© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you for standing by, and welcome to the Worley Half Year Results 2023. All participants -- only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] The session will conclude on the hour.
I would now like to hand the conference over to Mr. Chris Ashton, Chief Executive Officer. Please go ahead.
Thank you, and welcome everyone. Thanks for joining Worley’s half year results for FY 2023. I'm going to be presenting these today with Tiernan O'Rourke, our CFO.
Please moving straight on to slide 2. I want to acknowledge the Gadigal people of the Eora Nation as the traditional custodians of the land on which we meet today. We acknowledged and we recognize that continuing connection to the land and waters and thank them for protecting this coastline and treat the systems since time immemorial and for their unique ability to care for country and their deep spiritual connection to it. We pay our respects to the elders past, present and extend that respect to all First Nations People present today, whose knowledge and wisdom has ensured the continuation of culture and traditional practices.
Moving to slide 3, I just remind you to review our disclaimer shown here. And moving on to Slide 4. In terms of the agenda for the day, first, I'll provide an overview of our business performance and strategic progress over the period as we move further toward achieving our ambition. Tiernan will then add further detail on our half year results. And finally, I'll provide a market update and outlook statement before opening for Q&A.
Moving on to slide 5. Look, I want to leave you with three key messages. First, we've delivered on the growth outlook we provided FY 2022 and with momentum building strongly, we see a clear path to increasing revenue and margins in the medium term.
Second, we're delivering on our strategy and benefiting from the increasing customer investment across all of our sectors. And finally, as a high value and trusted provider of sustainability solutions, we're successfully unlocking long-term value from our diversified markets.
Moving on to slide 6. I'm going to take you through our business performance illustrating the progress we're making against our strategy.
Just moving on to Slide 7. Look, we've got a clear purpose, a clear ambition and a clear strategy, which guides us towards our business of the future. And as you'll hear today, we're delivering the benefits of having the right strategy, the right skills and the right leaders. Our customers look to us as a trusted partner to bring solutions they need beta and our leading position in the market we serve, with a strong and long track record of delivering complex integrated projects, which enable the energy transition and we deploy scarce resources at a time when there is growing demand, which gives us -- it gives us significant competitive advantage.
Moving on to slide 8. From a health and safety point of view, our values guide us as we support our people to live healthy lives, to respect one another and to feel included, keeping our people safe has and will remain our highest priority. We continue to enhance the way we work, and this half we've embedded psychosocial factors into our life programs. We're developing our people through skills and capability building.
In November, we launched our Appreciate program, which facilitates peer-to-peer recognition, which has really been well embraced by our people. We're placing particular emphasis on fostering inclusive leadership. We have many active global people, network groups, some of which are depicted here. It's important to us to support the communities in which we work. We were recognized recently for our work by the Canadian Council for Aboriginal Business.
Moving on to slide 9. We continue to deliver on our ESG business commitments. We're pleased with the level of external recognition we're achieving and we retained our AAA rating by MSCI for the seventh consecutive year, and that gold rate, gold rating with EcoVadis punches in the top 10% of industry peers. ISS upgraded our ESG corporate rating to prime, which means our tradable bonds and shares qualify for responsible investment. And we received the best in class descriptor in relation to our S&P rating as the Dow Jones Sustainability Index leader.
These ESG ratings highlight why we're increasingly being included in sustainability focused investment funds, modern slavery, risks remain a focus area for the business and we continue to undertake a high level of due diligence checks off supplies and customers. And we're committed to increasing our level of transparency through our recently issued third modern slavery statement.
More than half of our global workforce have internal accreditations in sustainability, helping us bring sustainable solutions to all we do. 48% of our graduate intake in the heart or women as we continue to make progress on our diversity commitments. And finally, cybersecurity remains our focus and we retained our certification with ISO 27,001.
Turning to slide 10. Our first half year results – our first half year results reflect our customers confidence in our capabilities and experience in delivering integrated solutions, which accelerate their transition to a sustainable future. We've continued to see improvement in key metrics as momentum in our markets continues to build.
Aggregated revenue is up 19% on the prior corresponding period. This reflects growing demand for our services as customers look to us to help them develop their traditional and sustainability related projects.
Our underlying EBITA of AUD 283 million is a 13%, compared to the prior corresponding period, in line with our expectation margins excluding procurement have been sustained period-on-period at 6.1%, including investment in areas such as global software platforms, for which we will see the benefit in FY 2024 and beyond.
Sustainability revenue now accounts for 39% of our total aggregated revenue. This includes integrated gas at 8% of total revenue, which we regard as a transitional markets. We'll come to continue to assess how we define our sustainability work in consideration of the evolving global standards.
Sustainability related work is now 66% of our factored sales pipeline. Our backlog has grown 9% in the past year illustrating historical growth and affected sales pipeline is now moving into backlog and revenue, and the Worley board is determined to pay a final dividend of AUD 0.25 per share on front.
The group continuously reviews the business portfolio to align with its strategy and ambition. And it's important we focus our energy on businesses, which deliver our strategy. Today, we announced the sale of a turnaround and maintenance business in North America. The details of which can be found in our separate ASX announcement this morning. These assets are treated as a disposal group held-for-sale in the balance sheet. After selling costs and the allocation of intangibles and before tax and non-cash and non-cash post-tax loss of AUD196 million has been recognized. The transaction supports our strategy to deliver high value solutions in growth markets and their ambition to grow our revenue from sustainability related business across the portfolio.
