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Thank you for holding, and welcome to the Mader Group's Q&A conference call. This investor briefing will be presented by Chief Executive Officer and Executive Director, Justin Nuich; Chief Financial Officer, Paul Hegarty; and Group Manager of Marketing, Investor Relations, Natasha Marti. And it's in relation to the Mader Group's market update and revised guidance released yesterday on 31st January 2022. And I'll now hand you over to Justin. Thank you.
Thanks very much, Lisa. And thanks, everyone, for joining us this morning. And welcome to the Mader Group's Q2 investor briefing and Q&A. As Lisa said, I'm Justin Nuich, CEO and Executive Director. And also with me is CFO, Paul Hegarty; and Group Manager of Marketing and Investor Relations, Natasha Marti. As you would all know, yesterday, we released a market update on our quarterly performance. So we reported our fourth consecutive quarter of record revenue. The group delivered AUD 94.1 million, up 32% on the prior corresponding period in Q2 FY '21. I just want to go through some of the developments and highlights during that period and some of those included the -- sorry, the launch of a new organic startup, which is Mader Energy. This was established to diversify revenue streams and target large addressable markets within the oil and gas industry across North America. We received our first revenue in Canada through recurring work scopes in Fort McMurray in Alberta. We also completed the sale of our 25% equity interest in Western Plant Hire Holdings Limited, generating a post-cash -- sorry, post-tax cash inflows of circa $7 million. And the proceeds of this investment sale will be reinvested in growth capital. Mader also secured a multi -- sorry, a custom-built 3,400 square meter facility, which is due to completion in mid-'22. And this would be a multi-use facility when that is complete. Our ancillary and infrastructure maintenance services remain some of our key growth drivers in Australia. These continue to receive positive feedback from our customers. And we now deliver maintenance across 4 states in infrastructure maintenance being Western Australia, Queensland, South Australia and the Northern Territory. And furthermore, Mader was named Employer of the Year at the 2021 RISE Business Awards. And that was sponsored by Business News and a real tribute to the significant focus we place on our people and our culture within the business. So I'm sure everyone's read most of the detail around that announcement. And we're really pleased to deliver another quarter of record results. And I guess, the solid growth has provided us with the confidence to increase our guidance for FY '22 to a revenue of at least $370 million and a forecast NPAT of at least $24 million. So I'd like to take this opportunity to thank all of our valued stakeholders and investors for your continued support. And Lisa, I'd like to hand back to you for any questions that anyone on the call has at this time.
[Operator Instructions] We do have our first question, and that is from Hamish Murray from Bell Potter.
Congratulations on a good -- another good quarterly. If okay, I've got a couple of questions, but maybe just start with this new business, Mader Energy, you've gone into the United States. I think in the past, we've spoken about the minerals, by amount of mined, that minerals' opportunity being almost 3x the size of the Australian market. How big is the oil and gas opportunity? Have you done much work on that? And I guess, you've won 1 multinational oil and gas company, an agreement with them, but how are you winning business? And what does this business look like? I guess, any details around at all?
Yes. No worries. Thanks, Hamish. Yes, thanks for dialing in on the call. I guess the Mader Energy business, I mean, this is really focused on the onshore efforts initially, and that's a lot of the natural gas compression services across the main, I suppose, shale plays across North America. Yes, we've got some contract compression companies running 6 million, 7 million horsepower across various places across the U.S.A. The total market, it's hard to sort of, I suppose, give a total number. But it's in the tens of millions of horsepower with similar engines to what we maintain across the mining services. And so we see it certainly is as a not a like-for-like industry, but something that we've certainly got some expertise in, something that we've had some history in with people within our business as well. And yes, we consider that a huge addressable market. Paul, I'd like for you to talk a little bit about some of the MSAs and the work that's been done over the other day, if you don't mind.
Yes, sure. Thanks, Justin, and thanks for the question, Hamish. No surprise you've got a couple. Look, the customer feedback has been really positive. So far, we won 1 multinational sign-up to date and many more in the pipeline, I would say. I think what we're seeing is that, that midstream space in that natural gas compression, midstream space seems to be very attractive for us at the moment and we're seeing a lot of positive reception from the customer base about that. These MSAs are multiyear framework agreement, Hamish, very similar to our contracts in the mining space where you operate under a master services agreement, agreed the key terms upfront and then you bid and quote [ state of ] works thereafter. So again, somewhat similar. But so far, so good. I think there's at least 7 contracts in the register at the moment for this business, which was formed. I think it was legally registered in October. So that gives you a sense of how quickly the push has been to get this up and running. And we're seeing some good runs on the board so far.
And how are you guys winning that business so quickly? Do you think there's a space for Mader's culture or its service offering? Or is it price? Or is it just a similar fragmented market?
