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Edited Transcript of MCE.AX earnings conference call or presentation 23-Aug-19 1:00am GMT

Full Year 2019 Matrix Composites & Engineering Ltd Earnings Call

Sep 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Matrix Composites & Engineering Ltd earnings conference call or presentation Friday, August 23, 2019 at 1:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Aaron Paul Begley

Matrix Composites & Engineering Ltd - MD, CEO & Director

* Brendan William Cocks

Matrix Composites & Engineering Ltd - CFO & Joint Company Secretary

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Conference Call Participants

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* Frederick Raymond Woollard

Samuel Terry Asset Management Pty Ltd - Founder and MD

* Steve McNamee;Norvest Projects

* Weimin Xie;MX Capital;Chief Visionary Officer

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Matrix 2019 Full Year Results Conference Call. (Operator Instructions) I'd now like to hand the conference over to your first speaker today, Chief Executive Officer, Aaron Begley. Thank you. Please go ahead.

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [2]

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Thank you, Evoque. Good morning, everyone. I'm Aaron Begley, I'm the CEO of Matrix Components & Engineering. And I'm here this morning with Brendan Cocks to present FY 2019 results presentation.

So for those that have the presentation slide, I'll just walk through those pages as I talk. So for those on the presentation, if you could turn to Page 3, which is the overview with 3 key areas: financial, operating and outlook. The highlights from a financial perspective is that we almost doubled revenues from the previous period, for -- albeit from a relatively low base, up to 38.5 -- $38.2 million, so that was a 95% increase in previous year. And we also produced a positive EBITDA last half, which is our best 6-month period since 2016. So both of those really reflect the changing market conditions, which is good. These results were in line with our guidance that we put out recently, which is a revenue -- headline revenue of between $37.5 million and $38.5 million. At the end of June, we maintained a net cash position of $2 million, and we continue to operate with no term debt.

The operating highlights. The trend of the increasing project activity and reactivation of rigs and equipment has been translating to orders. That's all the bottom line for the business at the moment. And -- but we -- and that's in the oil and gas sector. However, we've also been delivering on our diversification strategy. And we have production underway on one of our civil products, which we'll detail further into the presentation, under a 5-year manufacturing agreement. We've also started supplying materials to the defense sector last financial year. And we're really applying our expertise in this sector in the area of advanced materials and technology. And we're also strategically located in the Henderson marine complex with a number of major defense contractors on our doorstep.

In terms of outlook, our order book for this financial year is sort of $25 million, which is underwriting our plant production into the second half of FY '20. We've entered the -- we've entered FY '20 with a larger order book than the start of FY '19. So that indicates that we've been replenishing our order book.

I think importantly from an oil and gas perspective, the opportunity pipeline continues to grow, and those opportunities that we have, have grown from being, in many cases, bid to bid where we're bidding on projects that our clients are bidding on to bid the contract. And what that means is that there's a number of project awards that will be awarded in the first half, which includes a diversified mix of oil and gas products, ranging from -- across a number of sectors in the oil and gas, in the recent drilling to completions to intervention to serve. And the industry backlog is building considerably. So we've seen a number of large EPIC contractors build their backlog of projects in the oil and gas sector, which will potentially flow through to our sector as the projects are executed.

So if you'd like to turn to the fourth slide. This is a summary of what we are expecting to do in FY '19 and what the outcome was. So in a way, a delivery on the strategy, if you wish.

The expectations for FY '19, where we had a number of them, running from what we're expecting for our oil and gas sector and also for our diversification opportunities. So I'll just run through those one by one and just go down the table here and outline the outcome.

So the -- we did expect the improving outlook at the oil and gas sector to drive that rise in quotation. So not only did we see a rise in quotations, but we were awarded $25 million of work last financial year. This included one $15.3 million contract, so it was skewed by that larger contract. That was the biggest riser buoyancy order we've taken for some time. Now that was a result of the reactivation of a rig. And I think this is something we're going to see more of over the next few years as the utilization of the rigs improve and our client base continues to upgrade and expand their existing rig fleet capabilities, so it's more sustainable revenue base.

