Macmahon Holdings Limited (MAH) Earnings Call Transcript & Summary

[Audio Gap] Pollard and our company secretary Katina Nadebaum. Representatives from the company's auditor, KPMG, are also in attendance at our Perth office and will be available to answer questions on financial statements and in relation to the audit. I would like to take this opportunity to thank those present for taking the time to attend today's meeting. Your support and interest in the company's affairs are appreciated by the Board. This Annual General Meeting is being conducted virtually as we play our part in the measures required to contain the spread of COVID-19. My fellow board members and I regret that we are unable to meet the shareholders physically today. Today's meeting is being held online via the Lumi platform. This allows shareholders, proxy holders and guests to attend the meeting virtually. All attendees can listen to our webcast of the meeting. In addition, shareholders and proxy holders have the ability to ask questions and submit votes online. There is a slight 20- to 30-second audio delay between me presenting to you today and you receiving the audio. So I ask that you all please be patient if there are slight pauses throughout the meeting. If you experience any difficulties during the meeting, please refer to the online meeting guide attached in Schedule II to the Notice of Meeting, which is available on the ASX platform and on Macmahon's website. Questions regarding the resolutions to be discussed today can be submitted at any time. To ask a question, press on the question speech bubble icon. This will open a new screen. At the bottom of that screen, there is a section for you to type your question and submit it. Please note that while you can submit questions at any time from now, I will not address them until the relevant time of meeting. Please also note that your questions may be moderated or if we receive multiple questions on 1 topic, amalgamated together. Finally, due to time constraints, we may run out of time to answer all your questions. If this happens, we encourage you to contact us via e-mail or telephone after the meeting, so we could respond in due course. Voting today will be conducted by way of a poll on all items of business. Rod Sims from Computershare has agreed to be returning officer today and following a confirmation by Computershare, the final results of the poll will be announced to the ASX later today. This release will also be available on Macmahon's website. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. Once voting has been opened, if you are eligible to vote at this meeting, a new voting icon will appear on your screen. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to either submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote by simply selecting another voting option up until the time I declare voting closed. If you have any questions about casting your vote online, please refer to the online meeting guide or call Computershare on the numbers set out in the guide. I now declare voting open on all items of business. The voting icon will soon appear, please submit your votes at any time. I will give you a warning before I move to close voting. The company's secretary, Katina Nadebaum, has informed me that we have a quorum present. I, therefore, declare this Annual General Meeting of Macmahon Holdings Limited open. I would like to explain the format of today's meeting. Firstly, I will give the Chair's address. I will then invite Mick Finnegan to provide an operational update. After Mick's presentation, we will consider the resolutions outlined in the notice of meeting. Firstly, my Chair's address. 2020 was another strong year for Macmahon. We reported record financial results and achieved our earnings guidance for the third consecutive year. I'm sure you will agree, this is a commendable performance, given much of the global economy has been impacted by the COVID-19 pandemic. Our results demonstrate the agility and resilience of our business and the quality of our people. In response to the challenging conditions, Macmahon has taken and continues to take a significant number of proactive measures to ensure business continuity, and to protect the safety and well-being of our workforce and the communities in which we operate. During the year, Macmahon made significant progress on our strategy to expand our service offering across the mining value chain. Notably, we successfully expanded our underground business during this period by completing the acquisition of GBF Group in August 2019, a Western Australian specialist underground mining contractor. In addition, sustainability is becoming an increasingly important issue for our shareholders and people. To that end, Macmahon remains committed to developing a business that is mindful of our environmental, community and social performance. And we are pleased to have published a sustainability report in this year's 2020 annual report. Last year, we welcomed 3 new independent directors. We appointed Mr. Vyril Vella back to the Board in June 2019. And in October 2019, we were pleased to appoint Mr. Bruce Munro and Mr. Hamish Tyrwhitt. In addition, after a successful period as Chief Executive Officer since 2016, Michael Finnegan was appointed Managing Director in October 2019. In my view, Macmahon has a skilled, experienced and well-functioning Board. We are always mindful to retain the right balance and mix of skills to realize our vision and create value for all our stakeholders. We will continue to review this on a regular basis. I'm pleased to highlight that the Board has declared a final dividend for the 2020 financial year of $0.35 per share. This equates to a 2020 full year dividend of $0.60 per share, which represents a 20% increase over the prior year. We recognize the importance of paying dividends to our shareholders, which we balance with the priority of retaining a strong balance sheet. This provides us with the financial flexibility to enable continued execution of our growth strategy. Overall, with a solid order book, strong balance sheet and a significant pipeline of new work opportunities with both existing and new clients, we are well positioned for continued growth. In closing, on behalf of the Board, I would like to thank our CEO, Mick Finnegan, the senior executive management team and all our Macmahon people for their outstanding contributions during a challenging year. Importantly, I would like to thank all our shareholders for your investment and ongoing support. I will now hand over to Mick Finnegan for his CEO and Managing Director address. Thank you.