I think the service offering and the differentiation on quality is going to be key in this market as it is in most markets, to be honest. These large players are tired of seeing poor quality being delivered. And I guess that then links back into the workforce and how that workforce is secured, and that's culture and pay rates and how we look after the personnel. So that's, I guess, one of our competitive advantages that not a lot of other players that we've seen in this space have, and we think it will pay dividends in the future.
And a bit of a follow-on, if I may. Just I've seen the Mader Energy use on one of your social media platforms. I know you guys are pretty passionate about supporting high [indiscernible] in general by buying lots of them. But I mean, you guys now have -- well, after the sale, we'll have $15.3 million of net debt on your balance sheet. It's really low gearing. I mean, are you guys geared up to really start to invest in Mader Energy and the mineral space over there? Or how should we think about what you're going to do with that, I guess, the capital sitting on your balance sheet that can be put to work?
Yes. Look, I guess it's -- and not necessarily only Mader Energy, but I guess there is -- there has been, I suppose, a significant investment into Mader Energy already, Hamish. And really, we'll see how that effort sort of ramps up. If we've got sort of 20 or so trucks full within the first 3 months, and we know we've got some more investment on our hands. That said, the rest of the mining business in the U.S.A. is growing really, really well. And again, will require us to keep up with that. As well as Canada as well. So early days as well for that piece of the market. That said, we're pretty optimistic around that Canadian effort for a couple of reasons. One is that there are some similar customers that we use in the U.S.A. and in Australia, which has a big advantage from where we organically started up the U.S.A. So we see that as potentially being a faster ramp-up. And I guess a similar sort of industry to what we're seeing in Australia with some of the major miners and albeit in some similar commodities and some in oil sands as well with just major ultra-class mining fleets that we can get in and help support. So yes, there's a few balls in the air across the whole North American sort of effort. That's all good problems to have, and we'll continue to service them as they ramp up.
And one more just on Mader Energy. I mean, we've spoken about in the past, these higher margins coming through the U.S. business. And then Canadian margins, hopefully, being somewhere between U.S. and Australia as that revenue comes on. And the unit economics, where do they sit for Mader Energy, rates and also the amount of CapEx you need to put in? Is it closer to Australia? Or is it in between? Or where does it sit?
Do you want to get that one, Paul?
Following the CapEx perspective, Hamish -- yes, I'll jump on that one, Justin. Thanks. From a CapEx perspective, Hamish, they're around about the same cost of the unit that we run into Mader Corporation with the U.S. business or into Canada. So they're not too far different. In fact, the unit's equity is changeable. You could take a Mader Energy unit and put some hot work equipment on it, and it could go to work in a mining job in -- anywhere in the U.S. So pretty interchangeable in that sense, which is helpful. The unit economics, the labor pricing and, I guess, margins overall, we see similar dynamics across the U.S. in both the mining space and the oil and gas space in terms of cost of labor, availability of labor and the margin. So we're not expecting long-term margins to be lower than what our North American margins are at the moment. But obviously, it goes without saying that there is an organic start-up happening at the moment here in this business. So there will be some overall margin dragging in the early months. We're obviously working hard to limit how many months that is, but there will be a bit of a margin impact just in the first few months as we ramp this business up to make it profitable.
One more, if I may, I'm sorry to drag on so much. But just the last one. I think usually, January is pretty strong or the start of the year is pretty strong hiring month in Australia as you hit up all the hiring fairs and use school levers. I mean how is that shaping up? How tight is the market? What's happening with the turnover in the Aussie market? I guess any insights around or how you're setting yourselves up for calendar year '22? And I mean this is the same question, just as an addendum to, I guess, the U.S. head count, how you guys are finding that?
Yes. Look, January has been a strong start for us, Hamish. And you're right, it typically is. Certainly seeing a lot of activity over on the East Coast. And obviously, as we diversify our services with ancillary and infrastructure maintenance. Again, we've got multiple pools that we're able to draw from or source labor from. So that's really strong. Obviously, there's a little bit of limbo around our border opening and when and to what extent that will happen. So just working through those, I mean, it's probably more of a business as usual from the last 6 months really. But yes, there is some significant upside once those borders open and people can travel freely. So all things being equal, we should -- we're looking forward to a big back half of the year.
And the U.S., any difficulties? Or is it a lot easier than [indiscernible] given your small scale in the tracking into new, I guess, I think the new [indiscernible], which they don't get at other businesses?
No. The U.S. is certainly a lot easier to attract and retain staff over there. Yes, more so the attraction piece. It's a different model. It's more of almost like a FIFO model that we see in Australia. So people are able to sort of travel between states and do work in sort of different industries or different commodities that they typically haven't had the access to be able to do. So I guess now that the Mader brand is well established over in the states and is well known about, we're finding that actually better as we grow.
Our next question is from [ Gavin Allen ].