In terms of the MaxR product range, which is our range of well construction products and fuels. We've seen sustained activity in unconventional infill completions. And that -- we have seen that increase in sales -- corresponding sales volume in North America. That's really come about by change in distribution there. So we've seen -- we have employed more intermediaries by getting that -- in that process. It's a very large market. You need to be where the drilling contractors are operating. And so through the appointment of additional distributors, we've been able to drive quite a bit of volume there, but it has been tempered by a recent drop in the rig count -- in that rig. Just as the oil prices come off a bit and given the flexibility that the North American market operates with, we have seen a recent drop-off in activity there. But nevertheless, we have a much expanded distribution network in NIM.

Point three, which was manufacture of 4 prototype composite bulk transport systems. Look, we are at the point with that project where we've opened a new composites workshop, which will enable us to produce structures, such as the composite wagons. We've got all the tooling in place. And we've got everything ready to go to complete the initial prototype under a contract that we have with our customer, and I'll get into more detail on the state of that project later in the presentation.

Another diversification opportunity was the Tunnelwell stormwater arch system, which is a civil product for groundwater management. We expected to commence production last financial year. We commissioned the rotomolding machine and we did enter initial production trials in Q4 for receiving the tooling. And that's -- but we expect that to produce revenue this financial year, including this quarter.

The next one is a few new opportunities in the defense sector. We've come a long way in this sector. It is a long-term play for us. And there's lots of work to do upfront. But we have -- now have a number of formal collaborative agreements to develop new materials with the Defence Science & Technology group. We've established some long-term relationships with prime contractors, such as Thales for tailored materials. And we also have the largest hyperbaric test facility in the country, which is very interesting for prime contractors that are operating in subsea space, such as submarines and other marine equipment. So that's been a real good development.

We also forecast revenue growth for FY '19, which we clearly achieved, with an almost doubling in revenue over the previous year.

So I'm going to turn over to -- the presentation over to Brendan now who'll run through the FY 2019 financial results. And then I'll come back and present the rest of the presentation by running through growth strategy and outlook. Thanks.

Over to Brendan.

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Brendan William Cocks, Matrix Composites & Engineering Ltd - CFO & Joint Company Secretary [3]

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Thank you, Aaron. Good morning, everyone.

On Page 6, we have our key financial metrics. To draw your attention to a couple of points on this slide.

Our revenue, as Aaron mentioned, was $38.2 million, which was within guidance and 95% higher than what we achieved in the prior year. This resulted in a significantly better EBITDA result, which was a modest loss of about $1.1 million over the year and a positive $800,000 EBITDA for the second half.

And note there, towards the bottom of the slide, employees have increased from 108 to 140. So we do maintain a structure where we can lift our staff with the use of the casual labor for our direct projects. And so while that number is 140, it may move up and down during the period as -- with our project load, which is the way we structured the business. And from an order book point of view, we ended the year with $25 million.

On Slide 7, balance sheet. Key movements for the period, pretty much driven from working capital movements throughout the year and especially in the second half, biggest movement being in unwinding the progress billing. That's once again tied up in our largest project during the period, which was our Diamond Offshore order.

Also we are exploring a sale and leaseback of our facility. We had announced to market that we're deploying the Colliers International to explore options around that. At the moment, we're in the back end of that process. It's probably commercially sensitive at this time, but we're optimistic that there will be options for us in that space.

On Slide 8, debt and banking. We've maintained a net cash position of $10 million at the end of the period. Movements for the period were driven by manufacturing delivery of the Diamond Offshore order. I'll just note that, that order was effectively delivered in the last week of June, so ended up putting a pretty heavy working capital load on the business right at the end of that year, I'd really like though that with delivery in the last week of June. We still -- we had payments of over $5 million due from Diamond that were coming in, in the weeks post year-end and all that money will be received within 8 to 12 weeks at the year-end.

