Categories Earnings Call Transcripts, Energy

Worley Ltd. (WOR) Q4 2022 Earnings Call Transcript

WOR Earnings Call - Final Transcript

Worley Ltd. (ASX: WOR) Q4 2022 earnings call dated Aug. 23, 2022

Corporate Participants:

Chris Ashton — Chief Executive Officer and Managing Director

Tiernan O’Rourke — Chief Financial Officer

Analysts:

Richard Johnson — Jefferies — Analyst

Daniel Butcher — CLSA — Analyst

Mark Samter — MST — Analyst

Sandy James — Credit Suisse — Analyst

Nathan Reilly — UBS — Analyst

Scott Ryall — Rimor Equity Research — Analyst

John Purtell — Macquarie Group — Analyst

Presentation:

Operator

Thank you for standing by, and welcome to the Worley 2022 Full Year Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Chris Ashton, Chief Executive Officer. Please go ahead, sir.

Chris Ashton — Chief Executive Officer and Managing Director

Thank you. Welcome, everyone, and thank you for joining Worley’s full year results for FY ’22. I am pleased to be presenting these today with Tiernan O’Rourke, our CFO.

Moving on to Slide 2. Before I begin, I want to acknowledge the traditional owners of the lands on which we meet, their unique ability to care for country and their deep spiritual connection to it. We join you today from our North Sydney office and the land of the Cammeraygal people. The Aboriginal and Torres Strait Islander peoples have cared for and maintained for thousands of years, the lands where we provide business services. I pay respect to the elders past, present and emerging. Their knowledge and wisdom have made sure the continuation of culture and traditional practices. And I extend that respect to other Aboriginal and Torres Strait Islander people present on the call today.

Turning to Slide 3. In terms of the agenda for today, I’ll provide an overview of our business performance over the period and our strategic progress in line with our transformation. Tiernan will then add some further detail on the full year results. And finally, I’ll provide a market update and outlook statement before opening for Q&A.

Moving on to Slide 5. Today, I want to leave you with three key messages. Firstly, our result was achieved from a focus on delivering our ambition, which has resulted in an improvement in key metrics, increasing customer investments across our sectors and particularly in sustainability has driven increased volumes and margins. Second, we’re executing our strategy with a focus on high-margin work, building our sustainability pipeline and maintaining prudent capital management metrics. And third, our business is positioned for long-term success, and we continue to see positive indicators of earnings growth.

Turning to Slide 6. I’ll take you through some of our business performance, and so we’ll move straight on to Slide 7. Keeping our people safe and well remains our highest priority. Our values guide us as we support one another and show the care, commitment and courage that exemplifies Worley’s culture. We’re placing particular emphasis on mental health and building a culture where people feel included and respected. And this year, we’ve developed training programs to design, to strengthen our leadership vision and capabilities in these areas.

Moving on to Slide 8. Momentum continues to build as we transform our business in line with our purpose, delivering a more sustainable world. The markets we serve are transforming with governments, investors and companies committing to net zero. Our ambition is that by 2026, we will be recognized globally in our sectors as a leader in sustainability solutions. Our strategy places us at the center of significant future investment and aligned with our customers’ own transformation journeys. We’re seeing investment by our customers in both their traditional business and sustainability areas as they transition to a lower carbon future.

Moving to Slide 9. Our full financial year performance represents further market improvement and is consistent with the outlook we presented at the half year results. Our aggregated revenue is up 3% on FY ’21 and most encouraging is the increase over the second half of 8%. We’re continuing to see evidence from our customers that this trend is expected to continue as we solve their complex challenges in traditional and sustainability work using innovative solutions.

Our underlying EBITA of AUD547 million is up 18% compared to the prior corresponding period on the back of an improved EBITA margin, which is now 6%, up from 5.3% at FY ’21. Sustainability-related work has been a key driver of our growth. At AUD3.2 billion, sustainability work now accounts for 35% of our aggregated revenue. And over the half, sustainability revenue increased by 26%. Sustainability-related work is now well over 50% of our factored sales pipeline, which is an indicator of future revenue. Our backlog continues to build. It is now at AUD15.4 billion, up 8% since FY ’21. And the Worley Board has determined to pay a final dividend of AUD0.25 per share unfranked.

Moving on to Slide 10. We’re evolving our environmental, social and governance practices to elevate our performance. We’re recognized for our ESG commitments and actions through our external ratings, and we’re very pleased that MSCI rate us as a trend-setter in the energy sector for climate and carbon transition. This year, our Scope 1 and 2 emissions are 29% lower than FY ’21 levels, predominantly achieved through switching offices to renewable energy and improving energy efficiency. We’ve also expanded our Scope 3 reporting.

To further embed our ESG commitments and our culture, we’ve increased the percentage weighting of ESG performance in our senior leader scorecards. And we’re making progress on our gender diversity targets, maintaining our strong female graduate uptake.

