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Edited Transcript of WOR.AX earnings conference call or presentation 22-Feb-21 11:00pm GMT

·53 min read

Half Year 2021 Worley Ltd Earnings Presentation North Sydney, NSW Feb 23, 2021 (Thomson StreetEvents) -- Edited Transcript of Worley Ltd earnings conference call or presentation Monday, February 22, 2021 at 11:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Robert Christopher Ashton Worley Limited - MD, CEO & Director * Thomas F. Honan Worley Limited - CFO ================================================================================ Conference Call Participants ================================================================================ * Alexander George Philip Karpos Goldman Sachs Group, Inc., Research Division - Equity Analyst * John Purtell Macquarie Research - Analyst * Nathan Reilly UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials * Richard Johnson Jefferies LLC, Research Division - Equity Analyst * Scott Ryall Rimor Equity Research Pty Ltd - Principal ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you for standing by, and welcome to the Worley 2021 Half Year Results Briefing. (Operator Instructions) I would now like to hand the conference over to Mr. Chris Ashton, Chief Executive Officer. Please go ahead. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [2] -------------------------------------------------------------------------------- Welcome, and thank you for joining Worley's interim results presentation for the half year ended 31 December 2020. I'd like to begin by acknowledging the traditional owners of the land and waters, their unique ability to care for country and deep spiritual connection to it. For me here in Houston, the land I'm on, it's long served as a site for meeting and exchange among a number of indigenous peoples, specifically the Apache, Caddo, Comanche, Kiowa and Wichita Nations. In Australia, the Aboriginal and Torres Strait Islander peoples have cared for and maintained for thousands of years the lands which provide our company with a place upon which our business provides its services. I'd like to pay respect to elders past, present and emerging, whose knowledge and wisdom has ensured the continuation of culture and traditional practices and extend that respect to other Aboriginal and Torres Straight Islander people present on the call. I'd also like to thank each and every one of our people for their continued dedication to delivering outstanding outcomes for our customers, all while managing through the rapidly changing global environment driven by the COVID-19 pandemic. Turning to page -- Slide 2. I remind you to review our disclaimer shown here. Moving on to Slide 3. In terms of the agenda for the day, I'll talk through the half year results and provide a market update, and Tom will add some more detail on the financials. I'll then close with some financial remark -- final remarks and our outlook before we open the floor for Q&A. Moving on to Slide 4. The COVID-19 pandemic has devastated communities around the world. And while protecting our people through the pandemic has been our priority, we're deeply saddened, however, to have lost 9 of our people through the virus. Our thoughts are with their families and with their friends. We've talked at our Investor Days, the full year results and the AGM last year about how we had to adapt to new ways of working during the pandemic, and safety is no exception. Our teams use technology to conduct virtual site visits throughout the pandemic, and I was involved with a virtual site visit in Latin America in November with 4 members of our Board. It was great to talk with our people about the COVID-safe practice as they've implemented on-site to keep themselves and each other safe. Our digital acceleration team have made these visits possible with specialized Camera Link tools clearly to visualize the on-ground activities and experience and simultaneously witness safety practices. We've maintained industry-leading safety performance this year, reporting a total recordable case frequency rate of 0.15. Turning to Slide 5. Global economic circumstances, including the COVID-19 pandemic, have impacted our customers, particularly demand in their end markets, which has in turn impacted our own half year results. Our aggregated revenue was down to $4.5 billion, a 25% decline on the prior period. And our underlying EBITA declined to $207 million from $366 million in the prior period. However, we delivered a strong underlying operating cash flow of $281 million and $125 million in annualized savings from our cost savings programs, which will flow into the second half of the financial year. To date, we've delivered $286 million in annualized savings in our operational savings program. We've exceeded our target and today announced we've increased our target to $350 million in annualized savings by June '22. Our sustainability pivot provides the structural framework for growth. The contribution of sustainability, as defined by our sustainability domain, is already sizable, delivering $1.2 billion in revenue this half, which is around 30% of group revenue. Energy transition and circular economy opportunities in particular are accelerating. The Board has declared an interim dividend payment of $0.25 per share. Now turning to Slide 6. I'd like to spend some time talking through the drivers of change of our EBITA from the second half of financial year 2020, and I'll do this when we move to Slide 7. We saw net business decline of $279 million in half year '21 driven by pandemic-related economic circumstances. The main drivers were volume reduction and business mix. We delivered $109 million of cost savings in the period, which partially offset the decline. Now turning to Slide 8, where we break down the net business decline further, I'll share more. The chart shows a summary of the net business decline drivers. And as I mentioned, the main drivers of decline were volume reductions and a change in business mix. As most of our earnings are in currency other than Australian dollars, we saw foreign exchange translation impact of $33 million. This is associated with the strengthening of the Australian dollar against the U.S., Canadian and U.K. currencies. Half-on-half phasing and other factors accounted for the rest of the decline. Rate and price changes did not have a material impact on our underlying EBITA. Moving to Slide 9. Volume reductions brought about by project deferrals and site access restrictions had the largest impact on our EBITDA. The Americas has been significantly impacted, with reduction also seen in EMEA. These are our largest regions. We saw a positive contribution in APAC through the acquisition of the remaining 50% of the TW Power Services business. In discussions that we've had with our customers, they're indicating that deferred projects are likely to return as economic circumstances improve. Moving on to Slide 10. A change in our business mix was the second largest impact on our EBITA. Our business is more diversified since the ECR acquisition with greater exposure to construction and fabrication work, which is historically less variable in periods of downturn. During the half, we've seen this be the case with our construction and fabrication revenue less impacted than our professional services revenue. And as a result of the greater proportion of lower-margin construction work, we have seen a business mix EBITA impact. Our professional services revenue segment margin was 6.8%, and construction and fabrication segment margin was 5.7%. And you'll find further segment result information on Slide 60 of the presentation. As I said, we expect the professional services revenue to previous proportions as global economic circumstances improve. Moving on to Slide 11. I'd now like to turn to our backlog, which is $13.5 billion at the end of December 2020, down from $16.8 billion at the end of June 2020. And turning to Slide 12, we'll share more of what's driven this. While project deferrals and site access restrictions have impacted our backlog, as I mentioned on Slide 8, with most of our earnings in currencies other than Australian dollars, there's also been a foreign exchange impact. The deferral of projects as well as site access restrictions have also impacted activity levels on our long-term contracts, which has led to a $1.2 billion impact on our backlog. We effectively revalue these contracts under the backlog definition based on our current activity level. And our customers are indicating that activity levels on our