And as we expected, attribute -- and Hamish did ask a bunch of things that I'll probably go cover off. But just a couple of quick ones for me. So we've talked about at least $370 million. It's clear on exploring some of the swing factors that might determine how that might wind up. I mean obviously, the border is opening in one of them. But just some flavor on how to think of the swing factors that might determine the end result. And secondly, maybe there's a conversation we can have about a clear and present opportunity that exists for you if the borders were open and it's not a simple world, but in a theoretical sense, if you had access to the people you need, how many people could you sort of place straight away?
Yes. No worries. Thanks, [ Gavin ]. Yes, I appreciate you joining us. I guess as far as those swing factors go, that $370 million revenue number, it certainly has some risk overlays built into it on a few fronts. And one is certainly around the WA borders and ability to travel freely. I would estimate we probably have around 80 to 100 people that would move back into a sort of East and West Coast FIFO sort of roster, if that was to happen. So again, there's some upside there. The international business, again, we haven't got any massive growth built into that. And I guess what we've learned over the last 6 months is that it is quite -- it is still hard to travel. Again, border closures, ability to sort of reenter the country, that seems to be coming on a lot easier with some of these international border restrictions being lifted. That said, there is an upside if that goes well. And look, the East Coast is certainly up and about. So nothing too much to worry about there. I guess the other factor in there is around if we do have a significant outbreak of some strain of COVID over here in the West. There is some factors built into, I guess, a lower utilization of our workforce as that sort of runs its course and is dealt with. We're probably seeing, typically, 10% or so of our East Coast workforce down at any one time just due to either being closed contacts or actually having COVID over there. So there is some swing factors built into that. I think all tailwinds coming online. Look, hard to say again. But yes, there is certainly some upside if all things go well on that $370 million for sure.
Yes, absolutely. Makes sense. And just one follow-up on energy. And you had said -- Hamish, come [indiscernible], but just for clarity. So it's North America you've talked about, it does seem like it's the U.S. is the obvious beginning for just in terms of having sort of people on the ground there. But it does occur to me that Fort McMurray up in Canada, which is one of the energy hubs of North America in lots of ways, but that's a pretty clear and present opportunity for that business up there. Am I reading that right?
Yes, you are. I guess with the stuff up in sort of Fort McMurray, I guess, it's more the oil sands-based mining. So we're going to get that more from a mining perspective to start with and sort of move the energy piece in sort of later, I guess, around that sort of that Texas, Colorado, the Marcellus Shale, the Eagle Ford and all that sort of stuff. So that's where we'll sort of focus the efforts of the Mader Energy business initially, and then we'll -- once we've grown it to a point, we'll look to extend it sort of outside of those sort of -- yes, correct.
Makes sense, mate. So you'll start it there, but there's opportunities clearly in those other markets over time?
Absolutely. Yes, most definitely.
I'd like to congratulate you guys once again.
Thanks, [ Gav ].
Thanks, [ Gav ].
And our next question is from Jason Palmer from Taylor Collison.
Just a couple of quick ones from me, please. Just in terms of the outlook, could you provide some context in respect of thoughts around how NPAT might convert back up in your assumptions to EBITDA? I'm just cognizant that you've brought a lot of service vehicles on and are planning to bring some more on in the next 6 months. I'm just trying to understand depreciation, D&A in those projections relative to -- given your good guidance at an NPAT line. And you sort of reported a quarterly and an EBITDA line.
Yes. Thanks, Jason. At this stage, we've given guidance of about $370 million line. And what we're expecting is to sort of run those margins out consistently into the second half. But if you're looking for a full year guidance EBITDA number, that would be a reasonable assumption to make.
Okay. And just one other. So I think Gavin covered the other one. Just in respect to the sale proceeds, the $7 million for WPH from memory, can you just confirm now if that's included in the guidance and how much the profit on disposal of that investment was? Because you've known it for a long time, it's very long and, clearly, it's been a good allocation of capital.
Yes. So that's correct, Jason. No, that will be included in guidance. It will be added back. So it's nowhere near included. And then in terms of, I guess, post-tax profit, including selling costs and transaction costs, et cetera, it is set to [indiscernible].
Okay. And just one more, sorry. It sort of just came to mind. I mean you sort of touched on, Justin, that you might be able to place another 80 to 100 heads if you had sort of domestically borders open at an interstate level. Could you also maybe elaborate on the type of margin improvements you might also have, not on those incremental heads, but on the, I guess, the adjustment of the tightening labor market or COVID-related costs that you may not have to wear much [indiscernible] housing people and things like that?
