to put our great investments on the health and well-being of our people in addition to our safety focus.

As previously communicated, and as outlined on Slide 7, we have established 3 industry sector groups, or ISGs: Surface, Underground and Investments for our mining support businesses. As you're aware, our segment reporting is aligned with our ISGs as per our half year results collected in February. Clearly, the 2 largest ISGs is Surface and Underground, generating revenue on a pro forma basis in FY '19 of 38% and 55%, respectively, with Investments making up the remainder at 7%.

On an EBITDA basis, the Underground and Investment ISGs contributed a greater percentage of earnings when compared to the revenue contribution, with Surface mining showing a slight improvement for the half, with further improvement planned in FY '20 and beyond. The result of the Surface ISG is reflective of the half year reporting where we called out the reduced performance of AUMS compared to historical levels. Further detail on the Surface ISG will be provided later in the presentation.

In summary, we have had an excellent 2019 financial year. And I will now hand over to Peter Bryant, our group CFO, to provide additional detail on our financial performance.

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Peter John Bryant, Ausdrill Limited - Group CFO [3]

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Thanks, Mark. And can I also take this opportunity to welcome everybody to the call. I'm very happy to be presenting, although delayed, our strong set of results for current year.

As is the case, we presented the half year results, the numbers, in a quiet context. We had the Barminco acquisition, impairments and a number of other one-off adjustments. And we had statutory, underlying and pro forma profits. That said, we've tried in this presentation deck to make the context known as simple and as transparent as we can.

When proceeding to profit and loss, we'll focus on the underlying pro forma result. I'll provide a detailed reconciliation between the statutory, underlying and pro forma profits on the next slide. What I will highlight now is that the statutory NPAT, which is $181 million, is above the pro forma NPAT of $128 million and well above the underlying NPAT of $103 million. It's always nice to present when you're adjusting statutory results down.

When proceeding to the balance sheet and cash flow, we'll focus on the statutory numbers. You'll appreciate pro forma balance sheet and cash flows do become pretty complicated. So on to Slide 9. You can see we've graphed several of the key pro forma numbers for FY '19 year against the FY '18 comparatives. You can take out all the graphs show improvement in the FY '19 numbers. EBIT for amortization of intangibles at $217 million is up $29 million or 15%. The bulk of this $29 million joins NPAT, which is up 23%.

We talked at the half about our increased focus on capital discipline. It's pleasing to see ROACE up 1 percentage point. We talked to the half about our increased focus on cash generation to improve leverage. It's pleasing to see leverage at 1.3x, down from 1.4x at both the half and the end of last year. Overall, a very strong set of numbers.

Moving on to Slide 10 and the reconciliation between the statutory, underlying and pro forma profits. I'm going to spend a bit of time on this slide as I think it's important we clearly explain the movements as some of them are quite material. I'll focus on the NPAT column, which is on the far right, because it takes up all of the adjustments. So on the top, you can see our statutory NPAT of $181.3 million. Moving down the column, we have the uplift as a result of the acquisition of AUMS, $198.4 million. Moving down the column, you can see we have transaction and one-off costs of $39.1 million. There are various components to this including the Barminco acquisition, cost of the swap reset, refinancing of both the RCF and the H1B attempt.

Moving down, we have impairments at $113.6 million. As Mark said, this comprises 2 elements: the impairment of the EDA assets of $31.2 million, which occurred in the first half. And I'm pleased to report those assets have been sold and generated a profit slightly above the impaired value. In the second half, we had an impairment of $82.4 million relating to property, plant and equipment and inventory in the AMS, BTP and Ausdrill Australian businesses. This amount was in our -- it was referenced in our ASX announcement in June where we gave guidance that the impairment would be in the range of $75 million to $95 million.

Next, we have a $1 million positive FX adjustment. This adjustment was posted this year to effect a similar treatment that was run through the FY '18 numbers. Next is a noncash amortization of $29.1 million, which is the amortization of the customer-related contracts and software, and I'll touch on that a little bit later in the deck. Finally, we had a $60.6 million positive tax adjustment. I'm not going to go through a lot of detail on tax. There are various elements to this, including the bookings and tax losses and the tax effect treatment of the intangible amortization charge.