Turning to Slide 11. The charts on this slide show our half-on-half trends. Our second half revenue was up 10% on the prior corresponding period. And our second half earnings were up 16%, even with an increasing proportion of strategic investment. We’re starting to see our earnings growth become somewhat disconnected from our headcount as evidenced by our productivity measure. Our EBITA per person has increased from around AUD11,000 to almost AUD12,000 over the past 12 months. Even as the rate of delivering backlog into revenue increases, our backlog continues to grow. This is the result of our growing factored sales pipeline, which is up 30% across FY ’22.

Turning to Slide 12. Here, you can see our growth in pipeline, bookings and backlog across FY ’22. 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 rolling 12-month bookings represents the value of project wins at points in time. And this chart indicates our project wins are clearly trending upwards.

In our sales pipeline, sustainability-related opportunities have increased by 57%. We booked 67% more sustainability-related wins than in FY ’21. And this has resulted in sustainability backlog growth of 23%. Meanwhile, our traditional work is also growing, although at a lower rate than that of sustainability.

Turning to Slide 13. Our five-year ambition sets the direction for our business for the future, and we’ll continue to report on our progress against it. This year, I’m pleased with the progress we’ve made. We’ve sharpened our people strategy to focus on two key areas. The first area is strengthening the Worley experience. Our Worley culture is what we’re most proud of, and it sets us apart. The second is that we’re building the right environment to both attract and retain critical capabilities at scale.

In our portfolio, the sustainability-related component in our backlog and sales pipeline continues to grow. These are leading indicators showing we’re well on our way to achieving our aspiration of 75% of our revenue being derived from sustainability-related work by 2026. We’re on track in delivering against our own net zero emissions targets. We’ve updated our climate change position statement with deeper commitments, and these include developing a plan to support biodiversity and nature positivity in our project work.

Turning to Slide 14. We have a number of operational priorities in delivering our ambition. These include managing our cost base to deliver the operational leverage as we grow and delivering cash to support acceleration of that growth. The actions we’ve taken have contributed to our improved results, and Tiernan will talk through some of these elements in more detail.

Turning to Slide 15. I remind you of our strategic portfolio, which defines where we do our business. We’re seeing accelerating investment by our customers across our core markets, our transitional markets and our breakthrough markets in both traditional and sustainability work.

Moving to Slide 16. We’ve seen further growth this year in sales with more than AUD11 billion in booked awards. This is up 28% on FY ’21. We continue to secure a high level of early phase sustainability project work with early phase projects making up 48% of our awards. We expect these will move into subsequent phases and the increasing size by revenue of our decarbonization wins in FY ’22 is evidence that this is already occurring.

We’ve listed a selection of our project announcements this calendar. I’m excited that the global scale and the strategic nature of many of these projects as they support our existing and emerging customers as the world moves towards lower emissions. Our customers continue to bridge the two worlds, and many of our awards are with our long-standing customers in support of their traditional businesses. We are bringing digital solutions and our expertise to improve efficiency and drive cost-effective solutions in the work we do for our customers.

I’d now like to share with you five case studies to provide some further color on some of these awards. Moving on to Slide 17. Our extensive experience in integrated gas is a key strength of ours. We’re pleased to continue our long-term relationship with Saudi Aramco with the award of two major project management service contracts for their gas programs.

Turning to Slide 18. I’m delighted to share our newest award with 1PointFive as we progress the EPC phase of their Direct Air Capture project in the Permian Basin. This is expected to be the largest commercial scale development with this technology. And we’re delighted, again, really pleased to continue to grow our alliance with 1PointFive and Oxy Low Carbon Ventures.

Turning to Slide 19. I’ve shared previously our collaboration agreement with ABB and IBM. Together, we’re creating a digital platform, connecting asset, operation and enterprise with the intent of reducing the levelized cost of hydrogen. Our demonstration center shows how this can be achieved.

Turning to Slide 20. Our resource business is rapidly expanding, and a significant project is Rio Tinto’s Gudai-Darri. After delivering the early phases, we moved into the project delivery, and we continue to drive the deployment of unprecedented technology innovations, including the world’s first autonomous water trucks.

Turning to Slide 21. Finally, our chemicals business is building a largest of its kind petrochemicals plant with Corpus Christi Polymers.

So I’m now going to hand over to Tiernan, who will take you over some of the financial results in more detail. Tiernan?

Tiernan O’Rourke — Chief Financial Officer

Thanks, Chris, and good morning, everyone. I’m really enjoying my first nine months in the role. I’ve managed to get out and about into the business. And it reinforces for me the difference Worley is making for our customers, and in particular, what Chris just outlined in some of our bigger contracts. My presentation today will focus on two broad areas. First, the drivers behind our results and in particular, the momentum that has been created from our second half performance. And second, an update on a few of our other key strategic initiatives.