long-term contracts are likely to return as global economic circumstances improve. The impact to long-term contracts and FX translation alone account for almost 75% of the reduction in the backlog. And you can see there's been minimal impact from project cancellations, which is good news. The value of new awards and contract renewals has been impacted by the global economic circumstances as our customers defer spending decisions and project awards. However, our sales pipeline is increasing. You can see here the 12-month view of our sales pipeline. This is the value of known opportunities factored for the likelihood of the project proceeding and being awarded to Worley. And we're particularly excited about the number of emerging sustainability opportunity and recent awards. Turning to Slide 13. In addition to these strategic wins, we're positioned for the return of work which was deferred from this period. And the majority of awards pushed to the right in the period of new expected award date in calendar year '21, supporting our expectation of an improved second half. Our long-term contracts, moving to Slide 14, include master service agreements, framework agreements and operation and maintenance service contracts, and they're still in place. And we continue to be awarded new contracts. To mention a few, awards in the Americas include 4 master service agreements for U.S. LNG facilities and a master site services and supply contract for a low-emissions Canadian petrochemical complex. During the period, we renewed or extended all our contracts in Europe, Middle East and Africa, that were due. And we've seen secured long-term renewals of key O&M agreements through TW Power Services, which will underpin our APAC power business over the coming years. This is another factor that gives us confidence of an improved second half. Moving on to Slide 15. This morning, we announced a significant sustainability award by Occidental Petroleum's low-carbon venture business 1PointFive. We're very excited to be selected for the front-end engineering and design phase of 1PointFive's first Direct Air Capture facility in the U.S. Permian Basin. This is the first commercial-scale development using Carbon Engineering's Direct Air Capture technology to remove substantial volumes of carbon dioxide emissions from the atmosphere. Following on from the FEED is the tender that we move into the EPC phase of the first facility, with plans for 3 more to follow. Oxy's publicly stated Direct Air Capture investment is significant. And with 1PointFive, we envision many of these facilities in the U.S. and around the world. This is a first-of-a-kind project, which has the potential for upside in our backlog in the medium term. The next 2 slides provide further information on how this project contributes to limiting global warming to 1.5-degree Celsius. These slides also accompany the announcement, which was released to the ASX earlier this morning. Moving ahead to Slide 18. I'd now like to talk about the actions we have taken to set up our business for the future, including our cost savings program and the strengthening of our balance sheet. Moving to Slide 19. This slide summarizes our 2 programs: our operational savings program on the left and our ECR acquisition cost synergies on the right. Through these programs, we've delivered a total of $125 million in annualized savings in the half, which will flow into the second half and beyond. And I'll now take you through our progress on each of these programs, starting on Slide 20. Through our operational savings program, we delivered $121 million in annualized savings during the half, including $44 million of in-period savings. These savings will flow into the second half and beyond. And this brings the total savings delivered for the program to $286 million, exceeding our initial target of $275 million. And today, we announced we're increasing our target to $350 million in annualized savings to be delivered by June 2022. Turning to Slide 21. Our operational savings program comprises 4 categories: discretionary spend, property rationalization, business restructure and shared services. The increase in our target is linked to progress on our shared services program. The shared services component is heavily linked to our integrated back-office systems, which went live in November. And we've completed detailed planning, which has enabled us to identify further savings. And now the follow-on phase is underway. Our property rationalization program is around 75% complete. And we focused on high-cost locations and to date reduced our footprint by 230,000 square meters, the equivalent of 32 soccer fields, to put it into perspective. We've completed the discretionary spend component and are ahead of the budget. We know that some travel will return, and we have planned for that in our target to allow for this, although the travel budget will be less than 50% of what it was pre-COVID is what we estimate. We've also completed the business restructure component to simplify and streamline the business. We've increased the target for the savings program, but the cost to deliver them remain unchanged. Turning to Slide 22. Our financial back-office systems went live in November, and it was the last piece of the puzzle to enable delivery of the ECR acquisition cost synergy program and to complete the integration. The final savings related to IT and finance will be delivered by -- scheduled by April '21. In total, we deliver -- we will deliver $190 million of annualized savings, $60 million ahead of the original target disclosed at the time of the acquisition announcement. Moving on to Slide 23. Strengthening of our balance sheet has been a focus area to set our business up for the future. We've reduced our net debt to around $1.2 billion, the lowest level of net debt since the ECR acquisition. Our gearing is decreased to 18%, well below the target of 25% to 35%. And we have maintained leverage at 1.8x. I'm pleased with the continued focus and discipline on cash during the half. And cash continues to flow from our customers on previously agreed terms. While our statutory operating cash flow includes some international government subsidies, mainly in Canada as well as the U.K. and Singapore, we have delivered a strong underlying operating result of $281 million. Turning to Slide 14 -- 24, sorry. As well as our cost savings programs and strong balance sheet, our sustainability pivot means we are well positioned for the future. We're making great progress on delivering our strategy with sustainability work contributing around $1.2 billion in revenue this half. Turning to Slide 25. In December, we introduced our sustainability domain, which is how we define our sustainability work. The sustainability domain provides the structural framework for growth of our business. It gives us a different perspective on the opportunities that sustainability provides. The 7 themes defined in the domain will inform our future strategic growth priorities and are relevant to all market sectors in which we work. Turning to Slide 26. There's been a clear geopolitical shift towards sustainability across Europe and Asia and more recently in the U.S. with the incoming Democratic administration. As government policy shift, we are witnessing shifts in the nature of investments made by the market and governments to achieve their emissions targets, in particular, with an increasing focus on zero carbon emissions commitments and the promotion of a circular economy. And we're seeing investment in sustainability across all of our sectors, all of them in which we work. It is well known that European international companies such as BP and Shell are leading the way, but we're now seeing more market participants start their sustainability journey, including some of those in the market that were perhaps a little more skeptical of what the opportunity was. And we're well positioned to support this investment. Moving on to Slide 27. We're proud of the experience we have in the energy transition and circular economy projects. And these are 2 areas of our sustainability domain, which we are really -- we're really seeing accelerate. We've been involved in some of the world's largest and most complex projects in this space. And this slide highlights just 4 of our focus areas, the energy transition and circular economy. And they cover a broad range of technology in which we're involved. In addition to those referred to on the slide, these also cover solar, nuclear and distributed energy systems. And these technologies and more will