Earnings Transcript for WOR.AX - Q2 Fiscal Year 2020

Operator: Ladies and gentlemen, thank you for standing by and welcome to the Worley Half Year Results briefing. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I'd now like to hand the conference over to your speaker today, CEO and Managing Director, Chris Ashton. Thank you, sir. Please go ahead.

Chris Ashton: Good morning, welcome and thank you for joining Worley's interim results presentation for the half year ended 31 December, 2019. Today is my first official day as the CEO of Worley and I'm proud to lead the team of approximately 59,000 people supporting the delivery of vital energy, chemicals and resource infrastructure around the world. Worley is a company with resources and technical and financial strength to help our customers succeed in this time of rapid change and I'm looking forward to helping the Company reach its full potential. The results presented today include for the first time a full six months of financials from the recently integrated Jacobs ECR business. Today, Tom and I will take you through our results and provide an outlook for the Company. I will start with an overview of the numbers and the sector update with a focus on the energy transition, and then Tom will go through the financials. I'll also then provide an update on the integration and some closing comments. Andrew Woods is also in the room today and available to answer any questions at the end of the presentation. Turning to Slide 2, I'll just remind you of the disclaimer that shown. Onto Slide 3, during the last six months, we've seen the benefits of the ECR acquisition coming into our numbers. Our aggregated revenue was increased to 134% to almost $6 billion for the half while our EBITA has improved 126% to $366 million. Underlying cash flow was $277 million, up significantly from $21 million in the prior corresponding period. The balance sheet remains strong with gearing flats at 21.3%, compared to June '19 and leverage at 2 times. The integration of ECR business is substantially complete with the remaining activities to be delivered from within the operations. Today, we are pleased to report our cost synergies targets is increasing to a $175 million within 30 months post completion, which was April, 2019. Identified margin and revenue synergies are also being delivered. The safety of our people remains our priority and we've maintained our industry-leading performance. On the back of this result, the Board has declared an interim dividend of $0.25 per share. In summary, we've delivered on our strategic and operational objectives and we will continue to focus on delivering the integration benefits and accelerate our transformation as a leader in the energy, chemicals and resource sectors. Moving to Slide 4, there are many key achievements this half. We've delivered double-digit revenue growth in the base business and on a pro forma basis to the prior corresponding period. We've delivered increase in both underlying EBITA and NPATA from the prior corresponding period. The balance sheet remains strong, supported by strong cash flows from improved cash collection across the Group. Our business has mix shifted with increased construction revenue from North America while our consistency of earnings has improved through diversification of OpEx and larger contribution from chemicals. Our DSO has improved by 10 days over the past 12 months and our backlog continues to increase. Our cost to margin and revenue synergies have been delivered, while our cost synergy target was shared as increased to $175 million to be delivered within 30 months post completion. We now have common systems and processes in place for safety, sales and operations. We are at the forefront of delivering projects that provide solutions to our customers during the energy transition. Our investments in offshore winds and distributed networks further strengthen our ability support our customers and our businesses well positioned to pursue the opportunities for the growth that the energy transition provides. Moving to Slide 5, we have a short history of a half on half performance in terms of aggregated revenue, EBITA and also with pro forma numbers for the FY '19 half shown the impact of the ECR acquisition. Aggregated revenue has increased approximately 20% from pro form half year '19 and reflects the achievement of revenue synergies and organic growth across the lines of business. EBITA is up 9% from pro forma half year '19, reflecting an increase revenue mix from fabrication and our integrated solutions business. The positive impact of diversification into OpEx contracts and the chemical sector has delivered increase resilience in earnings, and we're delivering on our cost synergy commitment. Moving to Slide 6, our backlog position has continued to improve over the last six months. Backlog continues with stronger contributions to integrate solutions with some large wins in Europe. We provide further details on sector and retail backlog details on Slides 51 and 52. Turning to Slide 7, this slide highlights the outcome of our strategy over the last three years to increase earnings diversity and resilience to growth in OpEx base contracts and increased sector mix. In terms of business mix, represented by the top graph, the Company has increased the proportion of OpEx-driven contracts from around 10% of the business to now 45% in the first half of FY 2020. We've made these changes without any shift in our risk profile. We continue to have approximately 80% of our revenue from reimbursable contracts with 20% from lump sum services and construction. We are not a lump sum turnkey contractor. In terms of revenue split by sector, we have bounced the contribution from the energy sector moving it from 78% of earnings in the past to 47% in the latest results due to the growth in revenue from the chemical sector. In