On Slide 23, our financial performance improved again in the second half, consistent with the outlook provided in February. As Chris has already mentioned, our aggregated revenue of AUD9 billion is up 3% on FY ’21. And importantly, we’ve delivered 8% of revenue growth half-on-half. Our results demonstrate the normalization of the business environment post pandemic. Our results — our revenue numbers are growing, reflecting the increased backlog and the factored sales pipeline gains that first emerged 12 months ago.

The Americas represent 46% of our aggregated revenue and has the largest proportion of construction and fabrication work. We’ve seen good professional services revenue growth, despite a slower ramp-up in some key projects, a theme across the region in the year. The FY ’22 margin was impacted by business mix. The EMEA and APAC region represents 54% of our aggregated revenue. We’ve seen volume increases continue from market activity and investment by our customers in line with the shift towards energy independence and the focus on achieving Net Zero by 2050.

Looking at group profit, we’ve delivered an underlying EBITA of AUD547 million, up 18% from AUD463 million in FY ’21. The changes we made to the business and the shift in revenue base towards sustainability is translating into improved growth in earnings.

Our capital management position continues to support our growth plans. We have good liquidity and continue to enjoy access to flexible debt. I’m getting to know our debt investors and looking to continue to strengthen and diversify our funding sources. We’ve taken a lot of costs out of the business as we scale it for growth. This is driving efficiency into our operations. The setup cost of these initiatives is excluded from underlying EBITA, and I will cover this later.

We spent AUD17 million on strategic investments in the second half, bringing our total spend for FY ’22 to AUD30 million, in line with forecast. This cost has been included in our underlying EBITA as it will generate accretive underlying earnings going forward.

Moving to Slide 24. Our underlying net profit after tax and before amortization was AUD329 million, up 19% from FY ’21. Underlying net operating cash flow is AUD376 million. As advised in February, cash outflows in the first half were impacted by movements in working capital, which were temporary in nature. Our net operating cash flow for the second half more closely tracked earnings with a 105% conversion rate. As a result, we concluded the year with an annual conversion rate of 88%.

Looking now at items excluded from underlying profit. At the half, we outlined the guidelines for our below the line disclosures. Specifically, while all business as usual costs or income are included in underlying EBITA, any cost or income that is one-off in nature even when it is incurred over several reporting periods is reported below the line. And we’ll continue to highlight this detail going forward.

In addition to our cost saving program, predominantly shared services transformation, three new items have been added below the line this half. First, we incurred AUD14 million of cost because of our withdrawal from Russia. This included redundancies and the write-off of some with balances. We will continue our orderly withdrawal in FY ’23.

Second, as you know, we have had some long-dated receivables relating to work undertaken for state-owned enterprises many years ago, which have been the subject of long-running legal processes. One of those matters concluded after year-end with a final court ruling regarding amounts owing to us. After provisions, this settlement has resulted in a net loss of AUD16 million, although a cash inflow of AUD21 million is expected this financial year. The final two outstanding matters remain subject to ongoing legal processes. Finally, there are two upsides totaling AUD6 million from reversal of property lease asset impairments and international government subsidies.

Turning to Slide 25. Here, you can see our EBITA and EBITA margin walks over the second half. These demonstrate the quality of our results and the change that is occurring in margin as the backlog and factored sales pipeline grow and the market continues to focus on sustainability solutions.

In addition to typical seasonality impacts, we’ve seen margins improve driven by an increase in rate, particularly in sustainability-related professional services as well as benefits from the cost saving program, which are sustaining operational leverage.

This period, we are also showing underlying EBITA margins before procurement revenue. This is important because we expect a higher level of procurement revenue in FY ’23 versus FY ’22. The average underlying FY ’22 EBITA margin, excluding procurement was 6.4%.

Turning now to Slide 26. This slide shows the material progress made in returning the business to historical levels. Our underlying EBITA has grown 17% since FY ’21, which was the trough year. Our aggregated revenue from sustainability work continues to build at stronger margins. While our headcount has grown by 7%, our productivity gains mean we expect earnings to grow at a higher rate, supported by greater operational leverage.

The trends indicate we are heading in the right direction towards historical levels, supported by increased customer capital investment across all sectors, growing backlog and sales pipeline and a high rate of growth in sustainability revenue. And on Slide 30, there’s a buildup of the proportion of sustainability revenue in the backlogs.

Now on Slide 27. Our cost savings initiatives are continuing to generate long-term benefits. Our focus is on completing the last of our recent initiatives, primarily the implementation of shared services, which combined with other completed projects will deliver a target of AUD375 million of recurring annualized savings by next year. Actual cumulative savings have risen from AUD345 million in FY ’21 to AUD361 million in FY ’22, and we are closing in quickly on the end target run rate. At the current time, no other new programs of this nature have commenced.

Now to Slide 28. Building on the findings of the Worley Princeton thought leadership paper, we are now actively implementing new solutions to build infrastructure at scale that will drive incremental future earnings. We are starting to put our design-one, build-many operating models into practice and are investing in strategic partnerships and technologies that will create new revenue streams. Two examples, Avantium and WRAP are referenced here on this slide and are expected to reduce costs for critical energy infrastructure.

