watpac limitedintranet.watpac.com.au/...30-june-2015-full-year-results-presentation.… · 2015...
TRANSCRIPT
Watpac Limited
2015 Full Year Results Presentation
25 August 2015
FY15 highlights Strong Contracting performance & healthy balance sheet in place
Overview Enhanced performance of the Group’s Contracting segment consistent with improved market conditions
and targeted approach to tendering Reduction in financial performance of Mining & Civil segment reflective of current state of resources
sector and impact of falling commodity prices Underlying results resilient, reflecting diversification of earnings base
Financial performance Statutory Net Profit Before Tax of $15.5M, Net Profit After Tax of $11.5M
• Property developments inventory assets impaired by $9.1M (pre-tax) Underlying Net Profit Before Tax of $24.6M, Underlying Net Profit After Tax of $17.9M
• FY15 Underlying Net Profit After Tax in line with market guidance
Capital management initiatives Strong balance sheet, with net cash position of $151M $113M in net available liquidity after adjusting for advance billings Alternate uses of surplus capital were considered
• On-market share buy-back considered the most efficient mechanism • Share buy-back announced and to commence in September 2015 – EPS accretive
2
FY15 highlights (cont’d)
Quality of workbook in Contracting to drive future growth
Contracting segment delivering solid results driven by improvement in the construction market – solid pipeline in place with a number of recent contract wins
• $55M contract to build facility for Reserve Bank of Australia • $70M contract to build the Central Adelaide residential development • $78M contract to build two hotels & a conference centre at Brisbane airport • $126M contract to build mixed use development in Sydney
Reducing investment in Mining & Civil which continues to be subdued by tough market conditions
3
Divestment of property portfolio continues • Final tranche settlement of Waterloo
property to provide $12M in FY16 ($28M including deposits received to date)
Residual property assets written down by $9.1M
76.6%
23.4%
FY15 operating revenue by segment
Contracting
Mining & Civil
Financials
Underlying results broadly in line with FY14 $M FY15
Statutory FY15
Significant items
FY15 Underlying
FY14 Statutory
FY14 Significant
items
FY14 Underlying
Change FY15 v FY14 Underlying
Revenue Turnover 1,218.5 1,218.5 1,203.0 1,203.0 15.5
Earnings EBITDA 62.5 9.1 71.6 75.3 0.7 76.0 (4.4)
EBIT 22.0 9.1 31.1 35.3 0.7 36.0 (4.9)
NPBT 15.5 9.1 24.6 24.5 0.7 25.2 (0.6)
NPAT 11.5 6.4 17.9 17.9 0.5 18.4 (0.5)
Shareholder Returns
EPS (cents) 6.11 3.37 9.48 9.65 0.28 9.93 (0.45)
Annualised post-tax return on equity
4.50% 6.99% 7.03% 7.24% (0.25%)
5
Underlying results have remained resilient, broadly in line with FY14
• Statutory result adversely impacted by $9.1M in property impairments
EBITDA slightly lower – improved financial performance of Contracting businesses offset by Mining & Civil segment
Net financing costs have significantly reduced – a consequence of advanced debt amortisation and refinance of equipment finance facilities in May 2015
Group overheads slightly lower than FY14, notwithstanding several one-off costs were incurred
Contracting segment performing strongly
Segment ($M)
Contracting Mining & Civil
Property
FY15 FY14 FY15 FY14 FY15 FY14
Revenue 929.3 856.6 284.0 287.8 5.1 55.6
Profit / (loss) before tax – underlying 33.7 25.8 9.4 15.2 (0.4) (1.0)
Profit / (loss) before tax – statutory 33.7 25.8 9.4 15.2 (9.5) (1.7)
Profit / (loss) before tax margin (%) 3.6% 3.0% 3.3% 5.3% N/A N/A
Operational revenue from Contracting and Mining & Civil segments up circa 6% (i.e. excluding property sales)
• Enhanced Contracting result partially offset by reduced contribution from Mining and Civil business
Improved financial performance of the Group’s Contracting segment aligns with improved market conditions and continuation of selective tendering strategy
Reduction in financial performance of Mining & Civil segment reflective of difficulties in the resources sector
Despite statutory impairments, improved underlying property performance reflective of recent significant property sales, leading to reduced holding and overhead costs
• Residual property portfolio written down by $9.1M to a revised net realisable value
6
Net cash of $151.0M (30 June 2014 – $115.4M) • Significant (elective) debt repayments
in FY15 • Reversal of favourable and abnormal
working capital movements in FY14 Net available liquidity at balance date