This gives you our underlying result at $103.1 million, which is a number we referenced in guidance of $98 million. The final adjustment to give us the pro forma result is the inclusion of the profit generated by AUMS on 50% share of AUMS and Barminco for the 4 months prior to the acquisition, plus the normalization of our capital structure. That's the $25.2 million you can see on the slide, giving us our pro forma result of $128.3 million.

On to Slide 11, and we can see what the pro forma number looks like. The key point or points on this slide that I'm going to highlight is the margins. You will see the EBITDA, the EBIT and the PBT and NPAT margins have all improved. A great result, particularly when you reflect on the pro forma revenue, which has grown by 14% -- or 14.2% to be more accurate. We disclosed the quality of the earnings that the group is securing. Revenue growth is not on an each basis margin. Also, a great result when you reflect on the comment that Mark made in that we delivered it in a year of a significant acquisition and transitional -- or transformational change for the group.

Moving on to Slide 12. I'd like to focus on the pie graphs on this slide. These 3 graphs provide an increased level of granularity in relation to the revenue, which we thought would be helpful. The pie graph on the bottom left-hand side reflects the revenue by country. You'll see 44% of revenue being generated in Australia, representing a rebalancing of the portfolio following the acquisition of Barminco. The balance of our revenue was largely generated in Africa. When I say largely, because the other category there does include some revenue generated by our operations in India. What's of course important to note here is that Africa is 54 different countries. We also referred to Africa and Euro-Africa, as I guess, a single, but it is 54 separate countries, all of which have different risks and, more importantly, different opportunities for us as a group.

I'll also touch on the graph on the bottom right-hand side, which shows our revenue by project. You'll see our largest single project contributed to 7% of our revenue. Then if you look in the next top 9 projects, so the 2 to 10 category, contributed 39%. Combining those 2 categories, you'll see our top 10 projects contributed 46% of our revenue. The important takeout here is that we have no single project that is materially going to impact our results. And don't get me wrong, with all of those -- any of our projects, we'd make every effort to ensure we maintain them and these long-term relationships that we have, but no single project can materially impact our earnings.

On to Slide 13, which is the first of the 3 ISG slides. Surface mining contributes 39% of group revenue and 23% of EBIT. You'll recall at first half, Surface probably have had a softer result than the other 3 ISGs. For the full year, we saw a slight improvement in EBIT margin, reached 7.6% for the full year, was up from the 7.3% in the half. By comparison to some of our peers in the sector, it's not a bad result. In that case, we are focused on improving the performance of the Surface ISG and getting it back to its historical run rates. To this end, we continue to operate the PMO, which we ran during the half year results. And more recently, we've deployed a new CEO to our Surface ISG, a new COO for our Surface Africa business and a number of new appointments to enhance our commercial and asset management skills in that part of the business.

Moving on to Slide 14, our Underground ISG, which accounted for 55% of revenue and 67% of EBIT. Underground continues to perform strongly, with EBIT up 34%, and the EBIT margin at a very commendable 15.3% for FY '19. Up a bit over 1 percentage point on the prior year. I don't have a lot more to add on this slide, a very good set of numbers.

On to Slide 15, the last of the ISGs, Investments, which accounts for 7% of our revenue and 10% of our group EBIT. Like Underground, a good set of results with revenue, EBIT and margin all notably up. In terms of the contribution to the Investment ISG result, I draw your attention to the pie graph on the bottom right. 76% of the ISG revenue is generated from BTP.

Before closing out on 3 individual ISG performance slides, what I think is very pleasing to note, as compared to the half year, all 3 had recorded improvements in their margins.

On to Slide 16, my favorite slide in the deck, which I'm pretty certain I said at the half. When we presented the half year results, we talked about the increased focus on working capital and cash conversion. We talked about setting targets for our business ISGs. And I think I also talked about working capital management and cash conversion being KPIs for our senior management team.

As Mark noted in his introduction slide, for the full year, we achieved a conversion rate of 89%, well up on the FY '18 conversion of 65% and the 77% we recorded at the first half, an outcome that I'm actually very proud to present.

Moving to slide '17, and we have the statutory cash flow. I don't plan to run through every number on the page, but I will give you some color around some of the more significant items. Moving down the column for FY '19, the first number I'll talk to, net interest expense of $57.9 million. Interest expense in FY '19 includes a full year of interest on the Barminco high-yield bonds. And just to clarify, the Barminco high-yield bonds interest is paid 6 months in arrears, and both interest payments occurred after the acquisition of that business. It also includes interest on the Ausdrill high-yield bond prior to its repayment and interest on the Ausdrill last year.

