Earnings Transcript for WOR.AX - Q4 Fiscal Year 2021

Operator: Thank you for standing by, and welcome to the Worley Fully Year Results 2021 Conference Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Chris Ashton, Chief Executive Officer. Please go ahead.

Chris Ashton: Thank you. Welcome, and thank you everyone for joining Worley's full year results presentation. Today, I'm joined by Charmaine Hopkins, our Interim CFO. Before starting the full presentation, I would like to give acknowledgement of country and I'd like to begin by acknowledging the traditional owners of the land and waters, their unique abilities to care for country, and deep spiritual connection to it. For me, here in the US, I'm on the traditional lands of the Wicomico nation. Across 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 to provide our 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 to extend that respect to other Aboriginal and Torres Strait Islander people present on the call today. Turning to Slide 3. I remind you to review our disclaimer shown here. And now moving on to Slide 4, the agenda. In terms of the agenda for today, I'll provide an overview of our business performance and how we are progressing against strategic transformation. And I'll then pass over to Charmaine, who will add some more detail on the full year results. And then finally, I'll provide a summary and our outlook before we open the floor for Q&A. Moving on to Slide 5. We've all been affected in some way by COVID-19. As waves of the pandemic continue to impact our people and their families across our operations, we are continuing to monitor and adjust our response to keep our people safe, and of course supported. I'm enormously proud of the care and support our people provided one another. The safety, health and well-being of our people remains our highest priority. Our processes for managing COVID-19 have helped keep our people safe, and shown our remarkable flexibility. Our people continue to work on site and remotely to support our customers' critical infrastructure projects. As part of our modified site practices, we've adapted technology to undertake virtual site visits. And I've been involved in many of these along with our board members and senior leaders. We found this has been a very effective way to keep connected, and we'll see this as a long-term opportunity to enhance our single leader's connection to site. Moving on to Slide 6 and the full year highlights, which will begin on Slide 7. The past year has been one of dynamic change across the world. Our business has felt the impact of the economic environment, including COVID-19, which saw worldwide activity slow and project sanctioning get deferred. Our full year aggregated revenue of $8.8 billion, down 22% on the prior period. We delivered an underlying EBITA of $468 million, which is 37% down on the prior period. However, this year has been a story of two halves. And I'm pleased to say we've delivered a better second half in line with our expectations. We've maintained our financial strength during a period of subdued economic activity, and we'll take an early and deliberate action in the areas we can control. These efforts contributed to an improved result in the second half in line with our expectations. Over the year, we reduced our net debt to the lowest level since the ECR acquisition with net debt now at $1.55 billion, down from $1.78 billion compared to the prior period. Our gearing ratio is 21.7%, which remains below our target range. And our leverage ratio was increased from 1.8x to 2x over the half. Our actions to lower our cost base continue with the completion of the $109 million ECR acquisition cost synergy targets in April '21. In addition to this, we're well on track to deliver our target unrealized savings of $350 million by June '22 from our operational cost saving program. These are permanent structural changes to the way we run our business and will continue to deliver sustained benefits for years to come. Looking ahead, our backlog has increased over the last six months to $14.3 billion from $13.5 billion, with growth from both traditional and sustainability projects. We've made good progress in our strategic transformation. And our sustainability work has grown over the year and currently accounts for 32% of our aggregated revenue, up from 29% at the half. And our sustainability portion of the sales pipeline is 47%, up from 45% at the half, and the Board has declared a dividend of $0.25 per share. Moving on to Slide 8. The global economic circumstances, including the COVID-19 pandemic, have impacted demand in our customers’ end markets. The full year impact of the subdued economic activity led to a net business decline to $540 million, which was partially offset with $323 million in cost savings, as represented by the full year chart on the left. The key drivers of net business decline were volume reductions, business mix and foreign exchange headwinds. We've seen site access restrictions and project delays although which we shared before minimal project cancellations. We've seen the business begin to stabilize over the second half with activity levels starting to return on long-term contracts and strategic rewards in the early phases. Looking at the second half represented by the chart on the right, we secured an increase in net business growth of $30 million, coupled with cost savings of $33 million, providing for a stronger second half. We saw increases to a combination of high professional services margin and the completion of some of our large projects. It's worth noting we achieved the better margin in the second half, with a high proportion of lower margin construction work and Charmaine will go through the key drivers of this in more detail later. Turning to Slide 9. As you can see from these charts, we've achieved a better second half across our key metrics. On a constant currency basis, our EBITA was up 32%, backlog as of 8%, and our revenue was holding. Our EBITA margin percentage increased to 6.1% from 4.6% in the prior half and our factored sales pipeline is also up 16%. Turning to Slide 10. Our backlog has improved since the end of December 2020, increasing to $14.3 billion from $13.5 billion with a growth across both our traditional and sustainability projects. Our diversification remains important to different sectors - as different sectors and regions recover at different rates. Turning to our factored sales pipeline, we're seeing double-digit growth across both traditional and sustainability components since the end of the first half of this year, and we're seeing traction in our strategic shift to sustainability. When we look at award by revenue over the fourth quarter of the year, it's up 1.5x when compared to the third quarter. Turning to Slide 11. The strategic awards announced provide a good insight into the diversity of projects we're winning both in traditional and sustainability-related services. We're supporting our long-term customers in their own traditional businesses, and also as they make their own sustainability-related investments. Additionally, we're winning work with new customers in emerging markets. Many of the strategic sustainability awards are in the early phases, which we expect to move into their subsequent phases later in FY 2022. Moving on to Slide 12. The actions we've taken this financial year have set us up for the future. And moving on to Slide 13, we've continued our financial focus and discipline, particularly around cash