terms of regional mix North America and Europe now contribution over 70% of aggregated revenue. Moving to Slide 8, I will now talk about some of the highlights and our health and safety performance. Key performance indicators suggested our safety performance remains one of the best in the industry. Our total recordable case frequency rate for the six months for both employees and contractors has slightly increased when compared to June '19. We continue our focus on field health and safety. We remain vigilant, and going forward, our priorities for FY '20 include embedding life, our safety and well-being approach, which are common benchmarks across industries. To implement standard life saving rules across the business and implement our harmonized health and safety processes. Turning to Slide 9, we take responsible and sustainable approach to our business and I've been recognized as one of the top 20 ASX companies for reporting on the United Nations' Sustainable Development Goals. We're aligning with the global initiatives consistent with our sustainability ambitions such as the Task Force for Climate-Related Financial Disclosure, and Building Responsibly, which supports worker welfare principles, in addition to our long-standing support for the United Nations Global Compact and Sustainable Development Goals. Further detail will be provided in our FY 2020 annual report and separate sustainability report later this year. All these technical and project delivery expertise are essential to deliver the projects and infrastructure necessary to de-carbonize the energy system and this is where we can make the biggest contribution to sustainability. Moving on to Slide 10, I'll now provide a sector and energy transmit update moving on to Slide 11. So on Slide 11, I'd like to start by addressing the energy transition we are witnessing around the world including here in Australia. The dual challenge of supplying energy to a growing population while addressing the risk of climate change is one of the greatest challenges in the world is facing today. As the largest global engineering and project delivery company in the energy sector, we certainly have a significant role to play. Today we've been involved in all aspects of the energy transition. We've assisted our customers throughout the world by increasing the delivery of electrification and the delinking of energy growth from GDP growth, to energy efficiency, fuel switching and renewables. Our experience and expertise supports industry and governments, both naturally and globally, in implementing carbon replacement systems in their decarbonization initiatives, delivering on community expectations of dealing with climate change. This Slide 11 demonstrates the depth and breadth of our energy transition experience and expertise. New energy is not new the Worley. We have delivered over 1,500 new energy projects globally, ranging from over 290 solar projects including the world's largest concentrated solar project in Dubai over 420 onshore and offshore wind projects including Africa's largest wind farm, where we erected 365 turbans in 362 days. We are world leader in the emerging hydrogen economy. We also have world leading expertise in hydroelectric and nuclear programs. Turning to Slide 12, while we have a strong track record and established technologies, we are also an active participant in new and emerging technologies. Worley is undertaking some of the world firsts in areas such as integrating green hydrogen production into an operating facility in Australia, and Europe screw first green aviation fuel refinery, which will convert household waste into clean burning sustainable fuels, the aviation and road transport. We're delivering this project in partnership with Velocys, a leading clean fuels technology provider and we will see a 70% reduction in greenhouse gas emissions compared to the regular aviation fuel. Turning to Slide 13, the next few slides take a deeper look at each of our sectors, specifically addressing the market outlook and energy transition opportunities. Looking at upstream and midstream hydrocarbons on Slide 13, investment is growing as depicted in the chart on the right. Gas is the transition fuel that's the fastest growing fossil fuel and the set to become the main fuel in the global energy mixed by the mid 2030s. Asia accounts for half the global growth and gas demand and this is fueling the investment cycle in LNG, estimated a 215 billion by 2025 as you can see on the chart to the left. To support the growth in LNG and coal to gas switching opportunities exists in our pipeline business particularly in North America and Asia, which accounts for almost 50% of global spending. Oil still has a role to play with growth expected in selected areas including U.S. shale, Middle East and Deepwater. We are well positioned in all three growth areas. In U.S. shale, we are seeing the customer mix change with the increased participation of the majors. Our internal capabilities have changed with ECR industrial water and blue-collar delivery offering. In terms of the energy transition in this sector, we are seeing significant opportunity and supporting customers to decarbonize and reduce carbon intensity, and we are doing this in many ways including carbon capture, use and storage technology, electrification of facilities with renewable energy and the development of processes to minimize fugitive emissions. Turning to the refining and chemicals this on Slides 14, the sector has experienced major market shifts as you can see in these two charts. Demand for refined products is moving towards emerging economies. This is opening new opportunity in the Middle East and Asia and new builds brownfield expansions as well as the integrated refining and petrochemicals to chemicals facilities as customers seek to diversify that traditional portfolio by value-adding that crude