play a role as we work together with our customers toward achieving the goals of the Paris Agreement. Turning to Slide 28. The projects we're doing in the sustainability domain represent around 30% of our revenue. The proportion of energy transition and circular economy revenue has increased, and we've seen opportunities in our factored sales pipeline in this area alone increase from 11% to 18% since we presented it to the market in December. Our gas and LNG revenue has been impacted by project deferrals as the result of COVID-19. But we expect deferred work to come back as global economic circumstances improve, as I've talked about earlier. Turning to Slide 29. Worley is known for delivering technically complex projects, both large and small, and the sustainability projects we will work on are no different. In terms of complexity, margin and risk profile, sustainability projects are similar to our historical services. And you'll note that's sustainability projects of a more favorable factored sales pipeline gross margin percentage compared to our other energy, chemicals and resource services. The difference in margin across the sustainability domain varies according to the type of work performed. For example, advisory work attracts a higher margin than construction and fabrication work. Sustainability projects lend themselves to alternative commercial models and partnerships, providing opportunities to deliver our services in ways that reflect the value we bring. Moving on to Slide 30. We have an important role to play in delivering a more sustainable world, our purpose, both in partnership with our customers on their projects and in the way we run our own business. We're proud to have received a AAA ESG rating from MSCI for the fifth consecutive year and have been recognized as a sector leader by ASCI (sic) [ACSI]. We continue to remain our focus about caring for our planet, our people and communities as well as operating responsibly. Turning to the environment on Slide 31. We're committed to net zero 1 and 2 emissions by 2030 in support of the Paris Agreement and the United Nations Sustainability Development Goals. We're raising our voice in the world, joining the Climate Leaders Coalition, a group of cross-sectoral Australian corporate CEOs supporting the Paris Agreement, and setting public decarbonization targets. And we've joined the Energy Transition Commission, an international think tank focusing on economic growth and climate change mitigation. Turning to the social aspect of what we do on Slide 32. We support our people and the communities in which we work. It's important to us. We are deepening our focus on diversity and inclusion. And through the Worley Foundation, we continue to provide positive social and environmental contributions via financial support and skilled volunteering. Moving to governance on Slide 33. We are further strengthening our governance and operational control, such as responsible business assessment standard as an example. And all of our projects are assessed to ensure they meet our criteria for responsible business practices, considering a range of factors, including carbon emissions, social license and modern slavery risk. Turning to Slide 34. I'd like now to turn to our market sector trends, starting at Slide 35. In the upstream and midstream market, we will continue to see CapEx and OpEx investment as production declines from existing fields. Natural gas and oil will continue to play a role in the energy mix, according to the natural energy authority's sustainable development scenario and the net zero emissions by 2050 scenario. And investment is expected and will be needed to meet this demand. Demand for LNG is expected to continue to grow due to the availability of cheap, abundant feedstock and gas and gas' role is the lowest carbon fuel -- fossil fuel. The U.S. will continue to be a dominant LNG producer globally as we move forward. And we're making good progress in our strategic initiative in this market with significant project wins. In the near-term outlook, project sanction is expected to recover this year as the projects delayed due to global economic circumstances are expected to reach FID. Additionally, we saw an increased number of net zero commitments in 2020 from major oil and gas producers around the world, leading to the need for sustainability-related investment for their existing or, in fact, their new investment. Moving to Slide 36. We've included some project case studies in the upstream and midstream sectors to provide you with some insight into a selection of our recent wins. But I don't intend to go through this in detail. So I'll move on to Slide 37. Turning to the power sector. Across all the major regions, the power mix has shifted toward renewables as a result of lockdown measures and depressed electricity demand, lower operating cost and the priority access to the original -- to the grid through regulations. For example, renewables passed fossil fuels as the EU's main source of power for the first time in 2020, which is seen as a landmark moment for the Europe's -- for Europe's power sector. CapEx investment in renewables has remained relatively steady through the pandemic, and a lot of large players have been increasing their forward-looking CapEx spend. We've seen our pipeline for solar and wind projects grow by 25% since November. Opportunities including those in offshore wind, large-scale solar and battery storage projects, both in project delivery as well as O&M. And we're seeing an acceleration in green hydrogen opportunities, projects moving quickly to industrial sizes of 100-megawatt plus. And we're involved in the forefront of these. Moving to Slide 38. This slide highlights some of the case studies to which we are applying our expertise in the power sector. Moving on to Slide 39 in refining and chemicals. The refining industry has started '21 undergoing -- continuing to undergo pressure. Recent financial reporting from refiners indicates they are generally making losses and consequently delaying investment. The only area in the developed world where investments are continuing beyond regulatory or safety-related maintenance investments are in those projects aimed at low-carbon fuels and the -- and as petrochemicals feedstock, recognizing that petrochemicals feedstock is an increasingly important part of the hydrocarbons value chain. The chemicals industry, on the other hand, enters 2021 consistent with market commentary of a V-shaped economic recovery. As an example, both BASF and Dow reported much improved earnings outperforming consensus expectations, with volumes back to 2019 levels and margins approaching 1 year ago levels. In the case of Dow, they further announced a 28% increase in capital expenditures for '21 to USD 1.6 billion. In general, any changes to project announcements are now being based on changes to feedstock costs rather than concerns over future demand. Moving to Slide 40. This slide highlights some of the case studies in the refining and chemical sectors, again, highlighting companies in these industries and how they're shifting to sustainability. We're seeing more of it. Every day, every week, we're seeing increased levels of activity and announcements coming from our customer base. The mining -- moving to Slide 41. The mining, minerals and metals sector has shown continued resilience over 2020 supported by global fiscal stimulus and China's infrastructure investment-led drive. The refined copper supply and demand balance is forecast to move into a decline -- deficit this year, a trend that is anticipated to continue, supporting higher copper prices and incentivizing new investment as we've seen with recent announcement from our customer base. The world's top 40 miners and metals -- mining and metals companies are expected to increase their capital expenditure by around 12% in 2021, led by diversified and copper miners. We continue to see manufacturers take positions in the long-term supply of battery metals, such as lithium and nickel as well as cobalt. And we expect this will increasingly become the norm. We further continue to see an increased focus from our customers on the electrification of their operations and energy source switching as they look to benefit from low-cost renewables and work toward their own emissions reduction commitments. Investments in infrastructure required to electrify mining operations are expected to continue to grow, enabling this transition. Moving on to Slide 42. The slide highlights some case studies of Worley in action in the resources sectors