collection. We've maintained utilization above target while also building capability. We've increased our average debt maturity issuing Australia's first sustainability linked bond and aligning our financing with our purpose, delivering a more sustainable world. Our cost programs resulted in unrealized overhead savings of around 30% over the last 24 months. Turning to Slide 14, there are many elements to our strategic transformation. And I'm pleased with the progress we've made across all of these in the face of challenging global economic conditions. With accelerated our transformation and this place us in the strong position for future growth as markets recover. Turning to Slide 15, we remain focused on delivering long-term shareholder value. We have inbuilt resilience through diversification in our end markets and balanced exposure to our customers capital and operating spent. We're applying low risk commercial models. And importantly, we don't participate in material lump sum turnkey projects, and we will not do so in the future. We're focused on cash returns and we have this financial strength to support growth initiatives. We believe with our leading positions in the sectors we serve, and our long-term relationship with our customers that we're well positioned to benefit from the sustainability mega trend. Turning to Slide 16, sustainability is core to our business, it is our purpose. Our biggest contribution delivering a more sustainable world is in the work we do for our customers. Our skills and services are required to solve some of the biggest challenges on the planet. And we're working with our customers to do just that. We are rated as a leader both for our ESG performance and in our industry for the energy transition services we provide. Moving on to Slide 17. We operate consistent with our purpose of delivering a more sustainable world in caring for our planet we take strategic action on climate change. We've joined the business ambition for 1.5 degrees C campaign, aligning our emissions reductions with the aims of the Paris Agreement. In terms of our commitments, we're making good progress against Scope 1 and 2 targets and are committed to achieving net-zero Scope 3 emissions by 2050 via science-based targets. We've transitioned Houston and Perth to renewable energy with more offices to come. We've updated our property leasing criteria to include sustainability. And our vehicle fleet in Brazil is transitioned to operate on biofuels. We've stayed focused on our people's physical and mental well-being as the world has moved in and out of COVID-19 related lockdowns. For our people and communities, we're working to create an even more diverse and inclusive environment. We also launched our inaugural Reconciliation Action Plan and declared support for the principles in the Uluru Statement from the Heart. We operate responsibly, and we progress action aligned with our material sustainability issues, in line with the United Nations Sustainable Development Goals. Turning to Slide 18, beyond the strategic actions we're taking in our own business, we're using our skills and partnering with others to catalyze breakthrough thinking at an industry and government level. Earlier this month, we launched a joint thought leadership paper with Princeton University's Andlinger Center for Energy on the environment, exploring the five key shifts and thinking needed to deliver the infrastructure required to achieve net zero by 2050. And we discussed the critical role of companies like Worley. We describe a new paradigm to enable delivery of engineered solutions at a pace and scale demanded by mid-century net zero targets. All of this is possible, and it needs to start now. Turning to Slide 19, our focus on the progress we're making on our execution strategy starting at Slide 20. I'm not going to go into this slide in detail other than to highlight our ambition to target sustainability related services and solutions as being the largest portion of our revenue in the future. With the level of predictive spend and the sustainability arena, this represents expanded opportunities for growth and our strategy positions us at the center of this investment. Moving to Slide 21, sustainability now represents $2.8 billion of aggregated revenue, which is a 32 percentage points from 29% over the half. In the pipeline, we're seeing increased opportunities in the energy transition and circular economy space growing from 11% to 25% over the half. We're pleased with the level of work we're winning with several key strategic awards in decarbonization, including hydrogen, carbon capture utilization and storage, renewable fuels and offshore wind. Sustainability project awards are increasing in volume and scale as well as complexity. And many are expected to progress beyond the early phases in FY22, late in FY22. Turning to Slide 22. We've previously spoken about the sustainability margins in our pipeline being more favorable than other services, and I'm pleased to share that we're also seeing this in our financial year results, where sustainability projects delivered a more favorable gross margin percentage compared to our other services. We target complex projects which involve a mix of technology integration, modification, challenging logistics and upscaling. We're seeing our customers seeking to engage in different ways. This involves partnering and using alternative commercial models, which recognize the value we bring while maintaining a similar risk profile. Turning to Slide 23; we have long-term relationships with many of the largest energy chemicals and resource companies in the world. We're hearing from our customers that they will continue to invest in their traditional businesses, given ongoing demand while also investing in decarbonization of existing assets and in emerging markets. Already having these established relationships allows us to assist these companies in the traditional areas of their business while also supporting them as they address the magnitude of the transition to a low carbon future. Turning to Slide 24, our traditional business remains strong, and we will continue to maintain leading positions in the energy, chemicals and resource markets. We also deliver sustainable solutions across our traditional services. Beyond this sustainability investment opens up new and emerging markets with existing and new company customers. Turning to Slide 25, where we will highlight some strategic awards and case studies. Recently, we were awarded a front end engineering services contract awarded by Shell for large scale carbon capture and storage project in Canada. This is one of the largest low carbon opportunities Shell is exploring at Scotford and will capture and store around 750,000 tons of carbon dioxide a year. This is in addition to early engineering services contract award that will be the largest commercial green hydrogen production facility in the world, located at the Port of Rotterdam near Shell Pernis refinery. Turning to Slide 26, we've also recently been awarded a Global Professional Services Contract into our Advisian business by Chevron for early phase engineering services on global upstream and downstream projects both onshore and offshore, which utilizes our proprietary digital design and optimization tools. This contract continues our long standing global relationship with Chevron and supports our strategic focus on digital transformation. Moving to Slide 27, Worley will provide detailed engineering and procurement