Technology and digital solutions are also key enablers of improved performance for operating models. We are developing our own IP to deliver these solutions to our customers, including our new Power-to-X B2B service. These type of initiatives are driving momentum in our growth.

Moving to Slide 29. We’re investing AUD100 million over three years organically to accelerate the strategic shift to sustainability. Expenditure this year focused on market assessments and planning, building teams and digital solutions to support growth areas and training. We estimate that the growth areas under this project are expected to have a total addressable market of over AUD100 billion by 2025. In FY ’23, we will continue to build our front-end capability whilst also exploring new partnerships and technologies to further scale growth.

And linking this slide to Slide 30, where you can see some of the key areas we’re targeting with this investment and the emerging value we are creating. On the left, we provide metrics for a few of our growth areas. Each of these has the potential to be around a AUD1 billion business in the future. The growing factor sales pipeline in these areas demonstrate the effectiveness of this investment and gives you an idea of the potential future scale.

Moving to the chart on the right, you can see we’re well on our way to achieving our ambition to drive 75% of our revenue from sustainability-related business by 2026. Support for this includes sustainability revenue contributing to 38% of our second half results. Our factored sales pipeline now sits in at 56%, representing more than half of the pipeline for the first time. And importantly, a good proportion of this pipeline is scheduled to be awarded within the next 12 months. In summary, we are well positioned across the business to outperform our natural share of the market.

I’ll now hand back to Chris to complete the presentation. Chris?

Chris Ashton — Chief Executive Officer and Managing Director

Thanks, Tiernan. Look, before I take you through our outlook for the next year and beyond, I’d like to just briefly just focus on the opportunities and challenges associated with the current macro context followed by what trends we’re seeing in our market.

So moving on to Slide 32. Over the past year, we’ve seen continuing and new events shape our environment, society and economy. And these events are providing us with opportunities that will drive incremental revenue and earnings. We’re well positioned to meet the opportunities and challenges of the current market.

This is the decade of climate action. And as you can see from the results we’ve outlined today, our increasing sustainability-related work reflects this. We have the agility to support our customers at every stage as they’re navigating balancing investments in their traditional businesses with those moving towards lower carbon future.

The Russia/Ukraine conflict is elevating the need for energy independence and diversification of supply, and we’re seeing an acceleration in demand for our services in integrated gas and traditional work in the near term. Digital solutions are key to delivering the scale of low-carbon infrastructure required as the world moves toward Net Zero. And we’re developing our own IP and partnering with technology leaders to develop and deliver leading solutions. We’re actively managing the macro challenges associated with the tight talent market, inflation and the under pressure supply chains.

Moving to Slide 33. We continue to see an upward trend in capex investment by our customers across all the sectors in which we operate. The chart presented here represent projected capex across — of capex investments across our customer base. In low carbon energy, investment in renewables continues to build, reaching new records of investment each year, and this is expected to rise exponentially in the medium term.

The spike in integrated gas is largely a result of the phasing out of Russian gas supply into Europe. In conventional energy, offshore oil is seeing steady growth to meet demand. In chemicals and fuels, we’re seeing rapid growth in low carbon fuels, while chemicals growth has returned to tracking in line with global GDP. In resources, we’re seeing a disconnect between the overall market investment and the investment plans of our key customers. This is due to the high proportion of our resources sector revenue coming from high-growth areas, such as iron ore and sustainability-related markets.

The green line demarcated across all four charts represent the weighted average growth for our addressable market. It is weighted based on our FY ’22 percentage of revenue across our sectors. This weighted average growth rate of between 13% and 15% growth from ’22 to ’23 is indicative of the current up cycle for our business.

Moving on to Slide 34, the group outlook. We’re well positioned to meet the opportunities and challenges of the current market. The geopolitical environment is elevating the need for energy independence and security of supply. We’re seeing opportunities in areas such as early phase work and integrated gas and renewable energy sources. We continue to manage inflationary impact, and we remain optimistic that without further deterioration in conditions, the outlook will not be materially impacted. We continue to attract and retain talent while building capability in support of our strategic transformation journey.

Customer investment in both traditional and sustainability work continues to increase with sustainability investment growing at a higher rate. We are seeing increasing activity levels and investments by our customers across all the sectors in which we operate, although each region is experiencing different rates of growth. We expect our average FY ’22 underlying EBITA margin, excluding the impact of procurement, to be sustained into FY ’23.

We are seeing positive indicators that support our expectations for improved revenue, again, excluding procurement, in line with customer investment growth across all the sectors. This is further supported through our increased backlog and the growth in the factored sales pipeline. Our cost savings program is continuing to deliver operating leverage. And as part of this outlook, procurement revenue is expected to be higher in FY ’23 compared to that of FY ’22.