Yes. Sorry, just for clarity, I may not have made myself clear on the last one. I mean we've got about 100 heads ready to come across. As far as unfulfilled roles, it's probably more like 400 plus, Jason, would be probably a more accurate number. As far as sort of margin squeeze on that stuff, I mean we may see some sort of fluctuations sort of, hopefully, up in some of those margins. But at the same time, a lot of these are sort of very long-term customers. So we're in a position where we certainly take advantage of good markets. That said, these are our long-term very valued customers. So we're certainly not gouging them through an up cycle. Yes, that said, some of our premium products are -- yes, definitely coming as -- at a premium, and we can see a little bit of upside margin there.
Our next question is from Marcus Burns from Spheria Asset Management.
A quick one on Western Plant Hire. So I believe that -- and it's a small investment that you [ made prior ]. It looks like it's the only one [indiscernible] on that, both on the announcement [indiscernible] there. I mean, I suppose the future sale, I mean [indiscernible] price. Obviously, this makes a good investment. But is that -- is the answer to that mainly because you go after attractive price or because you nearly sort of have a match [indiscernible] of capital somewhere else or both?
Probably just that the opportunity that came up -- yes, you go ahead.
No. I think that's -- I think it was just the right time. We just launched Mader Energy and pushing into Canada as well. CapEx requirements were there. And it was a strong return, and it all just made sense, I think. I don't know, Justin, if you think differently.
No. Look, absolutely. I mean yes even the -- I suppose the investment [indiscernible] in Western Plant Hire, again, it was just a sort of a timing thing. It was -- we saw it was a good investment. It was available at the time and have the right numbers. And probably a similar sort of thing on the way back out. The opportunity was there and the numbers were right. And again, I mean, it's [ not ] like we're desperate for money for capital. But yes, that said, it was available. It was at the right numbers and certainly gave us a chance to sort of reduce that balance sheet and give us a more free fleet in some of that North American investment specifically.
Okay. That's fair. And then just on the number for the unfulfilled roles. I mean, I know you clarified this [indiscernible], you could fill maybe [indiscernible] 400 would be the actual vacancy rate. Is that -- so you're suggesting that there's a lot of unmet demand currently in, I'm guessing, mainly in WA or there's also in North America?
Look, WA, absolutely. And we're finding even the same on the East Coast with a strong coal and even base metals commodity prices across the board. I guess, we started up that Far North Queensland, hard rock division as well to try and capitalize on sort of that [indiscernible] and Far North Queensland region. And again, a lot of unfulfilled demand there and across the usual suspects on the Queensland and New South Wales side.Yes, look, WA, absolutely, where the industry is definitely feeling the pinch of the border closures just as well as a steel shortage. So we're trying to make sure we get the right people and sort of meet that demand as much as we can. But like I said, if we had 200 people, we're [indiscernible] well short of filling demand.
Okay, noted. And then just lastly on that, is it -- these are border problem? Obviously, the local borders, with the WA border, [indiscernible] as well. I mean if those open, would that sort of -- would that be -- could you meet with [indiscernible] or I guess respond -- find someone [indiscernible] attracts sale in the country? Or is it more a South and East Coast labor and, probably it's WA, or it's also a bit of both, a bit of all those?
Yes, a little bit of both, Marcus. I mean yes, there are certainly -- I mean, typically, around 20% of our workforce are flying in and out of the East Coast. And yes, some of those people have chosen to stay here through for the long term or relocate over here. And some have gone back home to ride it out. So yes, we definitely get some tailwinds if that WA border opened. We are going through the process internationally at the moment. So only small numbers at this stage. But I guess our ability to service the market demand with some international talent is starting to open up and something we'll certainly take advantage of. The trade-up program as well as you guys know, we pumped some good numbers through there and built some talent internally. Part of that new workshop facility is also a training facility as well so that we can actually double down on some of that effort around our premises as well as tradeoffs and also sort of international recognition of prior learning as well. So we try to attack it on multiple fronts. Will we ever meet the demand? I think so. But it's [indiscernible] decline that we'll be in a recruitment-constrained environment for some time yet, I would suspect.
Thank you, Justin, Paul and Natasha, we don't have any -- hang on, we do -- I'm going to say we don't have anybody else in the queue, but we actually have Hamish again. So Hamish, go ahead from Bell Potter.
Just one more. I thought I might bookend it. But Marcus just -- jumped on memory. I have just one thing to ask. Just a quick one about WPH that you sold. I mean, we'll find out in a couple of weeks' time, but I was just wondering whether you could let us know, I guess, the NPAT contribution or the EBITDA contribution that had made in the first half to those quarterlies just because I assume that will drop out after January. I'm estimating 600,000, but just interested in what the number might be.
Yes, that's pretty much it, Hamish. It's around that $600,000.
Okay. So thank you Justin, Paul and Natasha. We don't have any further questions in the queue.
All right. Thank you very much, Lisa. And look, thanks to everyone that joined us on the call today. And again, we appreciate your ongoing support.