services for the expansion of production capacity at Syrah's active anode material facility in the US. The facility produces value added natural graphite material used in lithium ion batteries that power electric vehicles. Worley is previously partner with Syrah to deliver other projects in its graphite supply chain. Moving to Slide 28, the BookraMEG project in Texas is a world scale petrochemicals facility, we provided services from concept planning to the startup and initial production. The project was delivered seven months earlier than industry average while maintaining the highest safety standards. It was recognized by EMR as a global best of best project in March of this year. Moving to Slide 29 and nuclear small modular reactors are key to meeting the world's climate change initiatives. And we've recently been awarded a contract with a confidential customer that positions us in the emerging small modular reactor markets. Turning to Slide 30, I want to move on now towards what's happening in our other markets. So just moving on to Slide 31. Our energy, chemicals and resource markets are evolving and provide expanded opportunities we could grow. As I mentioned earlier, our customers will continue to invest in their traditional business, but we expect to see a balanced transition as investments increase into emerging markets such as hydrogen or renewable fields. We are aligning how we describe these markets we serve with that of our customers while better reflecting our purpose and diversified business. As of the 1st of July this year, the markets we serve within the energy, chemicals and resources sectors are conventional energy, low carbon energy, chemicals and fuels and resources. But to clarify, we are not changing the way we report our segments; they will continue to be reported as energy, chemicals and resources. Turning to Slide 32, this is how we define where we do business? Energy includes producing energy from various conventional and low carbon energy sources, as well as project related to power generation, transmission and distribution. Chemicals include refining, renewable fuels, petrochemicals, polymers and specialty chemicals. And resources include minerals and metals resources, water and resource infrastructure. And as you can see from the slide, our sustainability pathways support all the markets we serve. Moving to Slide 33, in the area of conventional energy, global demand and supply of crude oil is on course to continue rebalancing this year after unprecedented demand destruction due to COVID-19. Oil prices have rebounded to a two year high above $70 a barrel, and high oil price of potential supply crunch will lead to growth in CapEx investments to meet rising demand. However, all markets remain subject to heightened volatility due to the risks of prolonged pandemic related demand impact. Structural changes in the fuel mix have started and combustion energy markets remain dynamic as gas displaces higher carbon intensive fossil fuels and power generation. In terms of sustainability themes investments in clean energy technologies continue to rise steadily as the industry faces the challenge of balancing short term returns with its long term social license to operate. Turning on to Slide 34. The low carbon energy sector is benefiting from the sustainability mega trend with a significant portion of the energy supply being electrified. There are strong growths in both transmission networks as well as power generation. Annual zero carbon pass system investment could amount to around $80 trillion over the next 30 years. LNG demand growth is also expected due to the availability of cheap, abundant feedstock and gases role as a low carbon fuel, and the US will continue to be a dominant gas and LNG producer. Turning to Slide 35. In terms of chemicals, global industry demand and profitability is returned to 2019 levels with investment planning and funding reinstated. The chemicals market is integrating energy transition into investment decisions and committing to reduce energy intensity of feedstocks and production processes. We are seeing a strong focus on modified manufacturing processes and technologies to address emissions reduction targets and end of life issues particularly plastic waste. In the fuels market demand for transportation fuel continues to recover through 2021. And by year end overall global refining throughputs is expected to return to 2019 levels. The strong investment trend for refinery conversions to biofuels and petrochemical feedstocks is expected to continue. Turning to Slide 36. In resources, miners will benefit from commodity consumption growth as global recovery continues, with many market indicators at multi year highs. The 2021 CapEx forecast as of 80% in 2020 as delay programs resume an activity around sub spurred by strong metal prices. We are seeing miners making strong commitments to transform the industry with the drive towards decarbonization expected to generate a structural change in metal demand. Confidence in long term demand for battery metals such as lithium, nickel and cobalt is increasing. Water stewardship is critical in the sustainable delivery of energy transition materials and new technology solutions are being developed to support a sustainable resource industry. Turning to Slide 37, our traditional business is an important part of our future with sustainability providing a higher rate of future growth. We have defined very clear sustainability pathways that support all the markets we serve and form the structural framework for growth. These pathways are supported by process technologies and the application of digital solutions to strengthen our competitive advantage and accelerate automation. In FY22, We will report our sustainability revenues against the four pathways. Moving to Slide 38 and investing for the growth -- for future growth. We are confident in our sustainability strategy and will look to grow in three distinct ways through organic growth, strategic partnering and acquisition. Organic growth includes capability building through strategic hires or internal development, investing in digital enablement and solutions or technology selection and development. Partnering provides opportunities to build trusted relationship with technology providers to enter new markets or develop new solutions. Examples include our work with [X warm wind] to develop emerging technologies and floating offshore wind as well as our partnership with MMA offshore to build offshore operations and maintenance capabilities into new emerging markets in Asia. And of course, we will consider acquisitions where they help drive or accelerate our growth strategy. Turning to Slide 39, to accelerate our organic growth and build on our existing competency, we forecast to invest about $100 million over the next three years. We've identified specific growth areas such as offshore wind, low carbon, hydrogen, carbon capture utilization and storage, and environmental and social consulting as areas we will focus on. We will provide more detail on this an Investor Day later in the year. We have developed plans around new capabilities to accelerate the capture and sustainability opportunities and generate increased earnings over the medium and long term. We will closely track and monitor and report on what the growth areas and sustainability pathways are delivering. I'm now going to hand over to Charmaine who will run through the financials in more detail starting at Slide 40. Charmaine, over to you.