Moving on to Slide 35. Before we move into Q&A, I’d like to remind you of our three key messages. Our results are underpinned by improvement in key metrics and are indicative of increasing investment by our customers in sustainability-related work. Second, we’re executing on our strategy and seeing the benefits from our investment in the targeted growth areas. And finally, our business is well positioned for long-term success, and we continue to see positive indicators of earnings growth.

That’s the end of the presentation. And Tiernan and I will look — look forward to answering questions that you may have.

Questions and Answers:

Operator

Thank you very much, sir. [Operator Instructions] We have a first question from the line of Richard Johnson with Jefferies. Please go ahead.

Richard Johnson — Jefferies — Analyst

Thanks very much. Chris, can I just start by asking a question with regards to the second half of last year and particularly the backlog. It looks like the backlog in the June quarter was unchanged. And — but obviously, the mix has changed quite a bit. So I just — so two questions. One, is that a surprise that it didn’t move in that in the final quarter of the year? And secondly, to what extent is a cannibalization of your legacy business by sustainability? Obviously, the legacy business has gone backwards in that quarter. Thanks.

Chris Ashton — Chief Executive Officer and Managing Director

In terms of just — thanks, Richard. Look, the first thing is in the backlog. We’ve had — like a couple of awards that were just came in after the close. So I’m not concerned about the backlog. The backlog continues to grow in excess of the burn that we’re delivering. Sometimes it’s just from a timing point of view, but the backlog continues to grow. So I’m not worried about that. And then the second one was — sorry, can you just repeat the second question, Richard?

Richard Johnson — Jefferies — Analyst

Just around cannibalization, given — and you may have already answered it in your first answer, but given that the legacy business, the backlog went backwards in that quarter. But obviously, you’ve got good growth and sustainability. So just a question of whether one is offsetting the other?

Chris Ashton — Chief Executive Officer and Managing Director

No, we’re not seeing that. And the reason for that is we’re seeing emerging players come to the market as well. So the overall level of spend is increasing. So I’m not concerned about cannibalization. Another one is, if we look at the — between FY ’22 and ’23, we took a whole bunch of backlog out associated with Russia. So what you’re seeing is a bunch of revenue that we took out of the backlog from Russia. So yes, that clearly has an impact.

Richard Johnson — Jefferies — Analyst

Got it. Thanks. And then just finally on margins, I’m just trying to make sure I understand properly your guidance on margins being sort of sustained into ’23, so the average of ’22. And to reconcile that with your comments around operational leverage and also the SKU and the mix. So if you’ve got faster growth in sustainability relative to the legacy, ostensibly that should see margins improve. So I’m just trying to reconcile all of that.

Chris Ashton — Chief Executive Officer and Managing Director

Yes. So I’m going to ask Tiernan to get into the numbers.

Tiernan O’Rourke — Chief Financial Officer

Yes. Thanks, Richard. So the first thing about operational leverage, as I mentioned, we have already achieved the majority of the run rate in FY ’22. So part of it is that, that run rate, the operational leverage has already built pretty significantly into FY ’22 and is being carried into ’23.

The second thing is that we’ve had a very significant increase in margins during FY ’22 from 5 point — on a pre-procurement basis from 5.3% to 6.4%. So it’s a pretty significant movement in 1 year. And what we’re saying is that we’re going to sustain that increase through into ’23 with a similar seasonalization. So you’ll see a similar seasonalization around that average of 6.4% in FY ’23 as we did in FY ’22. So I think we were well set up in FY ’22 on a margin basis to bring ourselves into the new year.

I think a couple of other things to think about in terms of margin. Obviously, mix is always an issue year-on-year. So you have to look at mix, you’ve got to look at the increase in the traditional work that’s occurring because of energy security that obviously has an impact on margin and will have in FY ’23. Chris has mentioned the exit from Russia, which is only a small part of it. And then just the timing of the starts and the migration from studies or feasibility work into the full-blown project. So all of that has an influence. But what we’re saying is we believe that the platform we created in ’22 is sustainable into FY ’23 on average.

Richard Johnson — Jefferies — Analyst

That’s very helpful. Thank you very much.

Chris Ashton — Chief Executive Officer and Managing Director

Thanks, Richard.

Operator

Thank you. We have next question from the line of Daniel Butcher with CLSA. Please go ahead.

Daniel Butcher — CLSA — Analyst

Thanks, guys. Look, my two main questions were just asked, but maybe just to drill down a little bit more on that. With the backlog and also your statements about procurement revenue growing, should we take it as there’s more blue collar work and construction work in the mix going forward for execution in FY ’23? And that’s maybe why that P&L leverage isn’t coming through with margins growing further?