$113M, up from $66M over past 12 months
Reduction in property development inventory includes non-cash impairments of $9.1M
Continuing strategic reduction in plant and equipment investment and gearing levels
Current ratio of 1.29 at balance date (1.18 at 30 June 2014) • Achieving strategy to enhance balance
sheet strength
Strong balance sheet further enhanced in FY15 30 June 2015 30 June 2014
$M $M
Assets
Cash at bank and term deposits 182.7 190.2
Trade and other receivables 178.7 149.8
Inventory (property development) 27.6 41.3
Inventory (raw materials) 16.0 15.6
Plant and equipment 144.2 161.8
Intangible assets 27.7 27.7
Other assets 12.8 16.0
Total assets 589.7 602.4
Liabilities
Creditors and payables (current) 273.8 248.8
Interest bearing liabilities 31.7 74.8
Provisions 19.7 19.5
Other payables (non-current) 8.7 5.5
Total liabilities 333.9 348.6
Net assets 255.8 253.8
7
Strategic capital management plan implemented in 2015 • Reducing capital investment levels in
Mining & Civil to more appropriately reflect market conditions
• Increasing capital in Contracting to allow for future growth and access to projects with higher financial barriers to entry
On-market share buy-back in place after considering alternate uses of surplus capital • Return of capital and payment of
dividend considered sub-optimal due to the lack of franking credits
• On-market buy-back considered the most efficient mechanism
• On-market buy-back retains flexibility to consider other strategic alternatives
Substantial capacity built for growth
Capital management initiatives in place Contracting Mining &
Civil Group
$M $M $M
Working capital * 71.6 16.0 87.6
Other current assets 11.3 15.8 27.1
Non-current assets 26.5 134.1 160.6
Other liabilities and provisions (22.5) (5.8) (28.3)
Total tangible assets 86.9 160.1 247.0
Intangible assets 30.5 10.0 40.5
Total capital allocation ** 117.4 170.1 287.5
Debt capital *** - 31.7 31.7
Equity capital 117.4 138.4 255.8
Net available liquidity **** 90.4 22.2 112.6
* Working capital for capital allocation purposes includes cash and term deposits, trade and other receivables and trade and other payables (current). ** Total capital allocation in Contracting and Mining & Civil segments includes allocation of Property and Unallocated assets. *** In addition to equipment finance facilities, the Group has a $25M revolving credit facility which is currently undrawn but fully available for use. **** Net available liquidity includes working capital and allocation of undrawn revolving credit facility.
8
Significant cash balance
9
Significant gross and net cash balances at 30 June 2015 $7.5M decrease in gross cash balance reflects normalisation of working capital and elective debt
repayments $35.6M increase in net cash balance reflects underlying profitability, disciplined practices and property
settlements Contractual debt repayments (principal and interest) of $14.5M due in FY16 – down from $49.0M (including
elective debt repayments) in FY15.
30 June 2015 $M
30 June 2014 $M
Change $M
Gross cash 182.7 190.2 (7.5)
Gross debt 31.7 74.8 (43.1)
Net cash 151.0 115.4 35.6
Significant debt headroom
Facility Facility limits $M Drawn $M Undrawn $M
Equipment Finance 80.0 31.7 48.3
Revolving Credit 25.0 - 25.0
Bank Guarantee 100.0 80.1 19.9
Surety Bonds 250.0 71.7 178.3
Comfortable level of debt with significant headroom • Mining & Civil business self sufficient in servicing debt
Core facility with syndicate of banks comprising ANZ, Bank of Queensland, BNP Paribas and HSBC Equipment Finance facility limits voluntarily reduced by approximately $60M in FY15, aligning with conservative
capital funding strategy and reducing funding costs Surety bond facilities drawn balance decreased by $58M in FY15
• Reflects return of securities on large scale projects completed in past two years and enhanced market demand for bank guarantees as performance security
10
National work in hand remains strong
11
Region Work in hand 30
June 2014
New projects secured
FY15
Extensions secured /
scope adjustments
FY15
FY15 Turnover
Work in hand
30 June 2015*
To be delivered
FY16
To be delivered
FY17
$M $M $M $M $M $M $M
Contracting 1,392 606 90 929 1,159 869 290
Mining & Civil* 449 106 (52) 284 219 146 73
TOTAL 1,841 712 38 1,213 1,378 1,015 363
* Includes $117M in forecast turnover attributable to three year extension at Cockatoo Island negotiated in April 2014, performance of which is linked to the ongoing economic feasibility of the mine.