Charmaine Hopkins: Thank you, Chris. Good morning, everybody. Today, I'll be covering three key areas. First, the drivers behind our performance, and in particular, what's behind the improvements in the second half? Second, the results of our cost saving programs and our strong financial position to support growth, and third, I'll discuss regional performance. Turning to Slide 41; I'm pleased to report we improved our performance in the second half of FY21 in line with our expectations. The impact of project deferrals and site restrictions outlined by Chris, did however lead to a decrease in that aggregated revenue and underlying EBITA in FY21, compared to FY20. We delivered a strong underlying operating cash flow of $621 million for FY21. This was the result of our continued focus around our invoicing and collection practices across the group. We lowered our gearing further during the year, and it remains well below the target range. Our leverage ratio is currently at 2x. Our liquidity position has normalized post the nonrenewal of COVID facilities put in place last year. In April, we successfully completed our ECR synergies program, and we are on track to achieve our operational cost savings programs target. Turning to Slide 42. Our statement of financial performance outlines our statutory results. This was released in the annual report lodged to the ASX earlier today. I'd like to highlight that our global support costs decreased to 14%. This was largely driven by reduction in most corporate functions, and was enabled by our global integrated platforms. Excluding the impact of FX, our global support costs decreased 22%. Our borrowing costs also decreased by around 37% reflecting the reduction in our net debt and lower interest rates on net debt. Turning to Slide 43, we report our results excluding the impact of amortization of acquired intangible to more accurately reflect our operating performance. So you will see references to EBITA and impact NPAT throughout the presentation. After considering underlying adjustments, including transition and restructuring costs. We delivered the underlying net profit after tax and before amortization of $281 million, which was down 35% from $432 million in FY20. International government subsidies of $70 million have been excluded from the underlying results. Consistent with the prior year, these are primarily in Canada, with some subsidies also in the UK, and Singapore. Turning to Slide 44. Here we highlight the statutory and underlying key financials for the full year period. The COVID-19 pandemic and global economic circumstances have impacted our customers end markets resulting in project deferrals as well as site access restrictions primarily in the Americas. Underlying EBITA decrease to lower volume, along with the change in business mix and FX translation. This was partially offset by cost savings programs. We are pleased to have delivered a strong underlying operating cash flow. And note that our DSO has remained steady over the last three periods, reflecting the improvement in cash collection and debts reduction in the period. Turning to Slide 45, Chris spoke about the story of half. And here I'll delve a little deeper into the differences in performance over the full years, and the contributing factors to the improved second half. The chart on the left shows the impacts of the volume decline that I described previously, as well as foreign exchange translation and business mix on the full year results. However, it also highlights that this decline was partially offset by the net benefits from our cost savings program. The business mix represents the change due to an increase in lower margin construction work compared with the prior period. If we examined the half on half drivers, in the second half, we faced similar headwinds to the first half with foreign exchange and change in business mix. However, while volumes are still impacted, we saw activity levels start to return on our long-term contracts. We delivered a net business growth of $30 million through rate improvement in our professional services contracts, and the impact of the traditional first and second half phasing. We also delivered a $33 million benefit from our cost saving programs. Turning to Slide 46. The impacts I've just described were also the key drivers of EBIT margin improvement over the second half, the margin was up to 6.1% in the second house from 4.6% in the first half. We saw the business stabilize over the second half with revenue holding on a constant currency basis. Looking at the business mix component, we saw the impact of an increased proportion of lower margin construction work as site access restrictions lifted and activity level starts to return. Our fabrication business in Norway delivered a stronger performance at a lower margin compared to prior periods due to the type of projects undertaken. In professional services, revenue was down mainly due to project deferral. However, we are seeing key project awards. It's important to note that many of these are still in the early phases. We expect that the business mix level will rebalance over the medium to long term, as conditions improve, and projects move to later phases. However, it is expected to remain similar to FY21 in the near term. Turning to Slide 47, our cost discipline has been a core focus. And we've delivered strong results against our targets. These are deliberate actions that have improved our performance in FY21. And we'll continue to derive benefits into FY22 and beyond. We completed the ECR cost synergies program in April over delivering by $16 million annualized savings against our original target. I'm also really pleased to report that we're well on the way to achieving the $350 million and your life savings targets to the operational savings program, having delivered $327 million annually saving as at the end of the financial year. Continued saving from our cost out program was a contributing factor to improve EBITA supporting our delivery of an improved second half in line with our expectations. It will be a key priority of mine to ensure the remaining operational cost savings program remains on target and we will maintain a strong discipline. These programs represent permanent structural changes in how we run our business and set Worley up to continue to invest for future growth. Turning to Slide 48, we have maintained strong capital management discipline with our gearing ratio at 21.7% well below our target range; interest cover has increased to 9.2x while leverage ratio is at 2x. And our average maturity of debt has increased to 2.9 years. Net debt has decreased from $1.78 billion to $1.56 billion is at the lowest levels of debt since the ECR acquisition. As we've outlined previously, dispute resolution mechanisms are in place to recover payments from three nonpaying state owned enterprises. These receivables are classified as noncurrent and recovery action is underway. Although COVID-19 has slowed this process. Turning to Slide 49. Looking at our balance sheet metrics over time, our key ratios show positive trends, demonstrating our strong capital management as we accelerate our strategic transformation. Today, the business is more resilient with a strong balance sheet to support our medium and long term growth strategy. And this is despite the challenges of the global pandemic. We continue to have a strong level of discipline around cash. This involves the rigorous approach to completing quality work, efficient invoicing, and following up to ensure payment is received in line with contract terms. Turning to Slide 50, I'm proud to say we successfully issued Australia's first Sustainability Linked Bond under the Euro Medium Term Note program, embedding our commitment to sustainability into our finance strategy. It is a €500 million issuance with a five year maturity, extending our average debt maturity to almost three years. This maintains a strong liquidity position post retirement of COVID-19 facilities. We remain on a strong financial position with $621 million of underlying operating cash flow and improved debt metrics. Starting to Slide 51, we continue to manage headcount in line with project requirements. Our headcount has stabilized over the second half, and is now at 48,000 as at 31 July, 2021. Utilization remains above target in line for changing business mix to more construction and fabrication services, where the proportion of our class headcount has increased. Turning to Slide 52, backlog is at $14.3 billion, up from $13.5billion at 31 December last year with growth in both our traditional and sustainability components. Activity on long-term contracts is returning and we're continuing to win work. We continue to see minimal cancellations. Our contract wins and renewals in the half exceeded the value of backlog consumed. Many of these are key strategic wins in both traditional and sustainability projects with many in early phases. There are signs of recovery in our end market, but we anticipate our customers will retain a targeted approach to capital expenditure of FY22, which may result in ongoing delays in project sanctioning. Many of our strategic awards are expected to progress beyond the early phases late in the second half of FY22. Turning to Slide 53, before I hand that to Chris, I'd like to focus briefly on our two regions. The Americas represents 44% of our aggregated revenue, and has the largest proportion of construction and fabrication work. Performance over the year was impacted by COVID-19 with access restrictions curtailed site and curtailed customer spending across the region. Activity levels are returning on long term contracts. The factored sales pipeline is expanded but varies by sector. There's a significant amount of sustainability opportunity, with this representing 52% of the factored sales pipeline. We obtained key awards in our traditional business with long-term contracts in refining and petrochemical. And in sustainability, we are seeing things such as the contract with 1PointFive