On Slide 9, cash flow from operations. The cash from operations was impacted by a quieter first half and also reflects the heavier working capital load during the most recent 6 months. From an investing activities point of view, it includes project tooling which we cost into our project and are part of our commercial margin that we quote. There's also a sustained CapEx for our facility and a number of R&D activities, of which we're targeting diversification activities for the business.

At this point, I'll hand back to Aaron.

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [4]

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Thank you, Brendan. So if you'd like to turn into the growth and strategy section of the presentation, which is -- which starts on Slide 11.

This image here, I guess, we've used for the last year or so to really demonstrate the key sectors that we operate in or aspire to operate in. Very much, we're still focused on the oil and gas market and it's pending recovery. But as explained in previous presentations, we do have an underutilized asset in terms of the Henderson facility, so we are sticking to leverage that asset and also our coal fuel in materials engineering and advanced manufacturing to service the transportation markets, civil and infrastructure, defense and resources, which are a natural fit in terms of our capabilities and our location.

So I'll turn over to the next slide which is very much an oil and gas type of slide chart. And I'd like to talk to this to really highlight what we see happening. These are real numbers in the oil and gas sector and specifically, in the offshore oil and gas sector. Although we do participate in the onshore NIM market, it represents about 10% of our sales. So the big opportunity that we see in our oil and gas product lines is to take out the advantage of the recovery in the offshore sector, specifically, in subsea, which is where we operate. And most of these are offshore project approvals are -- involve substate inflation business in some form.

So as you see in the slide on the left, left is our actuals associated with offshore project approvals. So these are projects that have reached final investor decision and will be executed probably between 1 to 3 years out from the FID date. It bottomed out in 2016. It was a very, very subdued year, coming down from that peak 120 in 2013, but it has been steadily increasing. And this year, 119 offshore project approvals are expected. And that's quite significant. That's effectively back to its peak in 2013. So what that means for us is that looking forward, with that offshore spending on the right-hand side and that projection there, that's really what is driving that increase, is a sustained increase in offshore forecast spending from 2020 to 2025, not quite breaking that 2014 peak but that's certainly, getting up towards it. This has really been driven by the fact that since the downturn which started in 2014, 2015, which was a result of a drop in the oil price, the breakeven cost for offshore projects is about $40 a barrel. Obviously, that is project dependent and that's an average cost, but that's really driving the decision to go, let's press the button on a number of those projects. We have seen a number of major EPIC contractors increase their backlog substantially. The projects will be executed through 2020 to 2023. Some of those include companies like McDermott, Subsea 7, Technip and others that are all our clients. And we would hope to see a flow of work in those projects over that period as a result.

So turning to Page 13. The -- if we look at riser buoyancy, riser buoyancy is tied in with our LGS technology as well quite significantly now. But we picked up a large order in November last year and which we delivered on last financial year. This has historically been a primary product using deepwater drilling. And it was really impacted by at the same period by CapEx. So what happens in that sector is, in -- during the floating drilling sector is that there has been lots of consolidation, lots of old rig cracking, and you've seen an improvement -- a real improvement in utilization. So that utilization is continuing to improve and is forecast to improve over the next 18 months. And that's resulting in drilling contractors reactivating rigs, upgrading rigs to meet the new market requirements and in some cases, extending risers and replacing old equipment. So that'll drive a market for upgrades and extensions. We're now one of only 3 businesses in the world that can make this equipment. We're probably competitively 1 of 2 and the stronger competitor in that sector. So we would expect to get a fair -- more than our fair share of product.

So moving to well construction. Look, well construction has become a mature product line. We've been in this market now for 8 years or so. And we have seen our distribution in North America expand. This has become a product that we have to differentiate technically from our materials technology, and we're continuing to develop this product for niche markets throughout the year.