84.1%
15.9% Work in hand by product type
Contracting
Mining & Civil
47.5%
20.3%
12.0%
15.9% 4.3%
Work in hand by region
Qld NSWVic WASA
Track record of replenishing work in hand - $202M of work added since 30 June
Contracting segment
12
76.6%
FY15 operating revenue by segment
Contracting
Contracting segment was the major contributor to group earnings driven by improved market conditions across the construction sector targeted approach to tendering, and reflective of
successful project completion and key milestone achievements in FY15 enhanced quality of workbook which aligns with strategic objectives
Margins have significantly improved driven by selective tendering approach The commencement of a number of significant and high-profile projects has reduced the
Group’s contracting work in hand position to $1.2B at 30 June 2015 (30 June 2014: $1.4B) Subsequent to balance date, the Group has converted $193M in additional projects to be
delivered in FY16 and beyond
Contracting segment remains strong
13
$M FY15 FY14 $ Change % Change
Revenue 929.3 856.6 72.7 8.5%
Profit / (loss) before tax 33.7 25.8 7.9 30.6%
Profit / (loss) before tax margin (%) 3.6% 3.0% N/A 0.6%
Contracting projects – awarded and completed
14
Name Details Awarded Location Value $M
York & George Sydney CBD Mixed-use development May 2015 NSW 126
Newstead Series Brisbane residential development July 2015 Qld 95
Pullman Hotel, Ibis Hotel and Brisbane Airport Conference Centre
Hotels and convention centre at Brisbane Domestic Airport March 2015 Qld 78
Central Adelaide Adelaide CBD residential development April 2015 SA 70
Summer Hill Flour Mill Sydney mixed-use residential project August 2015 NSW 62
Reserve Bank of Australia Facility Large, secure, facility June 2015 Vic 55
Queensland State Velodrome Velodrome for Gold Coast 2018 Commonwealth Games August 2014 Qld 50
Knox Private Hospital Expansion of existing hospital for Healthscope August 2014 Vic 45
Name Details Completed Location Value $M
Cleveland Youth Detention Centre Redevelopment and expansion of existing facility December 2014 Qld 156
Base Security Improvement Program Security improvement works for Department of Defence January 2015 Qld, ACT, Vic 83
Port Macquarie Base Hospital Expansion
Three-level extension to existing facility December 2014 NSW 68
DHA Ermington Tranche 2 119 new dwellings for Defence Housing Australia October 2014 NSW 39
Mayfair Hotel Conversion of heritage-listed office into luxury suites November 2014 SA 37
Cardinia Shire Council Offices Four-level shire council offices October 2014 Vic 36
Australia Post MPF Expansion Expansion to Melbourne parcel facility April 2015 Vic 30
Contracting work in hand and delivery profile
15
$-
$200M
$400M
$600M
$800M
$1,000M
$1,200M
$1,400M
$1,600M
$1,800M
$2,000M
$2,200M
Work in hand30/06/14
New projectssecured
Extensionssecured / scope
adjustments
FY15 revenue Work in Hand30/06/15
To be deliveredFY16
To be deliveredFY17+
$1,392M
$606M $90M $929M
$1,159M $869M
$290M
Diversified pipeline of contracting opportunities
* Reflects region of management team – projects may be undertaken in other states / territories 16
295
245
213
158
117