reserves and taking greater control of the supply chain. As the demand for petrochemicals continues to grow, even in the Paris-aligned scenarios, we are seeing significant opportunity in the production of biofuels, natural gas liquids and other lighter feed stocks requires to fuel the industry. In chemicals, growth has being driven by increasing population and urbanization led by China with specialty chemicals expecting rapid growth. The energy transition is driving emissions regulations, presenting significant opportunities in low sulfur, low carbon fuels including renewable diesel. The circular economy is emerging opportunity in plastic recycling and we are defining technology roles, building on a long history of waste-to-energy experience. Turning to Slide 15, resources which captures mining, minerals and metals as well as our resource infrastructure work. We are seeing strong customer cash flows with investors confidence returning across almost all commodities with a strong outlook to base metals and both commodities. As a result of the emissions targets, customers are seeking to reduce energy intensity by electrifying minds and pairing with renewables. The energy transition is also causing increased demand for energy transition commodities such as lithium and cobalt. We're also seeing emerging opportunities in technologies delivering improved efficiencies. One example of this is NextOre. NextOre is an innovative at mine and mineral sorting and processing technology that rejects large volumes of waste rock before entering the plant, significantly reducing the amount of energy and water needed for processing. This technology is unlocking complex ore bodies and transforming the economics of mine assets. Moving to our power sector on Slide 16, as the world continues to electrify we are seeing shifts in power investment, particularly towards renewable, but also across all low carbon technologies. Coal plants are in decline, while announcements of new gas pipelines are slowing. Offshore wind technology has experienced high growth and demand and power networks require significant investment to respond to the change in loads and supply partners. If the line target to be changed global investments into our energy mix, these to increase by over 50% by 2040 and means the annual investment of $3.2 trillion. Several technologies including distributed energy, systems renewable energy with storage integration, nuclear, green hydrogen and carbon capture utilization and storage will play an increasingly important role in decarbonizing the energy mix. Our power business is deliberately focusing growth areas of high complexity with low risk of commoditization. I would now like to turn to some of the recent corporate moves we've made starting with the acquisition of 3sun Group on Slide 17. This acquisition strength us strategic presence in the sector and broadens our role in the energy transition. 3sun is a UK based installation inspection and maintenance specialist in the offshore wind sector as a great fits with Worley onshore maintenance modifications and off shore business providing entry into the world's largest wind market in Europe. It will also help accelerate growth in the emerging markets of North America and Asia Pacific. 3sun has existing customer relationships and projects with all the leading OEM managers such as Siemens, Gamesa and Vestas and embeds data analytics capability to enhance optimization of ONM adding greater value to our customers. Turning to Slide 18, during the period, we ended into a U.S.-based joint venture with XENDEE called VECKTA, a distributed energy and micro grids and storage business. This allows us to assess, design and deploy micro grids and distributed energy systems. VECKTA has the capability to link core energy configuration digital platforms with equipment, finance and project delivery services. It's a key value proposition and is an industry leading decision platform that allows us to access and design, optimize energy systems up to 90% faster than traditional methods. In that sense, it gives us access to distributed energy systems that reduce emissions, improve power quality and availability as well as reducing costs. Turning to Slide 19, before I hand over to Tom, I want to leave with two slides that capture our leadership role in the energy transition. From a global perspective, we are actively involved in energy transition projects in every region supporting customers in all sectors we serve. One example is the work being commence on the conversion of a refinery in the U.S. from crude oil feedstock to an organically derived feedstock, making it 100% renewable diesel operation. There are many more examples where we have capability across all major aspects of the energy spectrum that drives the transition to our energy future. We can and currently do bring that expertise back to Australia across a wide number of projects. Turning to Slide 20 and our home of Australia from where we launched the business for almost four decades ago. We have supported customers in all aspects of the energy transition with major roles in well over $100 billion of energy and resource investment. Worley without joint venture partner operates and maintains a third of Australia's existing power generation fleet and three critical gas pipelines. We are the largest operator of wind farms in Australia. We are supporting our government navigating its pathway to water hydrogen economy and the leaders in the deployment of the decarbonization technologies. We have proud of this role in helping us for the Australian industry as Australia's largest exporter of high value services. We are a major conduit for Australian businesses into the international markets enabling growth for hundreds of registers Australia businesses. I'm now going to hand over the Tom, who will run through the financials in more detail.