Chris Ashton: Thanks, Charmaine. Look, I'll move on to Slide 56 into summary. Look, our full your results reflect the impact of the global economic circumstance and COVID-19. But we're pleased to have delivered improved earnings in the second half of this financial year in line with our expectations. And we've seen positive indicators over the half and EBITA margins, headcount backlog on factored sales pipeline. We're seeing activity level returning on long-term contracts and strategic new awards in their early phases. However, we're still experiencing some ongoing delays in project sanctioning. Our business mix is expected to remain at similar levels in the near term while professional services revenue is expected to return to previous proportions in the medium to long term as global economic circumstances improve. We're in a strong financial position delivering solid cash result and meeting our ECR acquisition and operating cost savings targets. Our business is set up for the future and positions of benefit as markets recover. But there is still some ambiguity around the ongoing effects of the global pandemic. Our traditional business continues to be an important part of our future and is growing in our backlog and pipeline. We are delivering on our sustainability strategy with sustainability, revenue and opportunities growing across all sectors. As we support our customers transition to a low carbon future. We continue to accelerate our strategic transformation by investing in our sustainability pathways, digital enablement, and process technology. I am going to now turn to the outlook statement on Slide 57. We have seen our business stabilize over the second half of FY21 with positive indicators in increasing backlog and factored sales pipeline. However, we continue to navigate the changing effect of COVID-19 on global economic circumstances. Our strong cash result and ongoing benefits from our cost savings programs are set the business up for the future. And we're well positioned to benefit as markets recover. Our sustainability pivot is gaining momentum and we are pleased with the work we're winning. Many of our strategic awards are expected to progress beyond the early phases late in the second half of FY22. Our traditional business continues to be an important part of our future with sustainability providing a higher rate of growth in the future at more favorable margins. To further accelerate our strategic transformation, we will invest in sustainability, digital and process technology. We are expecting an improved FY22. However, different sectors and regions will recover at different rates. And we anticipate that the capital expenditure discipline exhibited by our customers will continue for the rest of FY2. With that said, we can now open up for questions, and I'll hand them to the moderator to manage that process.