Chris Ashton — Chief Executive Officer and Managing Director

Well, it’s definitely as we refer in the outlook as well and a couple of times during the presentation, there is going to be more procurement revenue in FY ’23. And that’s just a function — it’s not necessarily a blue collar, some of it is, but doing EPCM projects where the customer wants us to buy on their paper is a factor. So it can be a mixture of both blue collar work and procurement associated with the reimbursable EPC contracts we do, but also just procurement on our paper on the EPCM contracts we do.

Daniel Butcher — CLSA — Analyst

All right. Thanks very much. I’ll leave there, my two questions are asked. Thank you.

Chris Ashton — Chief Executive Officer and Managing Director

All right. Thanks.

Operator

Thank you. We have next question from the line of Mark Samter with MST. Please go ahead.

Mark Samter — MST — Analyst

Yes. Good morning, guys. A couple of questions, if I can. First, can we just talk about — I know you alluded insights to cost inflation. But obviously, when we think about what’s happening in the world, your ability to pass that on to customers, some of the wage inflation you’re seeing? And I guess just keen to get your view on potentially, metaphorically, freezes through winter, how that impacts you?

Chris Ashton — Chief Executive Officer and Managing Director

So from an inflation point of view, 80% of our work is reimbursable, right? So that cost just flows through. And then when we’re not doing reimbursable work, we look at some of the lump sum work, which often starts up as reimbursable — through NG, then we’ll convert. Then for contracts that are being won in the current environment, we just will put inflation factors in there. We’ll put cost increase factors into those and those will be passed on to customers. So I’m not concerned about inflationary impacts, on our ability to — or our ability to pass through to the customers. And then —

Tiernan O’Rourke — Chief Financial Officer

Europe — Europe freezing.

Chris Ashton — Chief Executive Officer and Managing Director

Europe. Yes, look, so obviously, Europe has a few opportunities, obviously, reducing mandate reduction in consumption for various parts of the demand side, whether it’s an industry, domestic constraints. But I think the domestic reserves — the reserves under storage — underground storage reserves are about 83%, 84%. So there’s time for them to get up to full capacity. But look, it is going to be — it could be a challenge. But for us, it’s an opportunity because what we’re seeing is increased interest from our customer base in accelerated high pace, putting steel in the ground to get regasification facilities built and get new supply into the market.

Mark Samter — MST — Analyst

Okay. And then just a really, really quick one. You said also — you can AUD13 million of EBITA in Russia post the [Indecipherable] March. I mean at the same run rate, that’s about AUD20 million you would have made up to that point in the view. Can you just confirm that, obviously, you’ve stripped out from underlying with the cost of exiting Russia, but did the first eight months of EBITA generated in Russia, but that’s still included in the underlying earnings, is that correct?

Tiernan O’Rourke — Chief Financial Officer

Yes, Mark, we would have earned reasonably consistently the nature of that project. It does have some lumpiness because it was a — particularly on Sakhalin Island, it was sort of a more maintenance kind of focused project. So it would have had more lumpiness. So you can’t quite extrapolate on a linear basis, but it’s not unreasonable what you’ve said.

Mark Samter — MST — Analyst

Okay. So it hasn’t been stripped out, but the previous nine months hasn’t been stripped out of underlying?

Tiernan O’Rourke — Chief Financial Officer

Not out of the reported numbers, no. No, no, no.

Chris Ashton — Chief Executive Officer and Managing Director

And then, yes, what you’re seeing is the growth that we are expecting to see in FY ’23, obviously, doesn’t include Russia. But the FY ’22 includes eight months of Russia.

Tiernan O’Rourke — Chief Financial Officer

Yes.

Mark Samter — MST — Analyst

Yes. Okay. Perfect. Thank you, gents.

Operator

Thank you. We have next question from the line of Sandy James with Credit Suisse. Please go ahead.

Sandy James — Credit Suisse — Analyst

Good morning, Chris and team. Thanks for taking my question. I’m just having a look at Slide 33, I can see that you said that the weighted average of growth for accessible markets across all sectors is between 13% and 15%. Does that mean we can expect a 13% to 15% revenue growth in that same period?

Tiernan O’Rourke — Chief Financial Officer

Which graph are you looking at there, Sandy?

Sandy James — Credit Suisse — Analyst

Just to comment on the top of Slide 33, upper right-hand side.

Tiernan O’Rourke — Chief Financial Officer

This one, yes.

Sandy James — Credit Suisse — Analyst

That 13% to 15% growth, I’m just wondering if that translates to revenue growth on FY ’22 level?

Chris Ashton — Chief Executive Officer and Managing Director

It would not be unreasonable for you to assume that.

Sandy James — Credit Suisse — Analyst

Okay, great. Thank you. And then a follow-up, if I may, on a different topic. I was wondering if Worley has any ambitions to enter into LNG liquification side of the market, given the increased interest, I suppose, post Russia and the U.S. wave appears to be underway on the construction side?