In terms of SURF activity, there's a large number of -- in the forecast spend and FID, there's a large number of projects that are Australian-based. So these include projects for ConocoPhillips, project for Woodside and [Impex.] And we have a geographic advantage by being in country with those markets. We had a lot of involvement with the [Impex] project from a SURF perspective, so we would expect to see corresponding increase in demand for our products from our (inaudible) project that they get executed. And really through 2020 and 2021, we would see a doubling of demand so -- and growing beyond that as a result of the big EPIC backlog in this sector.

In terms of LGS, this is really a key differentiator for us. It is a unique technology that we've developed. We have successfully deployed it now on 3 major projects. We are targeting brownfield applications and greenfield applications where we used the technology to reduce fatigue on pipeline. And we also have a number of opportunities in the drilling space for exploration and production, for workovers and for other applications where we'll use this technology to expand the operating envelope of our clients' equipment. So a lot of opportunity for LGS and substantial differentiation in that market.

So in whole, I would wrap up the oil and gas space as a sign that the -- we're coming out of a long period of subdued activity. And there's a substantial amount of investment that's going into this sector globally as offshore oil reserves -- oil and gas reserves are being depleted and need to be reinvigorated through these new projects that are coming on stream. So the outlook in the medium term looks very good for that sector.

Turning to Slide 14, diversified operations. Look, I'll run through some of these reasonably quickly. In the transportation sector, where we are with that project? We have a contract with a very large role of operator on the East Coast to manufacture 4 prototype composite wagons. The current status of this project is currently in design review and we're widening exposure and development. But as far as we're concerned, we're ready to go. Our composites workshop has been completed. All the tooling is ready, so we're just waiting for the next steps with that customer. But it's also given us additional capability and the ability to produce large composite structures that have spin-offs in the other resources applications and defense. Therefore, lightening is a very topical subject at the moment, especially with the electrification of vehicles. And we're really in this market to try and leverage our composites manufacturing and materials engineering capability and whiten structures associated with vehicles to maximize payload capacity, and that includes rail and potentially load applications.

In Civil & Infrastructure, this is a very interesting sector. Anyone who looks at the infrastructure market in Australia can see that we -- it's a very large market. It's going to be sustained investment in the sector across the country really for the foreseeable future. The market that we're involve in with Tunnelwell is very much the groundwater management part of major infrastructure development, especially associated with roads, airports and other private infrastructure. We will produce revenue from this product line this year. We have a 5-year manufacturing agreement. We have commissioned new equipment to produce it, and we would expect to be producing it throughout the year and beyond. We also see this as an entrance into this market, which will provide opportunities for further expansion into the civil and infrastructure space, which will help us diversify our product portfolio.

With respect to Defence, there is a $110 billion defense spend forecast for Australia -- of the Australian military over the next 30 years. We believe we'll be an important part of establishing the sovereign capability that's required to deliver on the expectations of the defense sector. We're in the right place in Henderson. I mean there are 2 centers for marathon defense in Australia. One is Henderson, the other one is in South Australia. And increasingly, Henderson will become a focus for both new-build ships and also sustainment of the fleet. We have the largest test facilities, a hub of various test facilities in the country by a substantial margin which will be utilized by the defense sector. And we've also established long-term relationships with some of the primes. And some of these relationships will result in contracts that could go on for a number of years, if not decades. But this is a long-term program that we're involved with. But some of the numbers over the life of the program are quite significant.

With respect to Resources, we are primarily focused on transport opportunities in the sector at this stage. Although as we do more work in the resources space, and by resources, we mean the classic mineral exports, whether they're coal or iron ore or bauxite or whatever it might be, this will lighten us up to more broadly to that sector to utilize some of our other materials engineering capabilities in both the consumables market and also with the capital equipment market in that sector.