Tom Honan: Thanks Chris. Before I start on the financials, I should congratulate you Chris, on your appointment today as CEO of this great company. I'll begin by focusing on our statutory financials. On Slide 22 is the statement of financial performance outlining our statutory results. This has been released in the financial report lodged with the ASX earlier today. A few points to note, as statutory revenue is increased across all major lines of business and the statutory bottom line result increased significantly this year as a result of the addition of ECR for the full six months as well as improved underlying performance. Moving to Slide 23, consistent with what we did at full year, we have moved to reporting our results excluding the impact of amortization of acquiring intangibles so is to better reflect the operating performance of the Company. You'll see quite a few references on this basis to EBITA and NPATA throughout the document. So after taking into account a number of adjustments, which are mostly focused on transaction and integration costs of paying $1 million and the amortization of intangibles at $53 million, we derived an underlying net profit after tax and before amortization or NPATA of $216 million up a 110% from $103 million in the prior corresponding period. On Slide 24, we have highlighted both the statutory and underlying key financials for the first half of 2020. We achieved improvement in revenue due to six months contribution from ECR in addition to improved market conditions. Not surprisingly due to the same reasons, our EBITDA and NPATA results also improved. At the underlying level, our NPATA margins declined slightly reflecting the change in revenue mix for procurement and also North American construction revenue, mostly due to the proportion of these items coming from the ECR acquisition. The effective tax rate increased from 22% to 25% compared to the PCP, reflecting the higher proportion of earnings coming from relatively high tax jurisdictions like the USA, Canada and Western Europe. We see this level continuing as a greater proportion of earnings comes from these parts of the world. Our underlying operating cash flow was $277 million is up significantly from last year and of course reflects the contributions from ECR. However, I would note that there has been real improvement in cash collections and a pleasing reduction that Chris has talked about n DSO. I'm sure this is not unrelated to the point I made earlier about the higher proportion of earnings coming from USA, Canada and Western Europe. These comparisons are the statutory or underlying PCP results for WorleyParsons. Many of you will have seen the announcement of pro forma results for FY '19 published recently. Compared to the pro forma, revenue was up 20% and EBITDA increased 9%. Revenue unique drove the differences in these percentages, consistent with the differences between reported results. Slide 25 provides further analysis to demonstrate how the underline business is performing versus the pro forma. This slide provides transparency around the fact is causing our earnings to increase across the two recent halves. Firstly, we have shown the impact of synergies on this half. You will note that $6 million of benefits were already living in FY '19 and a half year run rate of those benefits is $22 million. Later, Chris will present the annualized impact of FY '19 synergies as being $43 million. With rounding, this is twice the six monthly run rate of $23 million. The benefits from actions delivered in the most recent half is $14 million. Chris will talk later about the annualized run rate of these actions being $56 million, but the impact on the first half of FY '20 was $14 million. Next you will not the impact in the current period from actions relating to the historic SOE receivables. These are either provisions taken or legal expenses incurred in pursuing the three remaining SOE receivables. Give the expenses relating to historic receivables issues, we believed it was important to separate them from the in-period business growth. To assist the reader, we have also estimated the impact of seasonality on earnings. This estimate is only based on the most recent view of our earnings mix and shouldn't be used as some form of longer term proxy for overall Worley seasonality. As can be seen on the slide, business growth was around 7.5%. However, that growth plans to over 15% of synergies are included. As I said earlier, Chris will provide further details on synergies later in the presentation. Moving on to Slide 26, overall aggregated revenue was up by 134% for the period, which was driven by reporting six months of the ACI business in addition to broader improvement. Segment incomes were up against all lines of business. The strong increase across major projects in integrated solutions reflects the strong underlying performance and six months of the ECR acquisition. Margins improved in ECS services, the MMM segment and Advisian. The MPIS margin was impacted by increased volume of lower margin construction revenue in North America as well as increased procurement activity. Moving to slide 27, our headcount is approximately 59,000 users in over 50 countries. We spoke of the announcement of the transaction about the increased level of construction fabrication and OpEx space work demonstrated by craft labor, which is now at 11,800 people. We continue to manage our staff utilization rate on target. The target is increased slightly post ECR due to the increased exposure to high utilization construction, fabrication and our OpEx base work. On the announcement of ECR transition, we talked about increasing our corporate wide utilization targets, after the first eight months of combined operations and given the level of mainly North American base construction and fabrication activity, we are looking at whether we need to further increase that target. Slide 28 provides a summary of the progress over the past few years on our P&L matrix. Despite declining in EBITDA margin reflects the increased mix of revenue from lower margins fabrication and integrated solutions as to the acquisition models. The NPATA margin was also impacted by a higher effective tax rates outlined earlier. I'll now discuss capital management starting on Slide 30. On Slide 28, I spoke of the movement in key P&L metrics over the past few years. Slide 30 performs a similar function for our key balance sheet metrics. This slide presents a number of key parameters of cash flow, net debt gearing and leverage. The main take out of this slide is the improvement in leveraging gearing over the past couple of years, delivering a strong balance sheet even while we invested in over $4.9 billion in acquisitions. Traditionally, the businesses perform much better on test matrix in the second half. I'm pleased to report that the first half of the FY 20 has not followed the trend. In fact, the first full half of the combined business cash flow has been excellent $277 billion of underlying cash flow from the business is the only expectations we set for ourselves at the end of the period. There is no breakthrough practice or technology involved just good old fashioned hard work. Firstly, for our teams to deliver quality work, then invoice accurately and on time, and finally to follow up and collect the cash. The improvements in these practices since the time that business has came together is a credit to all those involved. Ne debt of the cabinet basis remained flat at 1.6 billion. The increase in statures unit debt is driven by the implementation of double A 16. I'm very pleased to report stable balance sheet matrix of gearing at 21.3% and net debt to EBITA of 2 times. Turning to Slide 31, a gearing ratio at period end calculated on the net debt to net debt plus equity basis was 21.3%, flat on the previous period, well below our target of 25% to 35%. Interest covers declined to 8.5 times, while leverage ratio as I said is reasonably stable at 2.0 times. Our average maturity of debt is 2.8 years. We are currently examining various longer-term debt options given movements in longer-term debt yields plus the greatest stability in our earnings post acquisition. As described earlier, DSO improved in the period. Three SOE receivables remained on tariff following the trigger of dispute resolution mechanisms, collections from the fourth SOE continues with 65% already collected and that's in line with our expectations. Moving to Slide 32, as I previously mentioned that our debt facility completed in February, 2019 had improved terms to the previous facility agreement, the facility consists of $500 million multi-currency revolving facility and $800 million term loan maturing at February 2024. We have secured additional bilateral facilities of U.S. $175 million for working capital and to further improve liquidity. I'll now hand back to Chris Ashton.