The next number of note is taxation at $33.4 million for the year. That includes $23 million of tax payable in relation to AUMS, our underground mining operations in West Africa.

Moving down net debt repayments or proceeds at $22.1 million (sic) [$221 million], and I'll just tie it with any of the proceeds from issue of shares of $24.2 million. Those 2 numbers are very much interrelated when we say capital raising and repayment of the high-yield bonds all tied in to the acquisition of Barminco.

The final one that I'll talk to you on this slide is net capital expenditure for the year at $194.8 million. And this is below the consensus and guidance that we gave when we provided the half year results. That reduction is a combination of an increased focus on capital discipline, really ensuring you manage the fleet to get the best possible returns. And also some of the new growth capital spend, which is forecast for FY '19 as well as into FY '20, which is a good segue into the discussion around FY '20 CapEx. We see FY '20 CapEx at circa $295 million, with this increase reflecting growth capital for the recent project which we have announced.

Slide '18 is the statutory balance sheet. Given FY '18 is pre the Barminco and 50% of AUMS acquisition, comparing the FY '18 and FY '19 numbers is a bit like comparing apples and oranges. I'm not going to go through every number, but as I did in the cash flow, I'll expand on some of the more material and less obvious balances.

Looking down, we have intangibles. Intangibles of $743.6 million represents the goodwills of the stock on the acquisition of Barminco and the 50% share of AUMS, about $450 million, and the value of the higher contracts of $293 million also in relation to that acquisition. Next on that contract intangible is the amount you see amortized that I've referenced a bit earlier in the presentation.

The only other 2 numbers I'll touch on are other assets at $161.5 million. Most significant element of that is our deferred tax assets of $170 million, relating largely to the tax losses that were booked for this year. Finally other liabilities at $162.5 million. Again, the key component here is actually a deferred tax liability of $143 million. Main component of that is actually tied to the amortization of those contract intangibles that I just spoke of.

Now onto the final finance slide, Slide 19, group debt and funding. The composition of the debt funding has not changed since the half year results were presented. Only those what I'll call the AUMS-Barminco U.S. high-yield bonds and recently renegotiated Ausdrill revolving credit facility. As announced during the last half, we did commence a process to refinance the structure and roll the existing facilities into a new U.S. high-yield bond. The process was on track, and we were confident of securing some very good pricing until a Trump trade started a plunge in the Dow. We saw an increase in the pricing that's being offered to us. So we made the decision to halt the process.

As we see from the maturity graph and the maturity profile in the graph that we have until 2022 to refinance the bonds. While we're planning to do so, we'll enhance the debt pay. And to that end, we are always assessing our options.

All that said, the key takeouts from this slide are net debt-to-EBITDA at 1.3x down on 1.4x at the half, and at the end of FY '18, appreciate that I've raised that in the earlier slide. And also EBITDA cover noticeably improved -- or EBITDA in the interest cover mostly improved.

I'll now hand you back to Mark. Thanks.

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Mark Alexander John Norwell, Ausdrill Limited - Group MD, CEO & Director [4]

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Thank you, Peter. I'll now provide an update on our strategy and business outlook. Slide 21 is the same slide as presented with our half year results, which outlined our strategic pillars and associated initiatives. I won't go through the slide in detail, however, I will briefly recap, provide a brief status on our progress and then, on the next slide, detail some specific priorities.

Operational excellence is focused on driving operational improvements across all ISGs and delivering organic growth. Strategic growth is about positioning our business externally and growing through regional and service expansion. Organizational health is the pillar that is focused on delivering sustainable returns. Technology-driven future has 2 key areas of focus. Firstly, driving improvements to our current offering; and secondly, providing opportunities for service expansion into the future. And the financial capacity pillar is to ensure we can support our growth plans and drive financial discipline across the business. I'm pleased to say that we've made solid progress across a majority of these pillars over the last 6 months.

On Slide 22, a number of our key priorities, which are aligned with our strategy, are detailed for FY '20. Firstly, it is critical we deliver on our operational and commercial commitments to our customers, which includes continued improvement to our AMS business. In addition, we have a couple of new projects to commence and we need to ramp those up successfully. We made solid progress on improving our cash conversion, and we want to continue this focus through FY '20 and beyond.