Operator: Thank you. [Operator Instructions] The first question will come from Mark Samter of MST. Please go ahead.

MarkSamter: Yes. Good morning, Chris. I've got a couple of questions if I can around your definition of underlying earnings. I looked at this morning over the last seven years. And there's been about $940 million, cumulatively over seven years post-tax and $1.34 billion pretax of transition costs, restructuring costs, problem contracts. I guess I got two questions around that. First of all, at what stage does something have to repeat itself to be deemed an ordinary part of the business not a one-off? And also on that line, are you able to guide us what you're going to have in FY22 for restructuring and transition costs, because otherwise everyone's just going to keep massively overestimating cash flow because, yes, you can certainly got of underlying earnings, but it's real cash coming out of the business.

ChrisAshton: Well, I'll answer the first and ask Charmaine to answer the second. But look, on the first one. Look, I think if you look at the last seven years and sort of the discontinuity that we face, if you look at the oil price collapse that happens in '14 and the impact of that on us, we had to take -- have a major restructuring to address it, then if you look at things like the acquisition of Fossil -- of Amec and then ECR and then, obviously, the global pandemic. So the thing, I understand why you're saying what you're saying, but look, they've been triggered by sort of discontinuity sort of - and it's not a normal part of our business. I think it was taken over from February last year and the restructure I put in place. I think we've got a very simple structure in the organization. I think we have, as a result of that, an organization or strategies that are supported by that structure that will allow us to move forward. Look, in terms of putting cost below the line as part of restructures or other activities, look, we're very open. We're very clear about what we've done and when we do it, but I don't see any more ahead of us other than those that we've announced. Now, we have talked about investment. And the investment is something that we're going to be very clear on. The investment costs are above our business as usual. But we're going to be very clear on where we're investing, and I don't see -- I see that being slightly or different to take the cost below the line from a restructuring point of view. We're really going to be investing, I talked about the $100 million over the next three years, that is investment to really accelerate the strategic growth of the organization. But to answer your question in essence is we don't plan any more than those which we've always shared, Mark. And on the second question may be I will answer – hand it over to Charmaine to talk about the impact on our estimating and how you look at cash flow.