Chris Ashton: Thanks Tom. Look, I'll now provide an update on the ECR acquisition before providing some concluding remarks. So just moving on to Slide 34, I'm happy to say that we're on track and the integration is largely complete. The remaining activities now form part of normal operations. In terms of achievements, we now have a common global platform in place for safety, sales and operations with financial systems in progress. Our cost synergy you target up from $150 million to $175 million over 30 months post-acquisition period. GID utilization is growing in line with the expectations and revenue synergies are being realized in line with the acquisition business case. The organizational and functional structure is running smoothly and as a result of this good progress, we are now shifting our focus to accelerating our transformation. Turning to Slide 35, we are pleased to have achieved some important milestones and working as one organization on common platforms. We are now all on the single sales platform, CSP, which was successfully launched in January this year. We have a new safety, well-being approach, life, under single knowledge and management system, which defines on new ways of working to better support projects and operations. Our back office system integration is on track and we will have to finance ARP expenses and core HR applications in place by September. Looking at the cost synergies on Slide 36, we will deliver as we committed $150 million by two years post-acquisition completion. We now expect to progress to deliver $175 million within a 30 month period from the acquisition completion. This is a $45 million high number than our initial synergy estimates at the time of acquisition announcement. This increase comes from a broad review of the cost synergies with the three main focus continues to be IT, property and G&A all overhead rationalization. We've already delivered an annualized run rate of $99 million as at the end of December, 2019. For IT, this includes infrastructure rationalization and scale benefits in our significant software expenditure. In property, it includes co-locating the single offices where we have multiple operations such as Houston, Perth, Singapore and Santiago, to name but a few. Overhead savings are within the operational function areas where we can get more efficiency servicing the operations for IT, finance, Admin and HR. The estimated one off costs associated with delivering the synergy targets are approximately 125 million with an additional 15 million of CapEx. They're all modernization cost of 40 million plus about 35 million of CapEx. On Slide 37 to 42, we have provided examples of some of the revenue synergies that we've been not have been identified secured. I'm not going to go into these slides in detail other than to say they provide great examples across all our segments where two companies have come together as one and develop opportunities which could not have been available without the acquisition taking place. On Slide 35 we've provided an example in the ECS segments where we secured a three year contracts to provide technical services with Amano oil refineries and petroleum industries company one of the largest and rapidly growing Middle Eastern oil businesses. We were able to leverage off Worley -- the Worley relationship and bring ECR expertise in to secure that contract. Slide 38 is another example in the ECS segment where we secured a five year agreement to the Sasol Secunda Synfuels facility. In this example, we were able to leverage both sides of the relationship with sessile to secure this five year contract. Slide 39 is an example of an ECS contract for the pre-commissioning commissioning startup support services for the YCI methanol one plant in Louisiana. We were able to leverage Worley's long-term relationship with YCI and ECR's local knowledge and plant commissioning track records. On Slide 40, we have an example of a revenue synergy with the combined expertise from MPIs and DCS segments. We will collaborate on delivering services to all Neptune energy offshore assets in the Netherlands. Worley brought the offshore relationship with Neptune while ECR brought its presence in the Netherlands for the table. Slide 41 is an example where our MMM business secured a two year feasibility study of Worley most important brownfield nickel ore bodies. ECR brought its long-term relationship with Vale and its underground mining expertise while Worley undertaking capital works for Worley previously. Combined, we bring expertise and experience into developing underground projects in North America, particularly in challenging brownfield environments. Moving to Slide 42 while our focus has been and continues to be on delivering the benefits of the ECR acquisition through realizing cost, margin and revenue synergies, the integration has substantially complete with the remaining activities being delivered as part of normal operations. We will now shift into accelerating our transformation. Our transformation strategy encompasses the following key aspects enhancing the Company's leadership position in energy, chemicals, and resource. To do this, we will work with our customers and stakeholders both in Australia and around the world as they navigate to a period of change. Capturing the opportunities presented by the global energy transition and by changing the way we operate, by leveraging automation into existing and new delivery models and the development and deployment of digital products. We will do this by working with our customers using new commercial models which reflect the changes and offerings and technologies of the future. Details of the transformation strategy for the business will be provided at Investor day later this year. I would now like to make some concluding comments before turning to outlook starting on slide 44. I believe we've made some significant progress with the acquisition and integration of ECR and delivered strong results for the integrated business. Our revenues were up 134% and EBITA is up 126% and NPATA up 110%. We now have a more consistent and resilient earnings profile through the increased OpEx and contribution from the chemical sector. We delivered improved cash flow, our balance sheet is strong, our backlog is increased and the integration on track and nearing completion. The cost synergy has being delivered and we see further upside with the target of $175 million within 30 months, where an industry leader on a global scale and energy chemicals and resource sector and they're delivering solutions for our customers during this period of change. We are well positioned to deliver on the opportunities the energy transition, and we have a critical role to play in the future, supporting our customers in governance both nationally and globally and delivering on their energy transition goals. Moving to Slide 45, in terms of group outlook, the energy chemicals and resource market indicators, and growth and backlog provide evidence of continuous strength in our market conditions. The energy transition provides expanded opportunities for growth. As a result of the ECR acquisition, we have enhanced the diversity and resilience of our earnings and volumes, the global technical and financial strength support its energy, chemicals and resource customers as they navigate a changing world. We continue to deliver the benefits of the acquisition of ECR including the realization of cost, margin and revenue synergies. Thank you for your time. I would now like to open for questions.