To support our growth, we will review our capital structure and focus on reducing our working capital further. We have been investing heavily in technology, and we will continue to do so in support of our current business and position them for future service opportunities, and we'll continue to pursue organic and strategic expansion opportunities that are going to deliver profitable and sustainable returns.

As detailed on Slide 23, we have commenced FY '20 with $7 billion of work in hand, which includes (inaudible) and expansion options where we have a strong track record of securing extensions. The bulk of our work in hand is with the Underground ISG, Barminco and AUMS, given almost the $3 billion extended and secured during FY '19. Although we have geographic and commodity diversity, a majority of our secured revenue is from Australia and gold operations, which we clearly see as a positive for the business, with the Australian revenue increase as a result of the Barminco acquisition.

Moving on Slide 24. Given the scale of our business, we have to ensure we replenish our work-in-hand annually and secure additional work to organically grow the business. And with a pipeline of $8.5 billion, we are well positioned to meet these requirements. The pipeline is evenly split between surface and underground opportunities, with 44 projects currently identified over the next 24 months, predominantly in countries we currently operate in or have operated in previously. It should be noted that whilst this is the identified pipeline, it doesn't mean we'll be chasing all 44 projects. We'll be selective and assess each project on its merits against the range of metrics aligned with our strategy and business objectives.

Onto our final slide of our presentation, Slide 25, the outlook for FY '20. Based on our FY '20 priorities, our work-in-hand and strong pipeline, we see the year ahead as a positive year for Perenti. In general, we see significant growth opportunities in traditional markets and beyond. Our Underground ISG has a very strong order book as well as solid prospects, leaving it very well positioned to keep delivering excellent returns. Revenue growth for our Surface ISG is more conservative in the near term as we focus on continuing to enhance the earnings and cash conversion of existing operations. And our Investments business, namely BTP, is well positioned to continue benefiting from the ongoing demand for equipment rental, parts and services. Based on our committed work and outlook for FY '20, we are targeting underlying NPAT(A) of about $140 million on the assumption that positive market and global conditions remain favorable.

In summary, we delivered a solid financial result in FY '19 during a transformative year and we are well positioned to deliver a strong FY '20 result.

That concludes the presentation, and I'll now hand back to the moderator to commence the Q&A session of the briefing.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today comes from Josh Kannourakis with UBS.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [2]

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First question, just on pipeline, obviously, that looks like it strengthened, but can you just give us a little bit more clarity in terms of timing and expectations in terms of how that 24-month tender pipeline is weighted?

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Mark Alexander John Norwell, Ausdrill Limited - Group MD, CEO & Director [3]

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Yes, Josh, Mark here. So the weighting is pretty well evenly split between Underground and Surface. We normally sort of said that's over sort of a 24-month period with the plus-40 projects. As far as those 44 projects, we won't be targeting all those, we'll be quite selective. But in terms of weighting, we'll be looking to bringing on projects to replenish our order book and support our growth in the future. Predominantly, it's also in jurisdictions that we currently operate in or have experience operating in so it doesn't sort of include future geographic expansion. So we feel pretty confident about the pipeline moving forwards.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [4]

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Okay. Okay, great. And so just in terms of timing, I mean is this -- is a few of those coming up still within this calendar year? Or is it sort of mostly back-ended into the sort of 2020 year?

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Mark Alexander John Norwell, Ausdrill Limited - Group MD, CEO & Director [5]

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Yes, I'll be looking into sort of more in the FY '21 in terms of any sort of revenue coming online.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [6]

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Yes. Okay. Cool. Just a question around the margin. So second half, you've got a bit of a recovery in surface. As we go into '20, can you just talk through a little bit about the continued expectations in terms of either margin improvement or stability, what you're assuming within guidance?

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Mark Alexander John Norwell, Ausdrill Limited - Group MD, CEO & Director [7]

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So we had a slight sort of improvement in Surface EBIT result from the half year results for the full year, so that was positive. As far as guidance and where that's looking into FY '20, we've given our NPAT guidance there that we stand by, obviously. We are looking to continually improve, particularly the AMS business back to historical highs. As far as the detail of what we factored in, I won't go into that, Josh, but maintaining what we put out for guidance in FY '20. But we are looking to drive further improvements.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [8]

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Yes, so still expecting improvement within that. Okay. Great. And then just second half in underground divisional mining, still a very strong result considering what you had going on in that period in ramp-up. I mean as we go into '20, do you think we can get back to sort of blending up to some of those more historical sort of margins that we've seen?