Moving onto slide 11. The chart on this slide show our half-on-half trends and growth rates compared with the prior corresponding period. I'm pleased with a positive momentum across our key metrics. The true sign of progress is in our underlying earnings, which was up 13%. Earnings these half were almost as high as the second half of FY 2022, which considering our usual half-on-half seasonality impact further demonstrates our growth.
Our headcount is at 9% over the last year, our ability to ramp up quickly in response to customer demand is aided by our global integrated delivery team in India, which has grown 23% across the same period and we have the framework and capability to place and hire 3,000 people per month and our time to hire has remained relatively steady throughout half one 2023. Our other leading indicator metrics suggest strong future growth. Backlog is up 9% and factored sales pipelines of 34% over the past 12 months.
Moving on to Slide 12. Our growing pipeline, bookings and backlog show a clear path to increasing earnings in the near to medium-term. Our factored sales pipeline provides a snapshot in time of all open opportunities factored for the likelihood of the project proceeding and being awarded to Worley.
Our pipeline continues to grow up 16% in the half. Our rolling 12 month bookings represent the value of all project wins from the prior 12 months at specific points in time. This chart shows our project wins are clearly trending upwards. They're up 23% in the half to almost AUD14 billion.
Bookings are added to backlog net of any revaluations. We've seen backlog grow by 7% in the half. Clearly, the trend across all these three charts is increasing the proportion of sustainability and related work, which now contributes 40% of our backlog just up from 28% just six months ago. These factors are very positive for growth in the years ahead.
Moving on to Slide 13. Our bookings are up across all of our sectors. Our AUD6.9 billion worth of revenue won in the first half marks a 32% increase on the prior corresponding period. Our average sustainability related project size is increasing, indicating sustainability projects are increasingly moving into subsequent phases.
Our global scale and diversified business, as highlighted by the selection of significant project wins which are listed here on the right. These range from strategic awards and early phase work such as the Woodsmith project for Anglo American and the UK to the EPCm fertilizer project with Ma’aden in Saudi Arabia to our ongoing work with BP in the Gulf of Mexico.
Our traditional work continues to be an important part of our future, although we are seeing our sustainability work growing at a higher rate. We remain committed to our critical role in supporting our traditional customers move toward a low carbon future, helping them become cleaner, more efficient and digitally enabled.
Turning to Slide 14. Worley has unrivalled experience in shaping the global energy transition. Our first half result reflects the confidence our customers have and our capabilities and experience to deliver integrated solutions which accelerate that transition to a sustainable future. This trust has been well earned. As you can see here, we're developing and managing some of the world's largest and most innovative assets.
Internationally, were a global leader in nuclear power technology design and project management delivery, as well as a global leader in solar, onshore, and offshore wind, hydroelectric generation facilities, and we own the technology and deliver about 80% of the world's sulphur removal facilities.
Our breadth of capabilities is unique and when coupled with our global experiences, experience puts us at the center of some of the planet's biggest challenges. This has posted the forefront leading the way and shape the energy transition both in the global arena and also here in Australia.
Moving to slide 15. If we live in to some of our home market here Australia, we work across all aspects of the energy sector, major resource projects, and infrastructure development and management.
Let me take a moment to put that into context. We operate about a third of Australia's power generation fleet and we're one of the largest independent wind farm operators where the engineer record for many of Australia's major iron ore offshore and onshore oil and natural gas facilities. We're a major enabler of Australian small, medium, and large businesses into the energy chemicals and resources industries around the world. And well Australia's largest exporter of high value services.
For this reason, we believe we're well-placed to support Australia's decarbonization agenda and protect its critical infrastructure. The growth in our sustainability-related work demonstrates our capabilities and networks are becoming increasingly important and valuable to both the global and Australian companies with which -- customers with which we work.
I'm now going to provide you with a deeper picture of the work we do by looking at a few specific winds from the half. Moving to slide 16. Northvolt is developing a lithium-ion battery gigabyte factory in Sweden, which aims to produce 60 gigawatt hours of cumulative storage, enough to supply batteries for about a million costs. Whilst we're involved across most of the battery materials value chain, the development of active battery with active materials is one of our key strengths.
Moving on to slide 17. Our work with ENOWA, a subsidiary of NEOM, supports the creation of a circular economy. This award highlights the strength of our end-to-end offering which starts with our expert consultants in the early phase of the project, who bring an innovation mindset to help tackle complex challenges by delivering on such volume-based goals, we are often able to secure the lot of bass work.
Moving on to slide 18. Our strong relationship with BP spanning both traditional and sustainability-related work is highlighted through the Kwinana and Khazzan gas project awards. We've been working Kwinana for over 25 years and now we're completing the feat on its conversion to renewable fuels facility, part of a larger program of decarbonization work we're executing for BP across their global portfolio.
Turning to slide 19. We've been working with a Kuwait oil company for over 20 years, and this award continues that relationship. In addition to the extension of our traditional services, we'll be implementing projects to drive efficiencies and new technology solutions to develop solar and water projects.
Turning to slide 20, I'm going to hand over to Tiernan who's going to provide further detail on our half year results. Tiernan, over to you.
Thanks, Chris. And good morning, everyone. My section today will focus on three key areas; first, what drives our results; second, our revenue and margins and where they're both going in the near to medium-term; and finally, an update on our strategic investments.