Turning very quickly to Slide 15. Just a snapshot of West Australia's Governor at our new composite facility along with some of our staff. We officially opened our composite manufacturing facility earlier this -- in July with The Honorable Kim Beazley opening and making a speech to our staff and just expressing how important it is that Australia has this sort of Sovereign proper capability that we've developed. So a little proud moment for Matrix and our staff there, but also Kim Beazley is a great advocate for Australian defense capabilities, so it was great to see him there.

Turning to Slide 16, where I'll wrap up in terms of our outlook. In a nutshell, the industry, the broad oil and gas sector and energy sector knows that the offshore exploration must increase to replace extracted oil and gas. And this replacement rate is actually historic lows. So the replacement rate for reserves is at all-time low in the industry. So something has to happen and it is happening. And you can see that by that increase in FID that's happened between 2016 and 2019. And that's resulted in a substantial amount of backorders with the major EPIC contractors but also an improving outlook for drilling contractors. So that's -- that should -- well, that's definitely improved our short-term, medium-term outlook.

We've seen a $25 million opening order book across the rising oil and gas market, but we've also won some projects under the diversification strategy, and that will underwrite that production into HY -- FY '20. And we're seeing a strong pipeline of new work across all divisions. So we have in excess of $50 million of competitive tenders that we're associated with -- that we're involved in that we're expecting to see awarded by the end of this calendar year or the end of the first half in FY '20. And we see a substantial tender pipeline beyond that for projects that are nearing FID or have come to FID.

We have a solid balance sheet with net cash. We don't have any term debt, which is a strategy that we employed some years ago and that ensures that we'll be well placed to win and deliver on these future orders as the market continues to recover.

So that's the conclusion of the presentation. I'll hand back to the moderator. Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Weimin Xie from MX Capital.

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Weimin Xie;MX Capital;Chief Visionary Officer, [2]

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Just on this $50 million tender pipeline, do you know how many people are out there competing against you?

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [3]

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We only have 2 competitors, so -- and that's...

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Weimin Xie;MX Capital;Chief Visionary Officer, [4]

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Who are the competitors?

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [5]

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Yes. We only have 2 other competitors, so that's it.

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Weimin Xie;MX Capital;Chief Visionary Officer, [6]

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And do you know the -- so let's say if you win 1/3, then you get a 1/3 of that. Do you think you'll win more than 1/3?

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [7]

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Sorry. But we think it'd be more than 1/3.

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Weimin Xie;MX Capital;Chief Visionary Officer, [8]

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Yes. Winning more than 1/3 of that on the U.S., 3 people competing on average.

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [9]

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Look, potentially, I mean the composition of that pipeline is -- includes SURF, it includes exploration and production and intervention products. So look, it's possible. There's a couple of pretty chunky contract in that mix. So obviously, picking up one of those will increase our -- will materially increase our total share of that pie, if you like.

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Weimin Xie;MX Capital;Chief Visionary Officer, [10]

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Okay. And just also you say there's a lot of potential tender activity after this $50 million.

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [11]

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Yes.

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Weimin Xie;MX Capital;Chief Visionary Officer, [12]

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If you look at the FIDs that's been out there and among what could remain, I don't know if it's called to be estimation, is there enough capacity in the sector at the moment to service those? One. Or do you think people would just add capacity when the time those tender come?

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [13]

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Look, it's good question. There has been a pretty significant decrease in capacity over the last 3 years. So there were 2 big plants, almost same size as ours in the United States, and both of those have been closed. And they haven't just been muffled, they've been shut down, chopped up, they don't exist anymore. So in terms of total global capacity, there's probably been a decrease in capacity of about 40% on-site. So yes, look, there is -- at some point over the next couple of years, there is going to be an issue with capacity we think.

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Weimin Xie;MX Capital;Chief Visionary Officer, [14]

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That's based on -- so that is a difficult problem, right? So the FIDs you're seeing because you look at the chart, you say they are almost back to 2012 level and so on. If the (inaudible) and the capacity and when you think it's become a 40 percentage from the 2012 level, roughly.