CharmaineHopkins: So in terms of the second part of the question in relation to FY22, the underlying costs that we would see is still in relation to our transformation program. So there's four parts to the transformation program, the organization restructure was completed this year and the discretionary spend was also just completed this year. But there are further bit to come on the property rationalization and shared services transformation will also happen in FY22. So underlying costs in relation to transformation will predominantly relate to shared services and the finalization of the property rationalization. In terms of cash flow, we also look at the transformation or the underlying cash flow, excluding any of the transformation costs. But we can also forget the benefits that these costs also bring both in the current year that we've seen and these costs - and these benefits will be seen also in the future years.

MarkSamter: Can I push you to get us a bit of a number around it, Charmaine, possibly for this year, just so we've got a rough understanding?

CharmaineHopkins: No, I'm not going to give you any information around forecast.

MarkSamter: Okay. Do you guys have an internal forecast of just the obvious skepticism from the market would be that those numbers can certainly be revisited at the end of the year rather than the start of the year? You guys have a clear picture of what it looks like?

ChrisAshton: Yes, we do. Let me answer that. Look, we've got very, very clear established criteria, and the criteria is audited by EY, our department. So, there's no -- there's nothing that is done across the year that doesn't meet preestablished criteria, Mark. So there's no budging of numbers.

MarkSamter: Okay. Thank you.

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

RichardJohnson: Thanks very much. Can I just follow on from last question, please and maybe just drill down a little bit more? Look, because the one thing that stands out and I may be wrong in this but stand up to me is the jump in onerous contract right back in fiscal '21. So really, my question is around how much did that number changed? Was that the number what you thought it was going to be at the start of the programs? And what I'm really trying to understand is what proportion of the transformation program has been delivered by the onerous contract line? Thanks.

ChrisAshton: Well, it's -- look, we were -- when you say about the onerous contract, you’re talking about the lease space, yes, the office lease space. Yes.

RichardJohnson: Yes, I'm not sure what it is. So yes, any information you can give us that would be great.

ChrisAshton: Yes. Look, well, we've got four areas

CharmaineHopkins: So the onerous contracts predominantly relate to the impairment of property assets. So as we've rationalized our property footprint, we have impaired the right-of-use leased assets. And along with that recognized onerous provisions for the facility costs associated with those lease contracts, where we won't be able to recover them in full through sub-leasing. So that's what the onerous contracts line item relates to. And it's linked with the impairment of property assets line of $38 million. But the impact of transformation and restructuring that we've outlined on Page 43 of the presentation, all links back to the four pillars of our transformation, being the discretionary spend, shared services, property rationalization, and organizational restructure.

RichardJohnson: Thanks, Charmaine. That's very helpful. And then, Chris, on a little positive note, the utilization chart that you've shown, which is obviously pretty impressive in fiscal '21. My question is really around, what sort of revenue growth can you -- or what leeway is there from where you sit today, which is obviously a relatively high level? Have you got to generate revenues in fiscal '22 all by definition, the headcount numbers start to move?

ChrisAshton: Look, I mean, by definition, the headcount numbers will move. When you look at the utilization, you always want a bit of headroom, you've never got 100% perfect sort of an individual coming up a project going on the project. So you've always got some sort of capacity to grow with your existing -- room to grow with your existing capacity. But look, we will -- we do now without getting into detail, we will have to recruit going forward to support the work that we've got in our backlog and for the work that we’ll pursue and expect to win.

RichardJohnson: Right. And then finally, for me, just on the backlog itself. It looks like, it's being led by the upstream businesses with chemicals and resources lagging, I just wondered if you could talk a little bit around resource -- in particular, given the fairly bullish macro picture that you painted.

ChrisAshton: Look, it's just we've had a couple of really big projects come to a close. Yes. And that's all it is. Yes, it's just -- we've had a couple of mega projects come to a close, and that's what you're seeing the impact of, but still very, very optimistic around investment in that space.

Operator: The next question comes from Adam Martin of Morgan Stanley.

AdamMartin: Hi, Chris, Charmaine, just a couple of questions. First, just how you sort of thinking about revenue growth? Just talking about sort of that stabilization, if I look at the second half revenue, sort of down about 5% on the first half, obviously, full year it's down a lot on 2020, doing down 20% but so the rate of decline there is slowing, but just wondering how you are all thinking about, I suppose revenue growth over the next 12 months from where we're standing today, please?

ChrisAshton: Well, we're not going to -- look, as you know, we don't give guidance, and we're not going to give anything out as a proxy to guidance, but look, clearly, as the markets in which we operate, begin to recover, we will expect and we are projecting growth going into FY22, but look, we're specifically sort of revenue growth on FY21. We wouldn't give an indication of detail around that.

AdamMartin: And when you talk about growth, that's growth in revenue or growth in profit. What do you mean by those come outgrowth?

ChrisAshton: Well, both. We thought we would sit with both in revenue and margin, gross margin and in profit.