Turning to slide 21. Our financial performance as Chris has already outlined improved again this half consistent with our outlook last August with aggregated revenue up 19% supported by both of our regions. Revenue in the America is up 21% compared to the prior corresponding period, customers continue to spend especially in relation to sustainability projects.
Inflation Reduction Act is providing tax incentives, leading to a noticeable increase in new opportunities particularly in low carbon, hydrogen, and carbon capture, use and storage.
EMEA and APAC investment continues to focus on energy security, building resilience into the supply chain and accelerating the sustainability shift as a long-term thematic. We're building trust and partnerships with our key customers as a result of our ability to support them with their decarbonization goals, technology, standardization and replication. The growth in our revenue and margins is reflecting this shift in sentiment.
Looking at group profit, we've delivered an underlying EBITDA of AUD283 million in the half, up 13% over the prior period. On cash, our underlying net operating cash flow is AUD129 million, a 17% increase compared to the first half of FY 2022, albeit last year was a somewhat disruptive period.
Cash outflows in this current first half were impacted by the planed movements in working capital to fund growth. And at the corporate level, the cost of company-wide multi-year software license renewals, which were negotiated early and paid upfront to maximize available discounts and avoid further inflationary impacts.
Cash collection at the half is at 67% of underlying EBITDA, consistent with phasing and growth with day sales outstanding steady at around 63 days. We expect cash collection to be within our target range of 85% to 95% of EBITDA across the full financial year.
Our capital management position supports our growth plans, leverage is at 2.4 times and within our covenant definitions. We've now delivered AUD367 million in annualized savings through our cost savings initiatives, which are delivering long-term benefits and we are now very close to our target run rate of AUD375 million.
Moving to slide 22. In the top EBITDA, while we are comparing second half last year with first half this year, and as you know the second half is usually stronger than the first half and so it's a good test of our momentum. You can see that while earnings are growing from volume, there is a mixed impact as the result of procurement revenue increasing substantially as we expected. Also, most of the benefits from our cost savings initiatives have already been realized in previous years and we spent approximately the same amount on our strategic investment as in the prior half.
In the bottom EBITDA margin, we show underlying EBITDA margins without the impact of procurement revenue. Overall, the reduction in margin compared to the previous half is explained by our typical half-on-half phasing impact, particularly caused by the European and North American summer and seasonality in maintenance activities -- need the first half professional services margin is up 0.5 of a percentage point on the previous year's second half margin as better pricing flows through.
We've also been adjusting some of our costs to accommodate the growth in future activity in preparation for FY 2024 and beyond. An example of this is technology software licenses that I mentioned earlier, are required to drive future activity in the business.
These company-wide multi-year deals were signed in the first half take advantage of discounts and start to be expensed in FY 2023 at the same time as we are still decommissioning old and unsupported applications. These old assets are still licensed in FY 2023. This creates short-term extra cost which has lowered the first half margin somewhat. This increase though will normalize in FY 2024 when the transition process is complete.
Importantly, cost increases are not linear as we grow, but we have very good visibility and control of them. With disciplined pricing, rate increases are already in the backlog and delivering aggregated revenue at higher margins. This margin expansion trend is mirrored in the fact of sales pipeline.
Moving to slide 23. There are three main areas which indicates little benefit from margin improvement in the near to medium term, each of which is additive. First competitive advantage. Our global scale and our leading position in sustainability markets combined with our strong track record in delivering large scale projects is of increasing importance to our customers that the quantity, scale of their sustainability, and traditional investments increase.
Higher margins are being seen in the increasing number of sustainability projects progressing to EPC and EPCM phases. As you know, we are reporting on a quarterly basis on the volume of small contract wins, many of which will progress larger EPC and EPCM contracts. Growth in these contract volumes has been consistent this year as you've seen from our announcements.
Second, supply and demand dynamics are facilitating gross margin improvement across our traditional and sustainability professional services contract. Growing market demand is contributing to higher margins and a higher volume of the sole sourcing of contracts. You may need to increase urgency of delivery, further improving the profitability of sustainability contracts. There is an increasing demand for Worley's experienced resources who have the right skills deployed effectively across a global footprint.
And third, we expect to benefit from further operating leverage in the medium term. We've almost reached our target run rate as I mentioned. Other than the timing of the transition costs that I noted earlier, costs are being optimized as we grow.
We're seeing the impact of our competitive advantage and disciplined approach to pricing come through in our backdrop. Our average gross margin excluding procurements backlog increased.
Furthermore, our backlog is being converted to revenue at a faster rate with 55% of backlog expected to be delivered in the next 12 months compared to 53% in FY 2022. Much of the current backlog will translate into aggregate revenue therefore in FY 2024.
Our factored sales pipeline has seen a similar rate of increase in average gross margin for placing particular focus on eliminating low-margin contracts with boost the margins to market levels or to cease undertaking the work and reallocating scarce resources into higher margin work.
Evidence of this is that contracts with low-margin in the funnel have been managed to 2% in the last 12 months. And that's half of what it was 12 months ago. We're maintaining strong rates across both sustainability and traditional work, even as we increase our prices and are focusing on optimizing disadvantage as the market evolves.
In summary, beyond FY 2023, we expect to deliver an underlying EBITDA margin higher than the last two years average margin before procurement. And we estimate FY 2024 average margins to be 7% plus, coupled with revenue increases as well.