across all the sectors. We're seeing the push toward the adoption of new energy sources, new technologies and applications as companies transition to a low-carbon future. And moving on to Slide 43. Underlying all our market sectors is the shift towards sustainability. And we're well positioned to benefit from this trend as a global leader, delivering knowledge-based project and asset services. Our earnings base is more diversified than ever before across geographies, sectors and customer spend. Today, less than 20% of our revenue is derived from upstream and midstream CapEx with 39% from the chemicals sector. Underpinned by a strong balance sheet and asset-light business model, we're driving for long-term value for our shareholders. I'm now going to hand over to Tom who will talk further on the financial results. Tom, over to you. -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [3] -------------------------------------------------------------------------------- Thanks, Chris. I'll begin by focusing on some of the highlights of the year, starting on Slide 45. It won't surprise anyone to know that I'd like to start with cash. Underlying operating cash generation during the year hit $281 million driven by strong invoicing and collection practices across the business. I'll talk later about how cash generation remains a key focus for the group. Both our aggregated revenue and underlying EBITA were down period-on-period, reflecting the impact of project deferrals and site restrictions, as described by Chris earlier. Our gearing remains well below target range, and leverage is stable at 1.8x. We have strengthened our liquidity position through a strong cash result and securing debt facilities. We've delivered a total of $181 million of ECR synergies on a run rate basis, and we are on track to achieve our target run rate of $190 million by April '21. We have increased our operational cost savings target to $350 million from the previously announced $275 million of annualized savings by June '22 and so far have achieved $286 million of those benefits. I'll now turn to our statutory results on Slide 46. Our statement of financial performance outlines our statutory results. This has been released in the interim financial report lodged with the ASX earlier today. Some points to note are global support costs decreased 13% driven by reductions in most corporate functions, including the removal of legacy ECR function costs. Excluding the impact of FX, our global support costs decreased 22%. Borrowing costs also decreased by around 30%, reflecting the reduction in our net debt and lower rates on that debt. Turning to Slide 47. We report our results excluding the impact of amortization of acquired intangibles to better reflect the operating performance of the company. You'll see references on this basis to EBITA and NPATA throughout the document. After taking into account a number of adjustments, including transition and restructuring costs, we derive an underlying net profit after tax and before amortization of $117 million, down 46% from $216 million in the prior corresponding period. The transition and restructuring costs of $50 million includes a benefit of $41 million from international government subsidies. Consistent with 30 June 2020, these are primarily in Canada with additional subsidies in the U.K. and Singapore. Turning to Slide 48. Here, we have highlighted the statutory and underlying key financials for the half year period. As Chris mentioned, the global economic circumstances, including COVID-19, impacted our statutory and aggregated revenue. We saw a reduction in underlying EBITA due to reduction in volume as well as a change in business mix and FX translation impacts. Our underlying operating cash flow of $281 million stems from strong invoicing and cash collection processes across the group. We are pleased with the DSO position even though it was slightly up over the period. After adjusting for annual leave taken in late December, DSO is definitely heading in the right direction. This is in line with the effort in cash collection and overall debtors reductions seen in the period. Turning to Slide 49. As can be seen from the regional breakdown of results, there was a reduction in revenue across all regions. The Americas margin decrease was primarily driven by U.S. field services. It was impacted by COVID-19 with key sites inaccessible and curtailed customer spending. Margin in EMEA was impacted by volume reductions in Middle East and Africa and the ramp-down of a major project in Central Asia. APAC margin was stable and is higher than other regions due to a higher proportion of professional services work and the type of projects undertaken in the region. As Chris has already mentioned, rate and price changes did not have a material impact on EBITA. Moving to Slide 50. This slide provides a summary of our margins over the past few years on our P&L metrics. We have already covered the margin impacts, but of note is that the group professional services segment margin has remained relatively stable compared with the prior corresponding period. As Chris has mentioned, we've had a higher proportion of revenue from lower-margin construction and fabrication work and have had margin impacts in U.S. field services, combined with the Norway business delivering lower margin because of the nature of projects. The underlying effective tax rate increased to 31% from 26% in the prior period as fixed tax costs had a greater impact due to the reduced profit before taxes. A range of mid- to high-20s is where we see as the more normalized effective tax rate for the business. Moving to Slide 51. Our head count was approximately 48,400 at the end of January, down around 7% from June 2020. Total staff numbers decreased 6% since 30 September, with craft numbers increasing by 9% over the same period. We continue to manage our staff utilization rate on target. Moving to Slide 52. In October 2020, we were confirmed as an eligible issuer for the Bank of England's COVID-19 Corporate Financing Facility for up to GBP 300 million. And our liquidity position has been further strengthened through $281 million underlying operating cash flow. Turning to Slide 53. Our gearing ratio was 18% excluding lease liabilities, well below our target of 25% to 35%. Interest cover has increased to 7.2x while leverage ratio is at 1.8x. Our average maturity of debt is 1.8 years. As I have described previously, we have moved 3 receivables from current to noncurrent and have triggered dispute resolution mechanisms to recover payment from those SOEs. Collection from the fourth SOE has been completed. Our net debt has decreased to $1.2 billion excluding lease liabilities. This is the lowest level of debt since the ECR acquisition. I'll close on Slide 54. Chris mentioned earlier that our actions have set up the business for the future, and I just wanted to emphasize that point. The past number of years has seen a significant transformation of the business. We have simplified the business structure; developed a highly focused and disciplined approach to cash collection; lowered our net debt position; implemented global common systems, including the finance ERP application, which went live in late 2020; and deployed cost saving and synergy initiatives across the business, delivering hundreds of millions of dollars in benefits with more to come. The processes and systems are now in place to maximize the benefits that will flow from a return to top line growth. With that, I'll now pass back to Chris for his closing remarks. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [4] -------------------------------------------------------------------------------- Thanks, Tom. Look, I'd like to make some concluding comments before turning to our outlook statement, which is on Slide 56. The first half of financial year '21 has been challenging for our business, for the world at large. And the global economic circumstances, including the COVID-19 pandemic, have impacted our customers and demand in their end markets. But we've continued to prioritize protecting our people throughout the pandemic. That has been such an important aspect for our leadership to focus on over the last 12 months. The actions we've taken during the period have set the business up for the future. In the half, we've delivered a total of $125 million of annualized savings from our operational savings program and our ECR cost synergies, which will flow into the second half and beyond. We've generated strong operating cash flow, and our net debt is the lowest since the ECR acquisition. Our factored sales pipeline is increasing, and we've recently announced significant sustainability awards, including the one this morning with Occidental Petroleum's 1PointFive. This is a significant award for us. Energy transition and circular economy opportunities in particular are accelerating. And we've seen our factored sales pipeline increase from 11% to 18% in this area since November of last year, as I've shared. So turning to the outlook on Slide 57. As a result of the global economic circumstances, including COVID-19 pandemic, we've seen project deferrals along minimum project cancellations. Customer discussions indicate deferred projects are likely to return as global economic circumstances improve. We believe our strong cash result, cost savings programs and our sustainability pivot have set the business up for the future. To date, we've delivered $286 million of operational savings and increased the target to $350 million by June '22. We're also on track to deliver the $190 million ECR acquisition cost synergy target by April '21. Our diversification will continue to be important as different sectors and regions recover at different rates. Our 12-month factored sales pipeline is increasing, which includes acceleration of sustainability-related opportunities. We expect improved EBITA in the second half of the financial year compared to the first half due to recent project awards as well as the impact of cost reductions implemented in the first half having a full year impact. Our sustainability pivot provides the structural framework for growth. And we're pleased with the level of work and the resulting margins we are winning in line with our strategy. We're seeing sustainability opportunities accelerate across all our sectors, and we are well positioned to capture these opportunities. Thanks for your time. I'd now like to hand back to the operator to moderate our Q&A session. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question comes from Alex Karpos with Goldman Sachs. -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [2] -------------------------------------------------------------------------------- Can you hear me? -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [3] -------------------------------------------------------------------------------- Yes, we can hear you. Yes. -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [4] -------------------------------------------------------------------------------- Perfect. Look, first question on mind, I just want to focus in on margins. I appreciate the incremental color you gave around what's driving the declines. But I guess the big question's what the go-forward looks like. And is there anything structural in the period that you noticed with your customer discussions, maybe if you go segment by segment, that would lead you to believe that the earnings power of this company has changed when we look at a post-COVID world. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [5] -------------------------------------------------------------------------------- Well, look, let me talk with the first part of the question. Look, if we look at the margins on the first half, we shouldn't take this as a proxy for go-forward margins. A couple of things. One is, I've talked about the ratio of our field work to the professional services work. That ratio has shifted as declines have came out. But also, there's a rate at which we can take out cost, which is always going to be slower than the rate at which revenues can come down. But we've taken out a lot of that cost, and we'll see the benefit of it in the second half. So we do expect to see the benefit of the actions that we've taken in the first half run through. In terms of structural shift, look, I think if we looked at the underlying margins coming from the business in the first half, the underlying from each of the sectors, they've not changed. This is what -- the bottom line margin we've seen is not a result of an erosion of the margins we're generating in a project level from the customer. The contractual terms have not in any way shifted in any material fashion. What we're just seeing is an impact of declining revenues in the cost-out program. And the cost-out program, there's a rate at which you can drive change in an organization, drive the cost out. And if you go beyond that, you'll disrupt the very thing you're trying to achieve. And we think we hit the right balance. We went in with $275 million of cost out at the time. We've increased that to $350 million. If you go back to October '18 when we announced the ECR acquisition, we said $130 million. We've delivered $190 million. And so look, we've got a track record of delivering the cost-out programs. But what you're seeing is the impact of just a lag in the 2. But we're not seeing any shift in the underlying margins from the projects. In terms of the structural shift going forward, I think it's really important to emphasize the nature of the project work and the investment going forward. It's not -- when we talk about the energy transition or sustainability, we often -- and many, many people think of offshore wind or onshore wind or solar. Sustainability and the energy transition is far more than that. It's far more complex. If you look at the award we've received today from Occidental's low-carbon venture business, 1PointFive, this is more typical of the complexity associated with delivering projects for our customers, whether it's in the upstream, midstream, refining and chemicals, in the power sector or, in fact, in the mining, minerals and metals sector. And what we're seeing is not just our traditional customers in this space but also emerging customers. And with the advent of automation, we're seeing an ability to bring in different models, alternative commercial models. So I don't see a negative shift structurally in how we pursue or how we generate margins from our customers going forward. And the complexity of many of the projects we're doing in the sustainability space actually offer an opportunity for favorable margin -- more favorable margin rather. I hope that answers your question. -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [6] -------------------------------------------------------------------------------- That's really helpful color. And just so I'm clear on modeling this a little bit, you talked about the incremental synergies delivered in the first half and incremental cost out. So we should be modeling about a $60 million EBIT step-up just from the cost program run rate in the second half half-over-half? -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [7] -------------------------------------------------------------------------------- Tom, do you want to answer that question? -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [8] -------------------------------------------------------------------------------- Yes, thereabouts, Alex. There's document information on Page 63 of the deck. So if you read all the way through to that, you'll get a much better sense of what it means for the second half, Alex. -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [9] -------------------------------------------------------------------------------- Perfect. And one more in mind if I can. You talk about the big step-up in the sustainability pipeline, and I appreciate that color there. Can you give us a sense of the base? I realize that's a percentage of total number. Is there any kind of -- how much of that is growth in the pipeline versus declines in the rest of the pipeline if that makes sense? -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [10] -------------------------------------------------------------------------------- Well, I'm not going to talk about revenue numbers because it could be a proxy to a forecast or guidance. But look, there's -- both are growing, okay? We're seeing recovery. Obviously, you can see from the curve or the graph in the pack that all of that is growing across all of our sectors. But what we're seeing is the proportion of sustainability domain-related opportunities are also increasing. And so if you go to -- I think it's Page 25 in the pack or 23, there's -- you'll see the sustainability demand -- the sustainable domain graph. And if you look at each of those categories, in aggregate, that's what we're referring to as the sustainability domain. And when we're categorizing revenue going forward, it's out of those. So we're seeing both the absolute quantum and the factored pipeline increase and the proportion of sustainability domain-related opportunities within that also grow. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- Your next question is from Richard Johnson with Jefferies. -------------------------------------------------------------------------------- Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [12] -------------------------------------------------------------------------------- Tom, can I just ask a couple of questions on the slides on Pages 12 and 13, please? -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [13] -------------------------------------------------------------------------------- Sure. -------------------------------------------------------------------------------- Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [14] -------------------------------------------------------------------------------- If I start on Page 13, I just want to make sure I understand, well, if you can help me understand exactly what that chart is. Is the sum of those columns, the $1.2 billion at the top of -- the top chart on Page 12, i.e., you're going to get all the $1.2 billion back by the December -- by the end of the December half 2022. Is that right? -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [15] -------------------------------------------------------------------------------- No, they're not the same things. The $1.2 billion on Page 12 is the impact of the revaluation of the works that we do on -- under long-term contracts. The items on Page 13 are things where the work has been deferred from the current period. So it's not about long-term contracts. It's about that much shorter-term contracts and one-off-type opportunities that have been deferred. So that's more a reflection of the fact that there's a difference between the $4.5 billion on Page 12 and the $3.7 billion on Page 5 -- sorry, on Page 12. But the 1.2... -------------------------------------------------------------------------------- Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [16] -------------------------------------------------------------------------------- All right. And then if I think about Page 13 -- yes, carry on. -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [17] -------------------------------------------------------------------------------- The $1.2 billion is purely the revaluation, the approach that we use to value in the backlog our long-term contracts. And when -- we do that based around the work that's been performed over the previous 6 months. And given site restrictions and other things, we effectively revalue that number down. Now that will get revalued up when the economic circumstances recover. Yes. I think you had another question, Richard? -------------------------------------------------------------------------------- Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [18] -------------------------------------------------------------------------------- Got it. So then just to -- yes, I do. So just to clarify, the chart on Page 13 is effectively embedded in the $3.7 billion or the drop from $4.5 billion, correct? -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [19] -------------------------------------------------------------------------------- Correct, correct. Yes. -------------------------------------------------------------------------------- Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [20] -------------------------------------------------------------------------------- On Page 12. -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [21] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [22] -------------------------------------------------------------------------------- Okay. Got it. And then if I think about 13, is there any significant lag between the sort of effective re-award of those contracts and when they translate into revenue? Is there anything that's sort of notable in that regard? -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [23] -------------------------------------------------------------------------------- Not significant, Richard. I mean every project is different. Every contract is different. But there's not a significant lag. I mean this chart is based around our discussions with our customers and when they expect that work to return. And I think the important thing here is the bottom items, 85% of opportunities deferred from H1 '21 is made up of the addition of those bars on Page 13. -------------------------------------------------------------------------------- Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [24] -------------------------------------------------------------------------------- Got it. Great. That's very helpful. And then when I think about the very helpful monthly chart you've got around the head count, I mean would we expect head count to start to rise again on the basis of chart 13? -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [25] -------------------------------------------------------------------------------- Chris? -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [26] -------------------------------------------------------------------------------- Well, look, we manage head count as a direct function of the work that we win and the work that we burn. And look, we will expect obviously, if the booking outstrips the burn rate, then we'll see it increase. But it really depends on the rate of recovery as we -- over the next few months. And I think we're going to see a rate of recovery different in different jurisdictions. You read a lot of the press, and they seem to think in certain jurisdictions that they're seeing a statistically significant downward trend in COVID transmission. But it's going to be a function of the rate of recovery. I read an article just last week. I think it was from one of the firms on the call, JPMorgan, talked about the U.S. being in a steep recovery by the middle of the year. But it's going to vary by region and just vary by how the government and how society sees the recovery and how consumer demand rolls into the confidence for our customers to invest. But yes, we will see -- when we start getting obviously bookings in excess of burn, we will see work levels increase. -------------------------------------------------------------------------------- Richard Johnson, Jefferies LLC, Research Division - Equity Analyst [27] -------------------------------------------------------------------------------- Got it. And then just finally for me just on -- finally, on head count. Tom, could you give me a feel for what proportion of the head count reduction is sort of directly linked towards duplication related to ECR and what's market-related? -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [28] -------------------------------------------------------------------------------- Yes. Let me answer that one. Go on. -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [29] -------------------------------------------------------------------------------- Go ahead. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [30] -------------------------------------------------------------------------------- Yes. Look, there's -- none of this is actually duplication. This is just market-related. So there's no dissynergy. This is just purely as a result of the market came down. We've been working together. I mean we've been one company now for 22 months. So any dissynergy is out the business. And to be honest, because of the emphasis of WorleyParsons being upstream, midstream, really, the emphasis of ECR being chemical and refining, then we're both fairly well positioned in the mining, mineral to metals. There wasn't any real duplication of the kind that would lead to an erosion of opportunity because of overlap. -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [31] -------------------------------------------------------------------------------- Richard, in terms of the business response program and the restructuring, there were about 500 people that came out of the business based around that. So you'll see the vast majority of the changes are, as Chris said, market-related. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [32] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- Your next question comes from Scott Ryall with Rimor Equity Research. -------------------------------------------------------------------------------- Scott Ryall, Rimor Equity Research Pty Ltd - Principal [34] -------------------------------------------------------------------------------- I'm just going to continue on Slides 12 and 13 if that's all right. So can I just confirm -- with respect to the $1.2 billion that you've talked about taking down your backlog under your definition, can I just mathematically say, on an annualized basis, the last 6 months, you effectively did $400 million less work under those contracts than you would have expected previously, which is $1.2 billion divided by 3, so 3 [so 18 months, 3...] -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [35] -------------------------------------------------------------------------------- I need to check the maths, Scott, but your logic makes sense. It's a revaluation across the future 36 months. Yes. Yes, I think that logic makes sense to me. -------------------------------------------------------------------------------- Scott Ryall, Rimor Equity Research Pty Ltd - Principal [36] -------------------------------------------------------------------------------- Okay. Great. And then on Slide 13, I just want to check that I've understood this correctly. It shows quite a sharp award date expectation for February '21, which we're 23 days through and 5 days left. In January, if I just look at your ASX releases, you announced 5 contracts in January. You've announced 2 so far in February. How do I -- in the context of that chart, how do I think about your contract awards? Have you missed out on a lot in February? Or [are those adjusting] for size in looking at the numbers of contracts? -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [37] -------------------------------------------------------------------------------- I think the easiest one -- yes, the announced contracts are a very small proportion of the total contracts that we win. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [38] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [39] -------------------------------------------------------------------------------- So the number of contracts that were awarded in January -- yes. -------------------------------------------------------------------------------- Scott Ryall, Rimor Equity Research Pty Ltd - Principal [40] -------------------------------------------------------------------------------- Got it. (inaudible) award date (inaudible) -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [41] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [42] -------------------------------------------------------------------------------- That's [more like it.] -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [43] -------------------------------------------------------------------------------- Yes, that's right. I think it's -- and that's a really important point. We're winning -- I mean across the world, we're winning hundreds, if not thousands of projects a month, yes? We only announced the ASX, those which meet certain criteria and which obviously, at the larger moment, we'll consider more material contracts, such as the award with Occidental Petroleum's 1PointFive. This is a complex project. It's a Direct Air Capture. It's decarbonization. It's a FEED for 1 unit moving into EPC, and there'll be 4 of them. And this is -- I mean this is a massively complex project, which is right in the wheelhouse of our organization, and it's more typical of what we'll be seeing going forward. And it's announced because it's a materially significant project. But thousands of projects on a monthly basis are booked into the organization that we don't announce. -------------------------------------------------------------------------------- Scott Ryall, Rimor Equity Research Pty Ltd - Principal [44] -------------------------------------------------------------------------------- Okay. So being 23 days into the month and having quite a sharp increase in February, you won your fair share in February according to -- on the basis of that chart on Page 13? -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [45] -------------------------------------------------------------------------------- Yes. We're -- I'm very pleased with the award, especially the one today is it's -- I've been in the -- I've been with the company 23 years. I've been in the business for -- in the sector for over 30 years. This is one of the most exciting awards I've been part of in my career. And if you go to look at Occidental's own release on their media release this morning in Sydney Time, you overlay that on our ASX release, you overlay that on the information that's in the pack today, you'll get an indication, you'll get a better understanding of strategically, just how impactful and how important this opportunity is that we've been awarded. And I think it's another opportunity that cements Worley's leadership role as we move increasingly towards sustainability. -------------------------------------------------------------------------------- Scott Ryall, Rimor Equity Research Pty Ltd - Principal [46] -------------------------------------------------------------------------------- All right. No, that I don't doubt. It's -- I've kind of -- you guys know your engineering behind that more than I do, but that is a very impressive contract. My point was trying to just get a sense of you've painted a very near-term picture around the new award date opportunity deferred from the first half and with a big spike in February, March and April. And given we're mostly through February, I was trying to get a sense of whether you are comfortable that you've won your fair share of those contracts that were deferred from the first half '21. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [47] -------------------------------------------------------------------------------- Yes. Yes, look, you said about painting a rosy picture. Look, we've -- so we get awarded thousands of projects a month. We announced the large ones. We've also -- a lot of this will be backlog. At this time of the year, we're at the end of February, we've got 4 months to close -- projects that we get awarded, some of it will be booked and delivered entirely and burned in the year. Some of it will be booked and burned in large portion this year. And some of it will be booked and only a portion of it burned this year. So it's -- what we've got there is just a profile. But obviously, the book-to-burn ratio will depend on the lifespan of each individual project. And that's obviously the massive amount of variation on that. So what we're trying to show here is just projects have slipped to the right, from half 1 to half 2. And if you look at the fact that the sales pipeline, the reason we put that there is, again, to show the pipeline came down. And then as projects are pushed to the right, you can see the fact that sales pipeline reflect the deferral of investment from our customer base. And we're trying to, look, paint a picture and to communicate, give as much sort of transparency as possible around what the market looks like. Look, the pandemic isn't over. Yes, the pandemic isn't over. And I consider Australia to be in a very fortunate and blessed position given it's -- the way it's been able to manage the impact of the pandemic. But it's in -- I would consider the New Zealand in a unique position. Most -- or many parts of the world over have lived in pretty tough conditions for 12 months now. And so I'd want to leave you with we're ready for recovery. We're seeing deferrals, conversation with our customers say that they're going to come back. But I'm not going to predict economic recovery. There's smarter people than me out there who are better at it and -- than I could ever be, and they still get it wrong. -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [48] -------------------------------------------------------------------------------- And just one thing I'd add to that, Scott, the... -------------------------------------------------------------------------------- Scott Ryall, Rimor Equity Research Pty Ltd - Principal [49] -------------------------------------------------------------------------------- Great -- oh, sorry. -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [50] -------------------------------------------------------------------------------- Yes. I was just going to add one thing, Scott. Many of those deferrals have already been won. So it's not as though we are rebidding work. It's that the customer has awarded us the work, and they have deferred the project, but the project doesn't then go after rebid. So your comment about are we winning that work, in many cases, we've already won it in prior periods. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [51] -------------------------------------------------------------------------------- Yes, that's right. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- Your next question comes from John Purtell with Macquarie Group. -------------------------------------------------------------------------------- John Purtell, Macquarie Research - Analyst [53] -------------------------------------------------------------------------------- Just had a couple of questions, please. Just in terms of thinking about sort of first half, second half skews for the business, is there still a material second half skew both in terms of revenue and margin? There certainly used to be, but it appeared that, that has moderated post-ECR. -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [54] -------------------------------------------------------------------------------- It's moderated, John, but it's still there. And the biggest reason is because of the lower level of activity in July and August compared to other months. And it's a northern summer-related. So it's endemic in our business, which is mostly northern hemisphere-based. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [55] -------------------------------------------------------------------------------- Yes, yes. -------------------------------------------------------------------------------- John Purtell, Macquarie Research - Analyst [56] -------------------------------------------------------------------------------- And the second question, Chris, you've commented on EBITA, but do you expect -- in terms of the second half versus first, do you expect second half revenue to be higher than the first half? And I'm talking about a sort of constant currency basis there. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [57] -------------------------------------------------------------------------------- Tom, do you want to answer this one? Do you want to let me? -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [58] -------------------------------------------------------------------------------- Yes, probably slightly, John. On a constant currency basis, we expect it to be stronger than the first half but probably not to the same extent that we expect EBITA to be stronger because we don't have the benefit of the -- obviously, the lagged cost reductions coming into the second half. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [59] -------------------------------------------------------------------------------- Yes, yes. I think -- and to just bolster what Tom said, we did a great -- the team did a fantastic job of taking cost out. But as I said, there's a rate that you go beyond taking cost out, you'll disrupt your business and start compromising the quality of what we do for our customers. But all that great work in the first half is going to benefit the second half, and that will improve. We're showing that we believe that will improve margins in the second half of the year. -------------------------------------------------------------------------------- John Purtell, Macquarie Research - Analyst [60] -------------------------------------------------------------------------------- And sorry, just to follow up there, that revenue, so part of that's seasonal and part of that's some of these awards that you're flagging here. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [61] -------------------------------------------------------------------------------- That's right, yes. -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [62] -------------------------------------------------------------------------------- Correct, correct. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [63] -------------------------------------------------------------------------------- Correct, John. -------------------------------------------------------------------------------- Operator [64] -------------------------------------------------------------------------------- Your next question comes from Nathan Reilly with UBS. -------------------------------------------------------------------------------- Nathan Reilly, UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials [65] -------------------------------------------------------------------------------- I'm just trying to reconcile, I think it's Slides 20 and 22 and also 63. I'm not sure if that's possible, but I guess what I'm trying to work out here in the end is with respect to your second half earnings growth outlook, can you just try and help me bridge that out from the first half result? For instance, what are the incremental cost out and synergy benefits that you're going to realize during the half based on the savings that you've already banked? -------------------------------------------------------------------------------- Thomas F. Honan, Worley Limited - CFO [66] -------------------------------------------------------------------------------- Yes. I think if you look at Page 63, the information is all there, Nathan. So rather than sort of laboring through a reconciliation process, we'll come back to you after the call. We're getting close to the end of the call, I think. But it's all there on Page 63. -------------------------------------------------------------------------------- Nathan Reilly, UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials [67] -------------------------------------------------------------------------------- Got it, okay. Yes, no worries. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [68] -------------------------------------------------------------------------------- What we've just... -------------------------------------------------------------------------------- Nathan Reilly, UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials [69] -------------------------------------------------------------------------------- And then just with respect to the upgraded -- sorry, you go. -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [70] -------------------------------------------------------------------------------- Yes. Look, well, I was just going to say, what we've tried to do in the pack is be as transparent, as open as possible to help you understand and sort of what your analysis and understanding of the business. And so you'll see at the back, we've put a lot more information than what has been in the core of the presentation that we've talked about. And so -- but obviously, anything beyond that, as Tom said, we can -- we'll answer questions. -------------------------------------------------------------------------------- Nathan Reilly, UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials [71] -------------------------------------------------------------------------------- Yes. No, I appreciate the additional disclosure. Just want to make sure that we're interpreting that correctly. So I'll follow up after the call. But with respect to the upgraded $350 million operational savings target, Chris, how should we think about that program? And I guess the point is, how much of that target is effectively cost base rightsizing to match your lower revenues versus permanent cost savings that should boost operating leverage in a revenue growth environment going forward? -------------------------------------------------------------------------------- Robert Christopher Ashton, Worley Limited - MD, CEO & Director [72] -------------------------------------------------------------------------------- Well, if we look at the -- where we are now, the $286 million to the $350 million, it's really the balance is about moving to an increased level of shared services. So we've got an incredible capability and capacity in India for the technical delivery of our work. And what we want to do is replicate that on all the functions, so HR, finance, assurance. So when we do that, when we deliver that, that will be out -- that cost will be out permanently. Yes. So when we're looking at the $350 million, this is a long-term commitment to take that cost out. Now what we factored into that, there will be some things that will return. We've talked about travel as an example. We know in a post-COVID world, people are going to begin the travel. But we've already taken that into account. So the $350 million is a number we're comfortable committing to, that you can put into your model in terms of long-term cost out. -------------------------------------------------------------------------------- Operator [73] -------------------------------------------------------------------------------- There are no further questions at this time. And that does conclude our conference for today. Thank you for participating. You may now disconnect.