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Mark Alexander John Norwell, Ausdrill Limited - Group MD, CEO & Director [9]

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I think the margins are pretty good, Josh. But Underground, our focus with Underground is continue to sustain sort of the margins, looking for growth. Obviously, we've got entry into Botswana in FY '20 as called out on one of the slides for the priority. That's certainly one of the key priorities for the Underground ISG. So the focus is around growth and maintaining margin moving forward. So revenue growth is the focus there.

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Peter John Bryant, Ausdrill Limited - Group CFO [10]

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Josh, I might just add, too, it's so vital the Botswana job starting in a way through FY '20. Now we are going to see, as you know, when they ramp up, they don't always hit their full run rate but we'll see if it's making a big contribution that it needs to be on FY '20.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [11]

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Yes. No, that's great. And just also just a quick one, just head office costs and functions, I think, is about $28 million at the EBIT level for this year. Just expected expectations there. Is there any sort of big moves we should know about across that or any other further cost-out initiatives to come through into '20 and '21 that we should be aware of?

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Mark Alexander John Norwell, Ausdrill Limited - Group MD, CEO & Director [12]

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No. No. No big moves there. I guess given our sort of change in operating model and how we've sort of structured the businesses to support future growth, what we've got there is reflective of our operating moving forwards. We're always looking for ways to drive sort of cost out. But our key focus is ensuring we also support the business for growth as well and having the right balance overhead. So we're not going to just take cost out for the detriment of business. We're going to keep the balance right moving forwards.

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Josh Charles Kannourakis, UBS Investment Bank, Research Division - Research Analyst [13]

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Yes. And last one, very quick, on that Peabody's contract. It looked like some increase in revenue. Just wondering how much of that is sort of price versus utilization and just whether some of that increased revenue dropped through the bottom line as you roll into those new terms.

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Mark Alexander John Norwell, Ausdrill Limited - Group MD, CEO & Director [14]

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I guess a combination across the broader BTP business with the market as it is, we're seeing strong demand for parts and fleet rental. And we're seeing some of that through Peabody but sort of more holistically, we're seeing that across the BTP business.

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Operator [15]

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And our next question comes from Ben Brownette with CLSA.

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Ben Brownette, CLSA Limited, Research Division - Research Analyst [16]

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I wanted to ask on Underground. The Q4, obviously, looks like a really good result. And I know that it's -- you don't have all the numbers to be able to work it out. But Q4 being so good, notwithstanding Botswana, is it fair to assume a little bit of main reversion there? Or do you think it's just executing to the point where that can continue into the future?

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Mark Alexander John Norwell, Ausdrill Limited - Group MD, CEO & Director [17]

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I guess, Ben, certainly in terms of performance of Underground, as you stated, very solid performance. We are looking to sort of maintain that performance in the future as we grow the revenue base as well. In terms of what we factored in at the EBIT level for the Underground business, that plays through to our NPAT guidance for FY '20, but we're looking to maintain the performance and grow the revenue base.

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Ben Brownette, CLSA Limited, Research Division - Research Analyst [18]

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And I know that you prefer to talk about the business as a whole, but can you talk about second half or Q4 performance with AUMS and Barminco, at least if not quantitatively, qualitatively?

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Mark Alexander John Norwell, Ausdrill Limited - Group MD, CEO & Director [19]

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Qualitatively, positive. And I think that's sort of coming through in the results. We got a new executive team, a good team across the board in Underground performing very well. So qualitative, we're very pleased with the performance of that part of the business.

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Ben Brownette, CLSA Limited, Research Division - Research Analyst [20]

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But I can't draw you into talking about AUMS, Barminco?

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Mark Alexander John Norwell, Ausdrill Limited - Group MD, CEO & Director [21]

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No, Ben, you can't.

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Ben Brownette, CLSA Limited, Research Division - Research Analyst [22]

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All right. And Pete, I know obviously as you ramp up projects, you do get a little bit of a working capital drag. But can you just talk about why you're comfortable with that receivables build in the second half?