Operator: [Operator Instructions] Our first question comes from James Byrne from Citi.

James Byrne: Chris, congratulations on the appointment to CEO. Now I presume that you would have presented to the board when I elected you as CEO and I'm wondering if you would mind sharing with us your -- effectively, your strategy. I presume that there's not going to be material differences in how you intend to run the business?

Chris Ashton: Well, I think that's -- look, obviously, the details of the board, what I can share is that, no, there's not going to be any right turn on strategy. What I've outlined here and what I've talked about it at the half year result or the full year results, in fact, what I talked about Investor Day, when I presented last year. The energy transition presents a huge opportunity for us and the energy transition is going to touch every aspect of our business, every sector, the energy, the chemicals and the resource sector. If you also look at the digital, the nature of the digital disruption that the world is facing across every aspect of our lives, not just the industries and sectors and geographies within which we work. I think those two are a fundamental or more fundamental to what I shared into the Investor Day and remain fundamental to our strategy going forward.

James Byrne: Yes, all right. Slide 25, the SOE receivables. Would I be right in assuming that the majority of the $18 million there is provision?

Tom Honan: That's about half and half James.

James Byrne: Half and half, got it, all right. Now, I presume that the provisioning there is just a requirement under accounting as opposed to a reflection of not expecting to collect the remaining receivables. Is that interpretation correct?

Tom Honan: I wouldn't divorce the two concepts James. I think accounting should follow our expectation. And so I wouldn't say it's driven by one or the other. I think both things will drive us towards that conclusion.

James Byrne: Now, if you were to be successful in getting the receivables over how long of a timeframe, should we anticipate that to occur?

Tom Honan: Well, the fact that we've classified them a noncurrent would suggest that we're not optimistic over next 12 months.

James Byrne: And lastly, there's been a 33 million increase in the share based payments and I presume that that's just a reflection of the acquisition, but is it a sort of sustainable run right going forward that you would anticipate? I think it was $40.5 million.

Tom Honan: The answer to the first, the asset you gave at firstly about it's been a reflection of the acquisition is correct. I wouldn't give an outlook statement on the particular line in the P&L, but there were cost that we needed to incur to bring the ACI leadership, the previous leadership that had been within Jacob ECR into the Worley programs.

Operator: Our next question comes from Richard Johnson from Jefferies. Please go ahead.

Richard Johnson: Just following on first of the previous questions. Chris, I was now going to ask pretty much the same question, but it will be in a different way. Given that your focus up to now must have been almost entirely on the integration of the ECR and you presumably you are going to take a bit of a step back and look at the business in a more holistic manner. I was just really wondering what's on your immediate to do list?

Chris Ashton: Well, since I took on the role of COO in October '18, my focus has been both on the integration planning and then the implementation, but also on the transformation strategy. So, I've been working with the leadership team over the last sort of 18 months on both of them. Yes, a lot of the emphasis has been on integration planning on the integration implementation, but not a small amount has been based on the transformational strategy. So, it's really now, it's about shifting the emphasis now about the integration is substantially complete. It's now moving to finalizing the aspects of the transformational strategy, which we will share the details albeit at Investor Day.

Richard Johnson: So, you're confident that strategy is positioned the business to exploit the energy transition opportunities that you've talked about?

Chris Ashton: Yes, I think here we have -- we'll share more at Investor Day, but I think we have a solid strategy, a sound strategy to allow a company of our size, geographic spread technical, breadth and depth to take full advantage of the opportunities that the energy transition presents, in all of our sectors, not one of our sectors is going to remain untouched by the energy transition. And I'm actually really looking forward to Investor Day sharing with everyone what that's going to look like.