78 48 6
Work in Hand ($M) by Industry Sector
Education
Residential
Commercial
Health & Science
Defence / SecureEnvironmentsHotels
Sports
Other
24%
19%
17%
15%
15%
6% 3% 1%
Original Contract Value (%) by Industry Sector
Commercial
Health & Science
Education
Residential
Defence / SecureEnvironments
Sports
Hotels
Other
57% 24%
14%
5%
Work in hand by State (as at 30 June 15)
QLD *
NSW *
VIC
SA
Portfolio mix across a range of industries and regions
Targeting sectors where the Group has extensive expertise and experience
Diversified national credentials in Health, Education, Defence, Commercial, Residential and Retail and several key client relationships across these sectors
Mining & Civil segment
17
23.4%
FY15 operating revenue by segment
Mining & Civil
Despite market conditions, revenue was only slightly lower than FY14 with all mining and civil projects producing a positive gross profit in FY15
Margin pressure on industry has driven reduced profitability of segment Strategic decision to reduce investment in segment to realign with subdued
operating environment
Mining & Civil revenue remained resilient despite tough operating market
18
$M FY15 FY14 $ Change % Change
Revenue 284.0 287.8 (3.8) (1.3)%
Profit / (loss) before tax 9.4 15.2 (5.8) (38.2)%
Profit / (loss) before tax margin (%) 3.3% 5.3% N/A (2.0)%
A number of key projects won during the period
19
Contract Client Mining / Civil contract Commodity
Capel Iluka Resources Mining Mineral Sands
Kathleen Valley Gold Project Ramelius Resources Mining Gold
Southern Cross – Cornishman Pit Hanking Gold Mining Gold
Tailings Storage Facility Sirius Resources Civil Nickel (civil works)
Spillway Remedial Works WA Water Corporation Civil N/A
Logue Brook Dam WA Water Corporation Civil N/A
Mining Contracts Client Status Commodity
Nullagine Iron Ore JV BC Iron Nullagine Completed in July 2015 Iron Ore
Woornack Rownack and Pirro (WRP) Iluka Resources Completed in April 2015 in line with end of mine life
Mineral Sands
Two projects completed during the period
Mining & Civil work in hand and delivery
20
• Includes forecast turnover attributable to three year extension at Cockatoo Island negotiated in April 2014, performance of which is linked to the ongoing economic feasibility of the mine
$-
$100M
$200M
$300M
$400M
$500M
$600M
Work in hand30/06/14
New projectssecured
Extensionssecured / scope
adjustments
FY15 revenue Work in Hand30/06/15
To be deliveredFY16
To be deliveredFY17+
$449M
$106M $52M
$284M
$219M * $146M
$73M
Property Segment
21
Ongoing commitment to capital recycling program for property assets to maximise shareholder value
• Final tranche settlement of Waterloo property to provide $12M in FY16 ($28M including deposits received to date)
• No additional property sales during the period
Book value of remaining property portfolio valued at $27.6M as at 30 June 2015 $9.1M pre-tax impairment charge recognised on certain property assets following a reassessment
of net realisable value on various properties. • Largest impairment recognised on Aquarium Avenue property as a result of proposed changes
to local area plan and uncertainty surrounding compensation arrangements.