AdamMartin: Yes. Okay. That's good. And then just on sorry, just on cost out, I think one of the slides talk about a $44 million benefit for operational savings, $6 million benefit from ECR synergies. Is that the sort of annualization of the cost out that flows through into the FY22 P&L and am I understanding that correctly?

CharmaineHopkins: Yes.

ChrisAshton: I'll let Charmaine answer that but yes, that's right.

CharmaineHopkins: Yes, that's correct. That's the increment to savings coming through FY22 from the actions taken in FY21.

AdamMartin: Okay, thanks. That's good discussion. Just final question sort of more high level, just pretty big drop in the Americas business in '21 versus '20. It seems to be sort of leading the lay and declines. Can you just talk through what that means? What exactly that is and whether that's going to turn around, please?

ChrisAshton: Yes, let me answer that. So look, Americas business has the biggest amount of blue collar, the largest blue collar portion in its workforce. And so what happened in '21, was site access, we couldn't get access to sites. And so a very large portion of a drop off in the revenue you see in the Americas was directly attributed to the reduction in our blue collar workforce, because we couldn't get access to site at all, or where we could, it was on a reduced level, you can imagine some of the work that we typically do when in the summer, the northern hemisphere, summer is shut down, turned around, and this can be a 1,000 workers on a facility in a very, very confined area. You just couldn't do that you couldn't get the productivity, you couldn't get the efficiency. And so the customers just delayed that turnaround. So it's purely almost -- not purely, majority of it is due to the drop in the blue collar workforce. And we expect that to return as the investment and access to site return.

Operator: The next question comes from Saul Kavonic of Credit Suisse.

SaulKavonic: Thanks folks. I just wanted to touch on I've been following on from Mark, and really all everyone's question on the $100 million in the sustainability investment potentially over the next three years, can you just outline how that's going to be treated on balance sheet and the P&L. I mean, it's just the cost of this going below the line?

ChrisAshton: Well, Charmaine, do you want to answer that?

CharmaineHopkins: So the $100 million investment over three years will be a combination of OpEx, operational expenditure and capital expenditure for which capital expenditure will be recognized on the balance sheet as an asset. In relation to the OpEx, these amounts will not be going below the line, but we will be disclosing them very clearly, in terms of what costs we are incurring, and then also, the benefits, or the increase -- the linkage back to the growth that we're seeing from those investments.

ChrisAshton: Yes, and what I would also say is we'll share more information later in the year in our Investor Day and I think, to Mark's point earlier we want to be very transparent. And over the last triple or two or three results presentations, we've been asked around what are our plans around investments to support the strategic pivot? And this is part of that -- the attempt to communicate and be transparent with, what we're investing, and where we're investing and what return we expect from that investment. And we'll share more at our Investor Day later in the year.

SaulKavonic: Thanks. My second and last question is just about on the sustainability slide, you talked about using alternative commercial models. Can you just elaborate that on a bit further to understand if that is pre adjusting risk allocation more or less away from wallet?

ChrisAshton: Yes, look, it's not so much about the risk; it's more around sort of the financial aspect of it. So typically, we would -- we work with a customer, we work x number of hours, and we get paid y dollars per hour, and we get a bill on that basis. Well and you might have a different mix of people, different experience. But we were moving to say a blended model where can be a flat rate, or we're using mid level greater levels of automation where instead of paying per hour of work invested in a deliverable, you'll get paid per deliverable. Or it may be that we are tied to more of an outcome of the -- on a project and we get incentivized. So it's about moving into a space where we're not just being paid for the hours of work that we burn on a project. But we're getting recognized for the technology that will bringing the knowledge that we're bringing the value that we're delivering, so it's not so much about the risk, because you also said the Worley doesn't do any material lump sum, turnkey projects, we are pretty risk averse. But so this shift -- the shift is new commercial, more innovative commercial models is really more about the way that we get compensated financially.

SaulKavonic: I understand. So just, I guess, I mean perhaps some of people reading listening to that, still, it sounds like you're taking on more risk. Like, for example, in the contract. If it's based on an outcome, the outcome is not reached. Does that mean Worley's revenue take the hit?

ChrisAshton: Well, I mean, we're not, look, I want to say incentive, what we often do is, and we do this now we'll get paid a base fee for the number of hours and we'll say, well, look if you can deliver this project for $10 million, instead of $12 million, we'll give you a $1 million additional fees, we'll split the savings. Or look, we've got 1,000 product drawings to get out instead of drawing, being charged for the number of hours we do for drawing, we can say well, look we'll deliver those 1,000 drawings for x dollars per drawing, and we can use automation to actually reduce. So it's, no, it's not about the risk. We're not shifting the risk profile. I want to make that very clear. We're not doing that. There are no further questions at this time. That does conclude our conference for today. Thank you for participating. And you may now disconnect.