Richard Johnson: And how much exposure if any of you had to major shareholder?

Chris Ashton: I've met them, I've met them both here and in Sydney and in the Middle East.

Richard Johnson: And then, Tom, I was just thinking about the mix of the business and the way it's changed obviously post ECR and wondering whether the capital structure of the business at all needs to be any different to the way we would have thought about it historically?

Tom Honan: I think if you think -- Richard, if you think about tax rate being high because of our exposure in to less risky markets. If you look at our growth in OpEx related revenue, also reduces the risk. That does lead you down that track. We haven't certainly any kind of loan-term discussions about that, but it's only agenda, Richard.

Operator: Next question comes from Rohan Sundram from MST. Please go ahead.

Rohan Sundram: Good morning guys. Thanks for the questions. I might just start with a comment on coronavirus. I'm not sure if there was one in the release, sorry if I missed it. But can you just talk about how the -- well any potentially impact or how you're seeing it's so far or whether there's no impact?

Chris Ashton: Well, it's interesting. I mean, it's an evolving situation. What I can say is that, we're not seeing any material impact on our business at the moment. Obviously, there are some travel restrictions that everyone's aware of. But if you look at a lot of what we do, the service nature of what we do, working remotely, we're able to adapt a pretty readily to a situation should it worsen from herein. We actually have a team what we call our R3, ready to response recovery team, who is set up for understanding how to manage and respond to these kinds of events. So, look, we're monitoring it. There is some -- obviously, we are subject to some travel restrictions, but we're not seeing any material impact currently.

Rohan Sundram: Okay. Thanks, Chris. Just to confirm, do you not do any fabrication work out of China? Just pardon my ignorance on that.

Chris Ashton: No, no, we don't do any fabrication in China. Certainly, not that we, we may be involved with fabrication sites of, but we don't do any fabrication in China directly.

Rohan Sundram: Thank you. Thanks for that. And just finally, just in general, how are you seeing the customer CapEx environment? We've been through a round of all major CapEx guidance in and it looked benign. How did you see that around it? How you just seeing the customer CapEx space at the moment?

Chris Ashton: I think the customers are, obviously continue to spend. Now, what they're having to do is to understand where that spend goes. The energy transition is at rate, which they bring in the energy transition and that capital deployment strategies is what we're seeing. So, all the customers we have been in the space with even just up until a few weeks ago, before I came down with the Sydney very much focused on understanding what that means to that plan, so not seeing any major impact.

Rohan Sundram: Okay. Is delay or just slow a decision-making an issue at all? Or is the pipelines just continuous?

Chris Ashton: Nope. Well, we're so diverse, but not seeing any material slow down in the pipeline.

Operator: Next question comes from John Cuttle from Macquarie. Please go ahead.

John Cuttle: Just picking up a couple of those questions, I mean, just in terms of -- and you may have said -- already covered some of these, but just trying to get a sense of where, I guess, you're particularly saying the pockets of strengths at the moment and I know you talked about the Middle East before. What you're seeing in markets like Canada? And also on the chemical side, what you're saying there and there appears to be a bit of a slow down on the North American side, but a lot of strengths on the Middle East side?

Chris Ashton: I think on the Canada side we continue to see spend. On the CapEx and the OpEx side, not seeing any -- some significant pipeline work going on there. So, Europe is probably the most advanced, if you think of the energy transition and some of the commitments that the Europe, the various crews across Europe have made and that's translating into decisions that our customers are making. It's very the drivers share shift across the business, but look, Europe will continue to see spend there in the energy transition space. At Canada, we'll continue to see couple investment there. The Middle East is always going to invest given the petrodollar nature of their economies. Some of them are looking at how can they monetize the oil or the chemical investment to sort of drop or retain value in the hydrocarbons chain. So a broad question John, but we're seeing continued optimism across areas and markets that we're operating in.

John Cuttle: And just a second question on margin. So I’m going to appreciate the change in the mix of the business. We're seeing a very strong revenue outcome here but obviously the margin mix is lower than PCP. Would you expect margins to improve going forward as synergies? I realized in roll through and as the mix that of embeds itself.

Tom Honan: John, I think if you're talking EBITA margins, yes. And I think, we need to incorporate the impact of the high tax rate on NPATA margin and have those two things offset each other. But certainly, EBITA margin we would imagine would -- we would expect them to improve over time synergies I realized.

John Cuttle: And Tom, sorry, the go forward tax, right it was 26% this period.

Tom Honan: Yes. I think in that sort of 25%, 26%.

John Cuttle: Okay. And just, and just the last one, Tom, again, just touching on an early question, but the 40 mil of performance, Ron said would provision day or in support cost and then would you presume that you wouldn't expect him to recur at that sort of level that to the quantum?