Lastly, on slide 24, from the start of FY 2022, we committed to an investment of AUD 100 million over three years, to help accelerate organic growth in targeted sustainability related markets.
On the left on the slide, you can see some of the areas we're targeting with this investment and the emerging value we're creating. The growing pipelines and the value of the wins demonstrate we're investing and succeeding. On the right, we've provided information on where the investment is being spent in FY 2023.
This half we focused on planning, capability building and digital enablement solutions. For the second half we'll further focus on an advisory capabilities, new solution development and partnerships. This current commitment will be completed by the end of FY 2024, unless there are further gains to be made from continuing investment, this cost will cease from there.
I note for completeness, that there's been no change in how we defined above and below the line items, nor our reimbursable contract focus, the details for both of which are outlined as usual in the appendices. In summary, as a CFO, I can say, this has been a six month period that sets us up well for the future.
I’ll now hand back to Chris to complete the presentation. Chris?
Yes. Thanks. Thanks, Tiernan, for that overview. I want to now take you through our outlook. In line with our commitments to provide increased transparency on our disclosures, which is in response to feedback we've received from yourselves, we’ll continue to provide more detail regarding the progress we're making against our strategy and the drivers of our business now and into the future.
Just moving on to slide 26. Our market update shows, we've positioned ourselves in high growth areas. We’re outperforming the overall ECR market. The weighted average growth in FY 2023 for our addressable market remains in line with that -- which we communicated at our FY 2022 results in August, namely 13% to 15% and our earnings growth over the first half demonstrates we're well on track to achieve this. Our sustainability related work is a key contributing factor in driving the growth.
Moving on to slide 27. Look, these are the building blocks that underpin our medium term outlook. Our leading indicators show continued growth in our addressable market, meanwhile we're expecting increased market share on the back of the strategic investments we've been making.
Margin expansion will be driven by our nimble approach to supply and demand dynamics. And we are clearly and actively prioritizing high margin opportunities. This is further supported by the significant shift we're seeing in sole sourced work and long term partnerships with our customers.
Our investments in technology and digitalization will enhance asset efficiency and business productivity. These building blocks provide a clear path toward our aspirations to have 75% of our revenue from sustainability related work by 2026. And we expect this drive -- this to drive revenue growth and further margin expansion that Tiernan has referred to.
Moving on to slide 28. This is quite a different outlook statement in how we presented it today to that of the past, deliberately so based on feedback we've received from yourselves. In FY 2023, we expect underlying EBITDA margin excluding the impact of procurement to be similar to FY 2022 as we continue to invest in the business. We're managing inflationary impact through the reversible nature of our contracts and remain optimistic that in the absence of any deterioration economic conditions, FY 2023 earnings will be broadly consistent with consensus.
In the medium-term, we have the visibility through our backlog, factored sales pipeline volume and embedded margins that revenue will increase and EBITDA margins will continue to expand to over 7% excluding procurements. But over the long-term, we see further EBITDA margin expansion potential. The pictures good.
Turning to slide 29. Before we move to Q&A, I'd like to remind you all of our key messages. First, we've delivered on the growth outlook that we provide at 2022 -- in FY 2022 and we see a clear path to increasing revenue and margins. Second, we're delivering on our strategy of benefiting from increasing customer investments across all sectors. And finally, as a high valued and trusted provider of sustainable solutions, we're successfully unlocking long-term value from our diversified markets.
So that concludes the presentation. Thanks for joining the webcast and Tiernan and I look forward to answering any questions you may have.
Thank you. [Operator Instructions] The first question is from James Byrne of Citi. Please go ahead.
Good morning Tim, can you hear me okay?
Yeah, we can hear you. Yep.
Great. Yeah, just wanted to dig into the FY 2024 EBITDA margin outlook of greater than 7% and maybe just pick apart some of the drivers there. So backlog, for example, significant more sustainability related work in that 40%, up from 28% in the last half. Sounds like that's going to be quite back weighted, you said half of the backlog will be delivered in the next 12 months. But can I assume that that sustainability related work doesn't really benefit FY 2023. And that's a large driver of FY 2024?
And then, secondly, there's that impact to margin that you flagged in your chart of movements that 0.6% downward impact on margin from other costs. And I wanted to understand, how one-off that would be or whether it's going to flow into future periods as well?
Yeah, thanks James. Tiernan hear and that's an important question, and I think you've got it and you've got the building blocks there. What important is that the backlog, increasing margins is already flowing into FY 2023. However, we are setting ourselves up for the future. So those other costs, which I mentioned were not linear, will essentially hit on a run rate basis 2023 and result in us having a flat margin in 2023. Those largely disappear into 2024, because the business is larger. And as a result, we get a step-up in the margin in 2024 at the same time as revenue is increasing.
So that's the building block is that the costs are in transition, they are short-term and by the time we get to 2024, they are normalized to deliver the revenue that we are forecasting into 2024. So, I think importantly, you can see on that slide, where the 0.6% is that the margin has actually gone up, 0.5 percentage point in the half and that's the important thing is that the backlog is starting to flow. But as we've said in the presentations, the majority of the – of the contracts with the higher margins will start to flow into from the beginning of FY 2024.