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [15]

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Yes.

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Weimin Xie;MX Capital;Chief Visionary Officer, [16]

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So that means that there will not be enough capacity? Or do you think actually, even that the capacities to come at 20%, that's still enough to service those FIDs?

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [17]

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Yes, look, it's a good question. I think what happens in situations like this is that you would find that as 1 or 2 competitors start raising capacity, there is a corresponding price effect, right? So -- and that's really good for us, for a company like us that has excess capacity. So our ability to fill that capacity improves as our competitors start becoming selective on project. That's really the bottom line. Prices go up, become slightly less competitive from that perspective. And so the opportunity for us just to fill in the capacity we have in place.

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Weimin Xie;MX Capital;Chief Visionary Officer, [18]

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So -- and so just on the $50 million you are bidding on, has the price gone up from where you were or still the same?

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [19]

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No. Look, I mean we're coming out of a period of subdued -- a very subdued activity. So the answer to that is no.

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Operator [20]

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(Operator Instructions) Our next question comes from Fred Woollard from Samuel Terry Asset Management.

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Frederick Raymond Woollard, Samuel Terry Asset Management Pty Ltd - Founder and MD [21]

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I'm interested to hear how you guys are going at retaining the -- you've historically had a bunch of very well claim specialist people who are a great competitive advantage to Matrix. Just wanted to hear how you are going retaining those people? What you need, indeed, potentially recruiting more as we've got more work coming in?

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [22]

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Yes. Look, it's a good question. I mean in WA, there are some -- the demand for certainly skills, like fitters and so forth, where we do see some pressure. But generally, we haven't had an issue with retaining the people that we wanted to retain. We had no decrease in technical capability. And one of the things we did across FY '17 is maintained our overhead -- well, we didn't maintain our overhead price at (inaudible) but we retained it at levels that were higher than we ordinarily would have simply because we wanted to retain those skills in the business and wide out the time it was going to take to see the recovery that we're starting to see. So I guess, generally speaking, yes, we've been able to retain those key people. But of course, there's always challenges, I guess, with retaining a good staff. We've got a good culture at Matrix, a good company culture. It's a place for people generally who like working at. And we haven't had any issues so far.

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Operator [23]

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Our next question comes from Steve McNamee from Norvest Projects.

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Steve McNamee;Norvest Projects, [24]

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Just a very quick question. I thought it interesting that you commented that the industry is replacing the extracted barrels or extracted oil and gas at historic lows. Would that then lead on to, irrespective of the oil price or world economic conditions, that the demand growth that you projected for offshore would be extremely sticky and inelastic? And I put that in the context of a world that's, well, whichever way you want to look at it, consuming over 1,000 barrels of oil a second or a short-70,000 barrels a minute, and that goes on irrespectively. Would it be fair to say that there is no question about the growth in that order book going forward?

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [25]

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Well, I mean obviously, that's -- it's a bit subjective, but it appears to be -- that appears to be the consensus amongst both the operators and also the service companies. There's some really good presentations out there from some of the big service companies like Transocean, for example, who are the world's largest floating rig operator. And they talked to the issues associated with that really -- the historically low replacement CapEx. It's tough to cycle. It is a very cyclical industry. There are commentators from Exxon and Chevron that talk about another tidal wave of work coming. And the problem that they've got is that this time around is they suffer sustained decrease in activity. They've lost capacity in the industry to actually execute on everything that they want to do. And you're seeing that by the fact that 2 of our competitors have dropped off the perch in terms of closing major facilities in the U.S. And as demand comes back and utilization of everything approaches a 100%, you simply may not have the -- enough people, enough equipment, enough facilities out there to deliver on it. But it is going to be sticky. Well, it appears to be. It appears that the next 5 or 6 years, they're actually going to be very busy.