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Peter John Bryant, Ausdrill Limited - Group CFO [23]

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Ben, the receivables build in the second half, I -- we're very comfortable how the business has been progressing. I think it's fair to say, we've actually been focused on bringing working capital down. So we had the inventory down. The data book was up slightly as revenue was up and then credit book was down. So perhaps we'll catch up in due course when we talk about the actual drivers of the half-on-half, and the overall focus is bringing working capital down.

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Ben Brownette, CLSA Limited, Research Division - Research Analyst [24]

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Okay. And just lastly, the nonrecurring in this year, is there any expectation that there will be any nonrecurrings in your underlying NPAT next year?

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Peter John Bryant, Ausdrill Limited - Group CFO [25]

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No. The only thing we've got that I'll call out is the amortization of the intangibles. And that number for next year we see at around $40 million, then it does then sort of step down. But other than that, nothing.

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Operator [26]

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(Operator Instructions) And our next question comes from Daniel Porter with Wilsons.

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Daniel Porter, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Resources Analyst [27]

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Just a few from me. Peter, just I think you mentioned earlier that CapEx guidance for FY '20 of $295 million. Can you give us a bit of a breakdown of how that looks between the existing business and new contracts and what might be maintenance versus growth as well?

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Peter John Bryant, Ausdrill Limited - Group CFO [28]

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Yes, Daniel, I think the best way to look at that is we've, in the past, given a bit of a rough indication with us saying business CapEx runs around sort of 9 to 10, 11 in the stretch of the revenue. So if you apply that metric to the revenue -- we haven't given you revenue guidance, I appreciate that's a bit of a challenge, but it's saying the business is running at that rate and the growth is in line with some of the expectation we've given in the past.

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Daniel Porter, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Resources Analyst [29]

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Okay. And is there any -- just in terms of the new contract, is that sort of the growth going towards mostly those...

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Peter John Bryant, Ausdrill Limited - Group CFO [30]

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Yes. Correct. These are the same rather [in 7 5] coming in.

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Daniel Porter, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Resources Analyst [31]

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Yes. Okay. That's great. And then just on your working capital and cash conversion. Do you guys have a target in mind of where you're getting to? Obviously, that working capital has been pretty inefficient in the past. But where are you sort of trying to get to with that number? And also just on that receivables build, how much of that do you think was due to the timing of 30 June being on a Sunday this year?

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Mark Alexander John Norwell, Ausdrill Limited - Group MD, CEO & Director [32]

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Daniel, I'll touch on a part of that and hand over to Peter. In terms of the cash conversion at the half, we had sub-80, 89%, we want to continue to sort of drive that into the 90s. So that's going to be a focus moving forwards from a working capital perspective. Our working capital in the Surface business is higher than we would like. We had spoken about sort of driving that down. We did see some improvement in the half around inventories -- actively decreasing our inventory levels but also segmenting cash. We're going to continue that focus moving into FY '20, particularly for the Surface business so we see good upside there around driving working capital down. As far as, I guess, 30 June, our focus is getting cash at the date of the June collectible date, which the team had done very well. So I don't see that as, I guess, just the 30 June, it's what we do every month moving forward.

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Peter John Bryant, Ausdrill Limited - Group CFO [33]

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Yes. The guides that are in there, they're focused on cash. If it hasn't for the weekend, I reckon we would have been above 90% because we had a couple of people pay us on the Monday.

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Daniel Porter, Wilsons Advisory and Stockbroking Limited, Research Division - Senior Resources Analyst [34]

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Yes. No. I think that's been the case across a lot of the sector as well. And then just, Mark, just finally, just in terms of your team that you're assembling now, are there any sort of key roles that are yet to fill at the management level? Or are you happy with what you've got in place now?

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Mark Alexander John Norwell, Ausdrill Limited - Group MD, CEO & Director [35]

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Firstly, very happy with the broader executive and senior team across the business, with a couple of key appointments over the year strengthen the team, so in short, very happy there. One key appointment looking at is the Chief Development Officer that I'll be appointing over the next few months. So that's the only outstanding executive role. But with our growth, we're always looking to sort of strengthen that as we move forward but very happy with the executive team.

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Operator [36]

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And at this time, I am showing no further questions. That will conclude today's conference. Thank you for participating, and you may now disconnect your lines.

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Mark Alexander John Norwell, Ausdrill Limited - Group MD, CEO & Director [37]

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Thank you.

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Peter John Bryant, Ausdrill Limited - Group CFO [38]

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Thank you.