Chris Ashton — Chief Executive Officer and Managing Director

So if we look at the traditional model for liquefaction, it’s been hard money lump sum turnkey EPC. And as we know, and we’ve said in the past, that’s not a market we pursue. However, there are customers out there who are breaking the mold in terms of that model. And we are in discussions with one of those customers where if it was to proceed, it would be a liquefaction plant on a reimbursable basis. So the answer is yes, it is a market we’re interested in, but only where it is not competitively bid lump sum turnkey EPC.

Sandy James — Credit Suisse — Analyst

Okay. That’s great. Thank you very much.

Operator

Thank you. We have next question from the line of Nathan Reilly with UBS. Please go ahead.

Nathan Reilly — UBS — Analyst

Yes. Good morning. Just a couple of questions. Chris, maybe just in relation to the order book, just your thoughts around the embedded margin in that order book with an increasing proportion of sustainability work coming into the book. Is it still safe to assume that the sustainability work is coming into that book at a higher gross margin than traditional work?

Chris Ashton — Chief Executive Officer and Managing Director

That’s correct. Yes, that’s correct, Nathan.

Nathan Reilly — UBS — Analyst

Okay. And then just finally on the — on your point around sustaining the margin into FY ’23. Just to check, that takes into account the increase in your strategic investment OpEx, doesn’t it?

Richard Johnson — Jefferies — Analyst

That’s correct.

Chris Ashton — Chief Executive Officer and Managing Director

Yes, it’s in the underlying number, yes.

Nathan Reilly — UBS — Analyst

Okay. That was it for me. Thanks very much.

Chris Ashton — Chief Executive Officer and Managing Director

Thanks, Nathan.

Operator

Thank you. We have the next question from the line of Scott Ryall with Rimor Equity Research. Please go ahead.

Scott Ryall — Rimor Equity Research — Analyst

Hi. Thank you very much. Chris, I was just wondering if you could just give us a little bit of — bit more of your thoughts on the nature of your work changing with geopolitical uncertainty. And I’m hoping you can split it into short term, which you addressed a little bit in one of the earlier questions, but also how you’re seeing governments and your main customers repositioning themselves perhaps with some of the geopolitical uncertainty?

Chris Ashton — Chief Executive Officer and Managing Director

Well, if we look at geopolitical uncertainty, let’s take U.S., China, Taiwan, no impact, okay? Just to be clear, no impact there at all. We look at obviously Russia, Ukraine, clearly, decisions being made by European countries, the governments there to present opportunity for us. So I’m pretty excited about that.

I think that the recent decision whether it’s geopolitics or not, but I guess it’s around the pressure that governments are coming under to get on the energy transition train is the recent Inflation Reduction Act in the U.S. and the AUD350 billion plus that has been committed to accelerating the energy transition sustainability journey. And what I can say, even though that announcement was only made over two-plus weeks ago, it is already making an impact on U.S. customer-based investments.

So if you look at the European countries, the European Union and the U.K., they’re already well committed to the energy transition, sustainability journey. The U.S. has been behind that. But with this Inflation Reduction Act, we’re seeing — we’re already seeing a positive impact on the pace at which decisions are being made by our customers. So the big geopolitical factors at the moment, if you look at Taiwan, China, U.S., no impact. Russia, Ukraine and the Europe opportunity, obviously, we’re seeing inflation around the world. We’re seeing that. We’ve talked about it, but we’re not seeing it impact us. So look, I think overall, the geopolitical tensions, if anything, it bring opportunity to us.

Scott Ryall — Rimor Equity Research — Analyst

And can I just follow up on that? With respect to just the Russia/Ukraine stuff that you mentioned. There’s been a lot of discussion around a shift at least in the near term, back towards a focus on energy security and affordability and away from the sustainability angles. Are you saying that, that hasn’t changed many of your customers’ investment intentions? And actually, it’s just made them think, I guess, a little bit more strategically, perhaps about how they move towards sustainability?

Chris Ashton — Chief Executive Officer and Managing Director

Well, if you look at Europe, I mean, the European Union commitments to that green deal, there hasn’t been a dilution of the commitment. And that commitment has to — is rolling through the — that commitment is rolling through into customer decisions.

What you’re seeing is a near-term spike, a near-term increase in conventional energy investment. It is not detracting from the long term strategic plans of our customers or the government’s policies within which — for the countries within which they operate. So what we’re seeing is continued strategic progress around their own energy transition, sustainability plans. But they’re taking advantage of a near-term opportunity for the increased demand in gas given the withdrawal of Russian supply into Europe.

Scott Ryall — Rimor Equity Research — Analyst

Okay. Very clear. Thank you. That’s all I had.

Operator

Thank you. We have next question from the line of John Purtell with Macquarie Group. Please go ahead.

John Purtell — Macquarie Group — Analyst

Good day, Chris and team, and how are you?

Chris Ashton — Chief Executive Officer and Managing Director

Yes. Good. Thanks, John.

Tiernan O’Rourke — Chief Financial Officer

Good.