Tom Honan: That's right.

Operator: Our next question comes from Alex Karpos from Goldman Sachs. Please go ahead.

Alex Karpos: I have a couple on my end. First of all on the ECR, you had the business for about 10 months now and Chris you've always been intimately involved in the integration there. Any just high level takeaways just in terms of what surprised you do the upside or the downside, getting full control of the business over these past 10 months.

Chris Ashton: Well, I think the -- I've got to say, we've not seen any downside that and I say that openly. What's been really encouraging is the energy and positivity with which the two organizations came together and the real catalyst for that, the catalyst to release that energy was a commitment made on very early on in the announce on when we made a commitment to have a deeply integrated, organization, which would be made up of leaders from both organizations. And you know that's set in place an expectation that as we delivered on it, so Andrew, when he announced his direct reports, it was bounced between both organizations when each of us then released our organizational structure that was a balanced, the leadership was a mix of both organizations. And suddenly both organizations saw the commitments were being delivered on and not build confidence and built energy and released more. And that, in turn, built more confidence, and that, in turn, built more energy. And so, what we're seeing is, bringing these two organizations together as it took six months of planning and say, we've 10 months of actually doing, but the positive approach to bringing the two organizations together has absolutely gone beyond anything we could have imagined. You have something that you want and you're hopeful but it's exceeded all expectations. The positivity coming from both teams to create the new Worley has been a, it's been a real delight to see. And I think that's gone. I would say, I would say all the leadership team would say that's gone a huge way to making the, to getting us to where we are and getting the businesses successfully brought together. And on the downside, truly, look to large organizations, complex, but nothing that was material, nothing that we didn't identify as a potential risk but, again, nothing that has caught us off guard.

Tom Honan: Probably, and Alex, just from my perspective, maybe from the CFO perspective, a slightly higher tax rate; although, as that drives into a lower cost and capital, maybe long-term that's actually a positive for the Company.

Alex Karpos: Thanks for that. And on the 3sun acquisition, I don't want to steal any thunder for the Analyst Day here. But obviously, like offshore wind markets are a big and growing-quickly market over there in Europe. Any early takeaways since the deal closed in October? And how do you think about that opportunity over the long term?

Chris Ashton: Look, if you look at what the projected capital spends in the offshore wind sector, it's huge. It's a huge opportunity for us. If we look at the success, when we did the AFW acquisition in '17, the ability to leverage that into opportunities around the world, we see the same with 3sun. We've got an incredibly strong reputation in that space in the UK, being able to leverage that into the U.S., into Asia. We believe is a great opportunity for us to expand and take full advantage of now the increased capital spend in the offshore wind sector.

Alex Karpos: And one more just quick accounting one apology that is disclosed somewhere and I missed it, but if you will call it out the accounting impacts on the P&L from ASP 16 maybe at the EBITA line and NPATA loans?

Chris Ashton: Yes. Tom just said we have, it's about $9 million in the half.

Alex Karpos: Okay, thanks.

Chris Ashton: At the EBITA line, at the NPATA line, it's immaterial.

Alex Karpos: Thanks.

Chris Ashton: Probably, got time for one more questions, guys, I'm sure you have to get on your next earnings call this time of year anyway.

Operator: Yes, our final question will come from Nathan Reilly from UBS.

Nathan Reilly: Alright, thanks for taking my one question. I'll ask it around the EBITA performance. So I'm just looking at the pro forma growth around 9% and just breaking it down. So you've got the synergies coming through with some partial offset, or actually totally offset by these provisions and SOE costs. Now I know you don't look at it like this anymore, but if we were looking to separate the performance of ECR and the legacy Worley businesses, what would the underlying EBITDA growth rates be? Is that overall sort of 9% pro forma that we're seeing helpful?

Tom Honan: We wouldn't be able to tell you because we don't know. We don't look at the business as separated. It's a combined business.

Nathan Reilly: Okay. If you will indulge me one final question. Just on the pro forma revenue growth 20%. Can you just give us a sense of what the shift has been in terms of the contribution of lower margin procurement revenue half on half as in pro forma on pro forma? Is it reasonably stable? Or is it been an increase there?

Tom Honan: Yes, it increased and increased proportion in the current period compared to the pro forma numbers, and not just that Nathan, in but also at a lower margin.

Nathan Reilly: Yes, understood. So what -- can you guide me to where I might be able to sort of just pull that out on a pro forma basis?

Tom Honan: We're using estimates in the pro forma numbers so that it's difficult to do.

Chris Ashton: Thanks everyone for your time, appreciate it, and look forward to interfacing meeting many of you as I take on the new role. I'd also just like to end by thanking Andrew, who's in the room with us and wish him well on his next endeavor.

Andrew Wood: Thanks Chris.

Operator: 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.