Got it. Okay. My follow-up then is just on headcount. You know, if I, if I quote, you guys from six months ago, you talked about we're starting to hit – we're starting to see our earnings growth become somewhat disconnected from our headcount, as evidenced by our productivity measure. Your headcount obviously increased a bit but anecdotally, I've heard that you have turned down work, because of labor constraints, and maybe that's geography specific to Australia. But can you help me out with some logic here, so industry gross margins do appear to be widening maybe that's partially offset by the impact of higher labor costs? Because you've obviously spent the last few years moving some of your labor to India, for example, where there aren't the same sort of constraints in developed markets, would you expect that your operating margin could actually increase more than the broader industry?
Let me take that one. So look, yeah, we have turn down work. We've turned down a low margin work and work where the customer wanted us to take terms and conditions that we're no longer prepared to take. So it wasn't because of labor constraints. It was actually quite the opposite. It was about allocating the labor to where we get high margin and in terms of conditions that reflect a risk weighted return. We're no longer willing to take unacceptable terms and conditions. And we're no longer willing to take low margin work, because we don't have to. And that's the essence of it. And that's the confidence that you think, I hope you see or feel in the conversation we've had today. We do not any longer have to take a contract just to generate revenue, just to keep people busy. We have the ability to allocate our highly skilled resource and point them at opportunities and customers that give us the margin return and not to give us terms and conditions.
What we're actually seeing is, the amount of sole source work that we're now getting is increasing, with our big strategic partners, and it's increasing under frame agreements, global frame agreements we've got and those customers – we're going to appoint the resource to. They're pivoting the good terms and conditions contractually, the favorable margins. So yes, we have turned down work, absolutely. And we'll continue to do that. If it's low margin, and its contractual terms that we don't like.
I might just add to that, James that headcount is up 9% in the year, and the global integrated delivery service in India is up 23% on a headcount basis. So we are still able to – to bring in the resources that we need, and we can be selective as Chris has talked about, importantly, the utilization issue you talked about, we're operating and have operated for the last now three years at over 90% utilization. That's really optimal level of utilization.
If you push people any higher than that, they'll blow up. So we have to make sure we continue to bring people in and be selective to Chris's point. There's no point in taking contracts where scarce resources are allocated for in some cases a number of years, if the margin is not appropriate.
Got it. I'm sorry, then just as an extension of that. So with GID up 23%, you've got this other cost into IT, and you flag market share gains. Could I assume that those market share gains that you're targeting are in professional services, which is inherently higher margin?
Yes. That's correct. In fact, if you look at the announcement we made today with the North American turnaround and maintenance business, that's a really good business. I want to be clear and I'm delighted that it's been bought by common industrial services, but it's a low margin business. It ties with working capital. It's a lower margin business and our focus is to build, grow our professional services business, which is of a higher margin.
So we talked about portfolio rationalization and the announcement today is very much a reflection of a deliberate strategy to manage the portfolio with an intent of focusing on the high value services we offer. And with that, increase our margin.
Great. Thank you.
Thanks, James.
The next question is from Richard Johnson of Jefferies. Please go ahead.
Thanks very much. Tiernan, just continuing on the detail on your 2024 7% assumption, can I just clarify what we should think about procurement revenue in that year? Do you just assume it's flat year-on-year or what was your thinking there?
Yes, Richard, I would probably assume that it's going to be -- it varies quite significantly and suddenly depending on the mix of contracts, but it's going to be as you've already seen, much higher this year than it was last year. To such an extent that it's likely that it will be sustained at that level. I don't think it'll go hugely higher unless there are some other contract wins and there may be other contract wins. But if they're not large, we would announce those contract wins and then you would have to factor that into the procurement on the basis of what we have now. It's probably going to be about the same.
So that's very helpful. Thanks. And then presumably, the number that you're giving adjusts for the disposal?
No, it does not, which is why if you look, Richard, in the separate ASX announcement about the turnaround business sale, unfortunately, the deal was literally signed overnight and which is why they coincided we would have preferred to do it a bit earlier, but that was just the way it dropped. But if you look at that ASX announcement, there is a pro forma where we've done a pro forma analysis on FY 2022 numbers, Richard, so you can actually see the impact of it, but the numbers that we're quoting still include, because the completion won't occur until later in this half.
But the point, I think the underlying message is that that the disposal of that business which had a diluted impact on our numbers to-date, that will disappear and that will add momentum to our growth projections from a modeling point of view. And if you notice, we said 7% plus.
Yes. So very simplistically, if it was 7% on a like-for-like it would be 7.5%?
In the pro forma, you'll see that we've indicated that the EBIT or reported EBIT margin at 30 June, 2022, which was 6.0% would have been 6.5% without that business.
Got it. Yes. Okay. So that's certainly, that's okay. That's very helpful. And then can I just clarify, Chris, that maintenance business, are those margins at a cyclical low and I mean, or kind of how does it look relative to it's cycle?
Yes. Look, it's – so it's interesting and it's a good question because the turnaround – the turnaround aspect of that business is mandated by regulation in the US. So the customer may be able to delay the turnaround, but they can't cancel it. And so they're always planned. So it's not as if they don't go up and they don't come down, the long-term and the long term demand on that resource is pretty steady. So the margins have been typical – typical margins of the past will be what we would have thought – what we expected lead again to the consideration of the sale to be what you would see in the future.