John Purtell — Macquarie Group — Analyst

Just had a couple of questions. Sorry, I might have missed it before, but just that the — in terms of the increase in procurement revenue that you’re sort of mentioning, what’s actually driving that? And is that sort of mix of work? It’s some of the — it’s mix, but it’s some of the awards that we’ve gotten, John, that have got just a procurement on our paper. And when we do procure for customers, it’s got — it got — because it’s really low risk, it’s got low margin and it just tends to skew the results. So what we’re trying to do is kind of, in the interest of being transparent, trying to raise the fact that as we do more procurement revenue, it can skew the numbers. But the real message is the underlying margins coming from our services outside of procurement continue to perform, continue to deliver. Thank you. And just the second question, just coming back to the — just an earlier one around the 13% to 15% growth in your sort of key end markets and that sort of being a reasonable proxy for revenue growth. So I mean your second half revenue growth was 10% on PCP. So are you expecting an acceleration in revenue growth in ’23? Just to clarify that.

Chris Ashton — Chief Executive Officer and Managing Director

Yes. Look, we — I can say with confidence, I expect to see revenue growth across ’23 — first half, I’m saying. We’ve all got — as you know, John, we’ve always got seasonality, yes. We’ve always got seasonality just due to the Northern Hemisphere. Actually, it’s vacation holiday times during the Northern Hemisphere summer and then the Christmas period. But yes, we’re expecting to see revenue growth. I mean, Tiernan?

Tiernan O’Rourke — Chief Financial Officer

I was just going to add that increase in addressable market doesn’t necessarily get delivered in one year. So it will be delivered over the average contract term. So just because the addressable market is increasing, we just got to be tempered that by our average contract length. So it will be spread, but we do have a good win rate at the moment.

Chris Ashton — Chief Executive Officer and Managing Director

I just want to mention that we have what we call corporate top prospects, which are key strategic opportunities that we put a lot of effort in to pursuing — positioning for — prepositioning, positioning, pursuing and then hopefully winning. And to Tiernan’s just last point there, we’ve got a very good track record now over the last 12, 18 months of bringing those strategic wins — getting that strategic opportunities across the line.

John Purtell — Macquarie Group — Analyst

Thank you.

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. If you have any further questions, please contact the Investor Relations team at Worley. I would now like to hand the conference back over to Mr. Ashton for closing remarks. Over to you, sir.

Chris Ashton — Chief Executive Officer and Managing Director

Thanks. Look, thanks, everyone, for joining the call today. Look, again, look, the three messages that I left with were that we’ve got good results. The improvement in key metrics is there. We’re seeing a continued increase in investment from our customers and the sustainability-related work and traditional given what’s going on in the world. We’ve got strong delivery of our strategy, and we’re seeing the benefits of the investment that we’ve been talking about. And I do believe, given what’s going on in the world that we’re positioned for FY ’23. And I think we’re positioned well to continue to deliver improved performance in that and beyond.

Tiernan, anything from you to close out?

Tiernan O’Rourke — Chief Financial Officer

Yes. I mean, I think we have a very strong balance sheet. We’re in a very good position financially and really looking forward to continuing to get into FY ’23. We’re excited about proceeding on the basis of the outlook that we have.

Chris Ashton — Chief Executive Officer and Managing Director

So thanks, everyone, for your time, deeply appreciate it. If you have any further questions, please get them to Verena Preston and we’re happy to answer them. Clearly, I’ve got a meeting with a few of you over the next week and look forward to seeing you in person here in Sydney or in Melbourne.

Operator

[Operator Closing Remarks]

Disclaimer

This transcript is produced by AlphaStreet, Inc. While we strive to produce the best transcripts, it may contain misspellings and other inaccuracies. This transcript is provided as is without express or implied warranties of any kind. As with all our articles, AlphaStreet, Inc. does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company’s SEC filings. Neither the information nor any opinion expressed in this transcript constitutes a solicitation of the purchase or sale of securities or commodities. Any opinion expressed in the transcript does not necessarily reflect the views of AlphaStreet, Inc.

© COPYRIGHT 2021, AlphaStreet, Inc. All rights reserved. Any reproduction, redistribution or retransmission is expressly prohibited.

Most Popular

Should investors worry about Micron’s (MU) weak Q4 results and guidance?

The semiconductor industry is a rapidly growing business segment that currently thrives on the digital transformation wave. The demand for memory chips and other semiconductor products increased over the years,

What has Bed Bath & Beyond (BBBY) outlined for this fiscal year?

Shares of Bed Bath & Beyond (NASDAQ: BBBY) were up on Friday, a day after the company delivered disappointing results for the second quarter of 2022. The company reported a

NKE Earnings: Highlights of Nike’s Q1 2023 results

Nike, Inc. (NYSE: NKE) has reported a decrease in net profit for the first quarter of 2023, despite a modest increase in revenues. The company's stock suffered a big loss

Add Comment
Loading...
Cancel
Viewing Highlight
Loading...
Highlight
Close
Top