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Steve McNamee;Norvest Projects, [26]

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And look, this -- just one more question which sort of goes to Brendan as well. I see the sale of Henderson and leaseback that you're looking into. Does that sort of allow you to fund yourselves up without going to the market and raise enough capital to be able to reemploy an asset in the business into the operating business? But on the other side of the coin, surely you can borrow against the property at a better rate than the capitalization rate you'd get for the property if you were to sell it. Would that be fair to say? I mean I'm just wondering, the sale of Henderson, what exactly that achieves in this slowing interest rate environment?

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [27]

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No, good question.

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Steve McNamee;Norvest Projects, [28]

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I mean it's another -- would be better to borrow against the plant, but then, that's subject to your capitalization rate. But you're really going to have an interest payment on your P&L or you're going to have a lease payment.

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Brendan William Cocks, Matrix Composites & Engineering Ltd - CFO & Joint Company Secretary [29]

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Yes. Look, and it's certainly one of the options we look at. We do. The money that we'll recover out of that is effectively money that we put into buildings. So I think, yes, there'll be a cap rate attached to that, but we'd like to think if we do exit that, that it provides one option of capital that we can use to help move into a growth phase and we think it's one or a number of options.

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [30]

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Yes. Look, and there's probably 2 other points to make there. I mean it was actually our intention to do this back in 2011. And the structure of the lease that we had, on the ground lease that is, because we have a 35-year ground lease with LandCorp, such that we were limited with -- in terms of our options. And we didn't end up actually executing that until we were able to restructure the ground lease, which we did last year. The -- I guess the other point is, and this is one of the points that our directors -- one of my directors might get right, was that the advantage with going down this path is it's not a principal interest line. You -- yet, you find a higher effective interest rate than if you were simply to borrow money from the bank on a yield basis. But at the end of the period, we actually don't have to pay anything off. We finished. We've finished that process. So this is -- it's like a form of 0-covenant debt, if you like, which is relatively cheap under those circumstances. So that's why we...

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Brendan William Cocks, Matrix Composites & Engineering Ltd - CFO & Joint Company Secretary [31]

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I mean we as always say, it will be attitude that we wanted to put our shareholder funds into productive assets as opposed to real estate. And at one point, we had maybe circa $40 million worth of buildings and real estate on the balance. So it was a single, largest balance sheet item. And we -- this is really the culmination of a strategy that we started 7 years ago.

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Steve McNamee;Norvest Projects, [32]

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And lastly, one other thing. Just in terms of all these new products and your R&D work, I don't see and you mentioned the government R&D incentives. Have you nothing in that category for new loans?

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Brendan William Cocks, Matrix Composites & Engineering Ltd - CFO & Joint Company Secretary [33]

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Yes. So we did actually take a -- how much was it? A $1 million of R&D rebate per year? Last time, it was pretty much same. Probably not that much, but we've got, what was it, $0.5 million of funds, and I think we have spent some. So typically, they'll be dollar for dollar. So certainly, some of the activity, especially around defense and building up your business to be defense-ready, growth opportunities where you'll get dollar-for-dollar contribution, but in building up your business for some of that capability, it's -- it can go across a number of different areas.

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [34]

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Yes. So we haven't highlighted it, but we do have CIDC (sic) [CDIC] funding -- co-funding from the federal government for some of our project. So yes, we are getting some government funding. We'll probably get about $750,000 from that program. And then there are other programs that we are pursuing as well, which are actually quite a bit larger, which include both capital programs and also programs for prototype in R&D. So yes, there's -- we're accessing what we can in that, something we historically haven't done.

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Operator [35]

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We have no further questions at this time. So I'll pass back to Aaron for closing comments.

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Aaron Paul Begley, Matrix Composites & Engineering Ltd - MD, CEO & Director [36]

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Yes. Thank you very much for listening. And please contact us if you would require any more clarification on the points that we highlighted today. We'll talk to you next time. Thank you.

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Operator [37]

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Thank you so much. Ladies and gentlemen, that does conclude the call for today. Thank you so much for your attendance. You may now disconnect.