The assets have certainly been used more now post-COVID, so you'd expect it to be. So just to give you an example these things are – this is a good business, full of good people doing good work, but it's very manually intensive, it can be painting, it can be removing insulation, it can be mopping up spills of oil, it can be chipping away concrete on the maintenance side. On the operation side, it's the basic operations of the facility, which there's not been high margin work for us anywhere in the business globally.
Got it. Thanks. Are there any of the other obvious assets that would drop into that you've got the drop into that category as well?
Well, we're committed to evaluating our portfolio and driving toward a higher value, high margin work and we'll continue to do that as we continue to evaluate the portfolio. So I think that gives you an indication.
Got it. That's very helpful. Thank you very much. That's it from me.
Thank you.
The next question is from John Purtell of Macquarie. Please go ahead.
Great. Chris and Tiernan how are you?
Yeah, good. Thanks, John.
I just had a couple of questions, please. Just in terms of Chris, if you could sort of sketch, I know there's a lot of detail there in the press. But if you could sketch out which regions you're seeing most positivity at present? And then secondly, obviously strong revenue growth in the first half, should we expect similar rates of revenue growth in the second half to what we've seen in the first?
Yes. So just in terms of the intensity of activity, we're seeing intensity of activity increase across the globe. What's interesting, the different regions here in Europe. It's been on this sort of energy transition sustainability journey quite a while. The only thing that will seem slow down in Europe is chemicals investment because of high gas prices for feedstock.
APAC, again, India 23% increase in our GDPRD in India. Interestingly, what's been remarkable, John, in the US, is the impact of the Inflation Reduction Act. And we're seeing that there's been a catalyst for increased levels of investment interest in America, so what we're seeing is increased activity levels across the globe in all of the regions. But over the last six months, it's kind of – it's a different – it’s starting point has been slightly different with the Americas.
The impact of the Inflation Reduction Act really coming in and positively impacting investment decisions by our customers. Were already in conversation with customers, John, who are specifically referring to investment as there’s been a lot as a result of the IRA. And in terms of revenue growth for the second half, yes, we expect to see revenue growth in the second half. So, we did say that the addressable market was growing at 13% to 15% this year. So, acknowledging that the second half phasing is always stronger, but we are we are expecting to see continued strength in revenue growth in the second half as well.
Thank you. And just a final one on resources that obviously grew strongly in the period, just in terms of the drivers for that, that been impacted?
Yes, look, just the -- well, what is the demand for our services provides opportunity to recruit people and I do say utilization has remained high. So, we're hiring people and we're putting the work.
I think also our purpose; our ambition is allowing us to attract people across all the demographic across all regions. So, yes, looking at just increased demand and also some -- we think about hiring ahead of the curve, but hiring people in and we're able to put them to work straight away. So, just overall demand increase on services, John, if I understand your question.
Just to check you mean headcount or did you mean the resources sector?
Yes, the resources sector.
Resources sector. Well, I'll tell you what the Americas is just -- John, it's beyond anything I've ever seen before. And it's driven by geopolitical tensions, the drive to be more independent in terms of critical resource. But if you think about some of the majors that are investing the big resource majors, we're seeing focus of them in the Americas, not just North America, not just in Canada and the US, but also in Latin America. So, yes, for sure, step change in interest and investment commitments in North America, big, big opportunity for us, John.
Thank you.
The next question is from Nathan Reilly of UBS. Please go ahead.
Yes, good morning. Can you hear me?
Yeah, we can hear you Nathan, yes.
Tiernan can I just get a quick update on your views around dividends. And also sort of capital allocation, you have leverage targets going forward, just noting that you're guiding to a lower sort of payout ratio going forward.
Sure. So, on dividends as you've seen, the Board is determined to pay a AUD0.25 per share dividend and I think that is evidence of the confidence they see in the business and certainly, we, as management, see in the business.
I think we have a long-term target now for dividend payout ratio of 50% to 70%. And I think you'll see in the ASX that we've said that in the medium term with the growth of the business, I'd expect to see that the business would grow back into that range because at the moment that AUD0.25 on a half, it was 85% payout ratio. So, post-COVID we're growing pack into our target range.
I think in the next couple of years, we'll grow back into that range and then over time, we probably will fend down to the lower end of that range. So, we are a strong cash producing business.
In terms of capital allocation, we do have investments, right. There are investments in our growth units, there's investments we can make to improve our outlook, to generate more risk-adjusted returns. So, we will need capital. So, I think it's a balance between rewarding our shareholders with adequate dividend payout but also putting cash – surplus cash back into the business and therefore keeping our leverage down.
On leverage, as you would have seen it our leverage just keep down at marginally into the range of 2 to 2.5. And that's the target range now you'll see us calling 2 to 2.5 times as our target range. And similarly, as the business grows, and particularly now post the turnaround business sale in the US, which proceeds from which will go down to pay down debt. We will trend back to the lower end of that term that leverage range in the – in the medium term. And that's a good position to be in, because it gives us the flexibility to flex that leverage muscle as we grow and as we need to invest. So it's all a bit of a balancing act there. But I think it's all coming, it's certainly from what we can see forward. It's all coming into balance as – as we as we get all the discipline right.
Good one. Thank you. And in terms of your opportunities to allocate that capital going forward. Post Jacobs, the ECR acquisition, how are you thinking about M&A versus organic investment?