Divestment of property assets ongoing
22
Major Assets Remaining Location Property Type
Rue de Chapel retail units Chapel Street, Melbourne Completed retail units
Centra Park Industrial Estate Coolum, Sunshine Coast Development site – industrial
72 Aquarium Avenue Hemmant, Brisbane Development site – industrial
$’M FY15 FY14 $ Change % Change
Revenue 5.1 55.6 (50.5) (90.8)
Profit / (loss) before tax – underlying (0.4) (1.0) (0.6) 60.0
Profit / (loss) before tax – statutory (9.5) (1.7) (7.8) (458.8)
Strategy and outlook
23
National delivery business model with strong credentials across all major sectors Focus remains on ensuring a high quality forward workbook through disciplined strategy of
tendering only on high quality projects Equity capital required for growth has been identified and allocated
• Watpac is only one of a few listed public companies in Australia to undertake traditional construction activities
• Access to debt and capital market a clear competitive advantage – endorsed through $20M increase in bank guarantee facility limit in October 2014
Key strengths • A healthy balance sheet and surplus available funding lines • A focus on building solid stakeholder relationships • Collaborative and innovative work methods • Unsurpassed credentials in the national construction sector across all types of projects • Diversification across geography and sectors
Key focuses of cost leadership, repeat clients, less competitive tendering, targeted work types
Simple strategy – grow thoughtfully
Contracting outlook
24
Despite resources sector downturn, a number of new projects awarded in FY15 from new and long
standing clients Project awards the result of innovative work methods and a collaborative approach to working with
clients Focus remains on enhancing client relationships and work winning strategies. Future prospects dependent on market conditions, including commodity and foreign currency
pricing and general business confidence Business unit part of diversified Watpac Group – a competitive advantage Key objective in FY16 is to maximise plant & equipment utilisation
Mining & Civil outlook
25
Current Mining Contracts Client Commodity
Capel Iluka Resources Mineral Sands
Cockatoo Island Pluton Resources Iron Ore
Kathleen Valley Gold Project Ramelius Resources Gold
Mt Magnet Ramelius Resources Gold
Southern Cross – Cornishman Pit Hanking Gold Gold
Tutunup South Iluka Resources Mineral Sands
Property outlook
26
Group is committed to divesting Watpac’s $27.6M property development asset portfolio in a timely manner
At 30 June 2015, property assets represented a book value of 15 cents per share Commitment remains to divesting all remaining properties in a timely manner With no property debt, all proceeds from property asset settlements will continue to be
reinvested into existing operations and provide additional capital management opportunities
0 to 12 months 12 to 24 months 24 to 36 monthsProperty 1HFY16 2HFY16 1HFY17 2HFY17 1HFY18 2HFY18
Aquarium AvenueCoolum Industrial 146Coolum Industrial 5&6Kingston IndustrialRochedale `Rue de Chapel
Property developments assets anticipated realisation $11.1M $9.8M $6.7M
FY15 performance reflects strong contribution from Contracting segment with Mining & Civil operating amidst difficult market conditions
Solid pipeline of work in hand in Contracting segment across a broad range of sectors
Improved market conditions in construction sector enhances forward work opportunities – focus on repeat clients, less competitive tendering and targeted work types
Downturn in mining sector a risk to future work volumes and profitability – focus on cost competitive solutions and plant utilisation
Focused on capital recycling of property assets including contracted final tranche of Waterloo in FY16, whilst continuing to explore divestment options for remaining assets
With the increased strength of the balance sheet, capital management initiatives were put in place
• Shareholder value to be enhanced through introduction of an on-market share buy-back
• Flexibility retained to pursue other strategic growth alternatives
In summary
27
Appendix
28
Contracting Comprises the Group’s
Construction businesses Delivers quality
construction services across a number of high profile projects in all states and territories in Australia, currently with the exception of Tasmania and Western Australia
Overview of business segments
29
Mining and civil Provides contract mining
services for small to medium projects throughout Australia and civil infrastructure activities in Western Australia
National approach to all activities with strong credentials in mining several commodities and civil infrastructure activities
Property Comprises the Group’s
remaining property development inventory portfolio
Strategy remains to divest all remaining property inventory assets and, with no associated debt, redeploy proceeds to existing operations
Disclaimer
This presentation contains summary information about Watpac Limited and its subsidiaries (‘Watpac’), and should be read in conjunction with other periodic and continuous disclosure announcements. While this results presentation is unaudited, it contains disclosures which are extracted or derived from Watpac’s Financial Report for the year ended 30 June 2015 which has been audited by the Group’s independent auditor. Information contained within this presentation is not financial product or investment advice and is not a recommendation to acquire or sell Watpac shares. It has been prepared without taking into account the objectives, financial situation or needs of individuals. Before making an investment decision investors or potential investors should consider the appropriateness of the information having regard to their own objectives, financial situation and needs, and seek their own independent professional advice. Forward looking statements, opinions and estimates are based on assumptions which are subject to change. Past performance information in this presentation is given for illustrative purposes only and should not be relied upon as (and is not) an indication of future performance. All dollar values are in Australian dollars, unless otherwise stated.
30