Well, hopefully you've we've demonstrated today that we also have a D in the M&A. So, Divestment's in terms of portfolio management is important, I think we still are of the opinion that we don't need to buy for scale. But we do need niche capabilities and that is certainly an area we are looking at, we're not talking huge amounts of capital or that leverage target of two to two and a half if we operate at the bottom end of that range. Some of these smaller opportunities would be able – to be absorbed within that target range. Plus of course, there's also the recycled cash from the business.
So I think it sets us up pretty well, where we don't have large lengths of capital. Of course, if we have very large lengths of capital, then we would certainly think differently about whether we would need an equity injection for that. But at the moment, we don't see opportunities that way. We see a lot of opportunities organically. And then as I said, maybe adding on some smaller M&A opportunities, but at the moment, the multiples are still quite high. And, we haven't bought anything, but we're still very actively looking for those opportunities.
Understood. And just final question just on the 100 million strategic investment, which you've obviously outlined prior, just that 30 million that you you've put into the business last year. Can you give us an idea or are you tracking – able to track just what the financial returns on that investment have been just in terms of some of the opportunities that investment has thrown up for you?
Well, let's – maybe let me come in then Tiernan come, if you look at our future factored pipeline, 66% sustainability. Now, that's a reflection of the early mover advantage and positioning the money that we've invested abroad. So what you're seeing is the return on that investment incurred to-date is giving us the quantums of sustainability revenue, both growth in both our backlog and our future pipeline that we talked about. And we do you know, we do look at it on a – on a more granular level. But if one of the slides in the pack talks to – the amount of revenue that would have been generated in each of the in each of the areas, it's more specifically, but it's giving us a lot of traction, Nathan.
Okay. Thanks for taking my questions. Much appreciated.
The next question is from of Rohan Sundram of MST Financial. Please go ahead.
Hi, Chris and Tiernan. Just the one for me on the -- just how are you seeing the competitive landscape at the moment, you talked about maintaining high win rates, has there been any improvement in that, or you stabilizing it high? And has there been anything in the market dynamics that is working in your favor?
Well, I think there's a long-term trend in the market, which has worked in our favor and they've grown and that is the factors. There's less competitors in our space now than it was three years ago, five years ago, 10 years ago, again, there's been an ongoing consolidation or strategic decision made by some traditional competitors to pull out of the market.
So the market dynamic that the competitive dynamic that we already did today, I say, we're in a stronger position than we would have been just a few years ago, given the lower number of competitors. But also we began our shift and focus on energy transition and sustainability over two years ago, and we made a set of strategic bets that weren't necessarily guaranteed, and I remember two years ago, or two-and-half, three years ago when I first had -- when we first talked about our strategic pivot, the kind of conversation we have on these calls, but those strategic bets have paid off. It's given us early mover advantage. It's allowed us to align very strongly with the pivots that our customers are making.
So there's two things; one is less competitors out there. And the fact that we made decisions and investment early on has given us very strong, early mover advantage with our key customers, and the fact that 50% of our work now globally is sold sourced reflects that.
Okay. Thanks, Chris. Is there much difference between your win rates between the traditional work and the sustainability related work? Just wondering if you're competing against the same names or a whole new subset of competitors in sustainability, but still winning your fair share?
Well, actually we don't win a global basis. It’s the same type of competitors whether it's in sustainability or all traditional. You’re always going to get some niche players in markets or markets. But on a -- if you look at like, boy, what we do on the kind of customers we work with, they want to work with the big players. And so what we're seeing is win rates, they're about the same across both, because the other traditional business is still important to our customers. It’s still different like the announcement by BP last week, later week before, it's still an important part in the business. Hydrocarbons are going to be needed for a long time. We think gas is going to have a more prevalent role. But win rates, especially when works been sold source, it's about the same.
Thanks, Chris.
Good.
The next question is from Daniel Butcher of CLSA. Please go ahead.
Hi, everyone. I want to clarify a couple of things on the North American sale first. Thanks for the pro forma data. You didn't mention what the backlog impact was. I was just wondering if you could give us your view on that. And secondly, just want to clarify the 7% FY 2024 margin target, does that include the names, which the margin market gets?
Well, I’ll answer the second question first, and then the first one question to Tiernan. The 7% plus that were thought go in 2024 beyond not include the positive impact of the asset sale. And that's just because the asset sale -- all these -- you'd imagine we worked on these materials for several weeks leading up to this event. And what we're seeing is, or what we end up in a position was that we couldn't include the asset sale impact on the results until it was signed and it was actually didn't get signed until overnight in the US. So to answer your question, it's not included in the 7%. And that's why I've said 7% plus, we think that is the benefit of the asset sale that will flow through beyond 2024.
And then on backlog impact on 2024 -- backlog impact in the Americas, Tiernan?
It's pretty significant, obviously, because it's a big revenue business. So I forget the exact number, but the aggregate revenue of the business, Aussie dollar is available once again. So it would be a couple of million dollars, but I'll come back to you with the exact number.
All right. Thank you. And just curious on that I mean understanding moving towards higher margin work, but I imagine it’s pretty low capital intensity work, so even it has a lower margin on revenue. If the risk profile isn't high enough, it doesn't require much actual capital deployed why not hold on to that lower margin work as well. Just wondering if you could elaborate on your thinking that?
I mean, it has working capital investment, but it also has other capital investments. It requires tools. As you know, I work in a similar business. One of the trends is so there are a lot of incremental capital requirements. So that business around the working capital and working capital is slow, it's a real challenge to extract working capital with these large long-dated contracts with very tough conditions, a lot of documentation, but there are also tools there are a number of other components.
So it goes -- it's a very involved business with tie up requires a lot of capital. And as a result, the return on invested capital is quite low, but you have to have a very low cost of capital to be able to earn a decent return on it.
Okay. Thanks.
In summary, we believe there's only upside to the business financially with the disposal of these assets. It's a good business. It's just -- that it doesn't support the strategic direction of Worley today.
Thanks. And then just whether you just confirmed on one the other previous questions in relation to your payout ratio towards the lower end. I think you said we need capital to grow the business. And obviously part of that might be small, incremental M&A, you've got larger things, but can you elaborate on how much is needed for organic growth, whether it's investment in working capital or receivables or anything else to grow the business in line with your 75% from sustainability target by 2026?
Yes, you can work it out, Daniel, from some of the other things we said. We reduced our target cash conversion to 85% to 95% for that exact region. And as I mentioned, one of the reasons why operating cash was down this period, because when we bring on resources, we effectively take it when we were adjusting time, resources higher. So we might to hire a month or two before a project starts. They get into the project. They do some work and they feel maybe a month later, and then we get paid around 60 days later. So there's an investments for every new incremental dollar of revenue of around three months on average. And that's what brings the average investment of cash to down to the 85% to 95%.
So the majority of that is working capital. But as I mentioned, there may be opportunities for niche acquisitions. And there’ll be opportunities to bring in technology, technology investments will certainly be required most technology, investments these days are Software as a Service. And therefore will be extending rather than being capitalized and amortized as in the past. So there's a combination but I would say the majority of the investment is working capital.
[indiscernible] state the obvious, the out paying over the lower end of the dividend ratio is against a higher profit number. So, you know, it's another that's obvious, but just bring them together.
Yeah. And we're not predicting what future dividends are going to be – that's a board decision but that's the target range, right? So – the target range of 50% to 70% over longer period of time. So we'll be in an around that target range over time.
That's great. Thank you, everyone.
Thank you. Sorry, I know we're on the hour. But if there are any more questions, we'll – I'm happy to take them.
There's one more question from Scott Ryall of Rimor Equity Research. Please go ahead.
Thank you.
Thanks. Thank you very much. It was just a follow up question on a couple of the queries before Slide 24, Chris and Tiernan. With respect to your thinking about acquisitions and bolt-on acquisitions and the strategic, strategic investments that you've made I wonder if you can just comment on whether or not in these areas, notwithstanding the fact you say the acquisitions that you've looked at are quite expensive, but are there actually any acquisitions in these new areas that you could make or is this just an investment that you're needing to make to go into some of these markets that are obviously future facing, high growth, high margin, as you've suggested, and there's just not the acquisition targets around, so the investment part nations needs to be a little bit more organic? Is that in the thinking at all or I was just wondering if you could give a bit more color around the strategy there and whether that means that – they're easier to execute on I guess?
We'll look first of all – we've – Worley has never had an acquisition strategy. Never have one. We haven't had one. We don't have one. We'll never have one. What we have is a growth strategy on where an acquisition opportunity helps accelerate and deliver that strategy. We'll consider it.
General areas I would say is probably about the technology. We have our technology solutions business. Technology is going to be an increasingly important aspect in the future because as the world needs it to deliver on the net zero goals or that sustainability goals, the strategic pivot is about customers. So, we do see technology playing an important role of the future.
As Tiernan said earlier, we don't need anything for scale, we're in 46-plus countries, we've got 50,000 odd people. It's not it's not for scale. So, it'll be niche areas that we believe we can leverage into the broader offering of the organization. But we've got a number of areas that we've been taking the AUD100 million and investing in over the last 18 months. And we believe those are the sub-markets or the sectors which provide, sort of, higher levels of sustainable profitable growth. If we can get more of that share sooner through an accelerant-type acquisition, then we'll consider that.
Yes, I'd say two further things on that. Slide 24 is organic development of our growth units. As Chris said, sometimes that's slower than you would like, but it's -- from a financial perspective, it's much more accretive because you're not paying a premium. So, the first thing is it is an organic growth strategy and you can see what we're spending the money on.
By the time we get to the third year -- the end of the third year, we should be well set up organically to grow the addressable markets that we've identified because we have all the skills to do so.
The second thing I'll say is that doesn't mean we're not looking, as Chris said, for opportunities in these areas, because there may be bolt-on capabilities that would augment the capability of the organic team that is better as being grown.
And remember, in many of these areas, we already have capabilities. So, we're just augmenting them organically. All we're saying about the inorganic opportunities is that at the moment, the multiples are such that they are not accretive, given our cost of capital.
So, we -- I can see that multiples are starting to come off the boil and there may be opportunities and certainly, there may be resources and capability and technology that will be very useful to augment that growth strategy. So, I think it's a two-pronged attack. It's an organic watch and wait and watch very carefully, but it's also a proactive organic development.
Okay, great. Thank you. That's all I had.
Thanks everyone for your time. I know that some of you will be meeting over the next -- well today and the rest of this week and I look forward to meet you in person. Thank you.
Thank you. This concludes the question-and-answer session. If you have any questions that were not addressed, please feel free to send any further questions via email to investor.relations@worley.com. That concludes our conference for today. Thank you for participating. You may now disconnect.