Thanks, Eva, and good morning, everyone. Thank you for joining us today for the 2020 Annual General Meeting. As Eva mentioned, Macmahon had another successful year. This includes meeting or exceeding guidance for the third consecutive year, delivering record earnings, maintaining a strong balance sheet and increasing our dividends. Achieving these excellent results in the current climate is particularly pleasing and a testament to the whole Macmahon team and the strength of the business. I'd now like to provide a brief summary of our financial performance for the year. The business reported a revenue of $1.38 billion for the year, up 25% from the prior period. This top line growth translated into record earnings and cash flow, with underlying EBITDA up 32%, underlying EBITA up 22% and underlying earnings per share up 23%. Similarly, our cash conversion was strong at over 91% of EBITDA, with operating cash flow up 73% from the prior year, delivering significant free cash flow. Importantly, even after the GBF acquisition, we maintained a strong balance sheet while increasing dividends by 20%. We also improved our return on capital employed to 14.8% and return on equity to 14.6%. I'll now move to an overview of some key projects and developments over the year. Firstly, the world-class Batu Hijau copper-gold mine, the alliance management team on-site are performing very well and achieving top-class productivities in several areas. The mine is now in copper-gold ore and AMNT continue to investigate a significant cutback at the Batu Hijau pit. We anticipate, if all goes to plan that this significant extension could be awarded to us in the second half of FY '21. We look forward to seeing further progress with this project over the coming year. Meanwhile, all our other mining and quarry projects in Southeast Asia continue to perform well. For instance, at the Martabe gold mine, where we have been operating surface works since 2015, we secured a 2-year extension to 2023. Overall, we know this region well and have been operating there for over 15 years. In Western Australia, we continue to perform well at the Tropicana gold mine where we have a close and positive relationship with the operator AngloGold Ashanti and its joint venture partner, Independence Group. The key development this year has been the successful ramp-up of the new Boston Shaker underground mine, which has recently achieved commercial production with no recordable safety incidents. Our execution here has demonstrated our underground capabilities and the significant efficiencies of having 1 contractor perform both disciplines on the same site. At the Telfer gold project, it was very positive for us to have resolved the dispute with Newcrest in November last year. Pleasingly, the project has performed in line with expectations and continues to be cash flow positive. And at Mt. Morgans gold project, I feel the collaborative team is building momentum. We have a great relationship with the Dacian management team, and the project is well positioned for future success. In Queensland, we continued to make excellent progress at the Byerwen coking coal project and achieved record production volumes last year. We were also delighted to announce the award of the $700 million 3-year expansion and extension of this contract. QCoal is an excellent partner, and we look forward to working with them on this high-quality long-life asset for many years to come. A major achievement for us in FY '20 was the significant growth in our underground division, and this was part of our strategy to expand and diversify our service offering across the mining value chain. Our underground business has tripled in size following the award of the Boston Shaker underground contract and the successful acquisition of GBF. The GBF team of over 450 people have integrated well and we're excited about the future growth opportunities in our underground area. Notably, GBF recently secured 2 important contracts, including a $200 million extension with Silver Lake Resources, and more strategically important -- and a strategically important contract with Bellevue Gold. Our underground division also secured repeat services and engineering work. This included production drilling, cable bolting, raise drilling and shaft sinking and equipping activities at Fosterville, Olympic Dam, Granny Smith, Leinster and Ballarat. And finally, our civil and rehabilitation business, TMM Group, successfully carried out a range of mine infrastructure and rehabilitation projects at Peak Downs, Saraji, Poitrel and South Walker Creek. Importantly, of note, across our business, we completed over 100 hectares of rehabilitation work for our clients. More recently, TMM was awarded a civil package for Strandline's Coburn mineral sands project. This marks its first major entry into Western Australia, and we look forward to building its presence here. I'd now like to touch on an essential part of our business, our people. Our workforce has now grown to a record 7,000 people globally and ensuring their safety and well-being remains our top priority. What has been evident as COVID rapidly emerged across the globe, was that our amazing team have pulled together incredibly well. I'm particularly proud of their dedication and commitment to ensuring everyone's well-being. Our leaders have been outstanding, and the can-do, agile culture that we've been building over the past few years has been very visible. Overall, to date, there has been minimal financial impact from COVID. However, we're not taking our fortunate position for granted and remain proactive as far as possible in managing the potential risks. Notwithstanding our significant growth in the workforce, it was admirable to see that our safety performance continued to improve. In FY '20, we recorded a total recordable injury frequency rate of 3.77 as well as a record low lost time injury frequency rate of 0.12. Moreover, a key focus for Macmahon has been the physical and mental well-being of our people through our program, Strong Minds, Strong Mines. I was delighted that our innovative program was recognized when we won the Western Australian Mentally Healthy Workplace award. This program has been an important part of our COVID-19 response. And we are proud that it is now being offered to the wider mining community. So looking forward, I'm excited by the opportunities for our business and our people. Strategically, we will continue to strengthen the business through our ongoing investment in people, systems and mining technology. Targeting operational efficiencies and becoming an advanced mining contractor remains an ongoing priority. In addition, we remain focused on diversifying and expanding our service offering across the mining value chain. We feel we are now well along the journey of creating a new, more resilient Macmahon, and we are well placed for sustainable growth. This is based on our scalable systems, processes and structure, a strong platform, offering the full suite of services across the mining value chain, an excellent underlying business with $4.5 billion of work in hand as at 30 June 2020, a strong balance sheet and underlying cash flows and a committed and amazingly talented team in place. Overall, I'm pleased to confirm our financial year '21 guidance of revenue between $1.4 billion and $1.5 billion and underlying EBIT of between $90 million and $100 million. This is underpinned by over $1.2 billion of secured work, along with ongoing short-term civil and underground work and a significant tender pipeline of $7.5 billion. Pleasingly, we have got off to a strong start this year, having been awarded or selected as preferred contractor on 3 contracts with a combined value of $250 million. This includes open pit work at the Warrawoona gold project, civil work at the Coburn mineral sands project and underground work at the Bellevue gold project. The varied scope of work across these projects further highlights our diversified services offering. I'd also like to note the announcement we released earlier this morning regarding us being selected as a preferred contractor for the Foxleigh project in Queensland, which is worth another $250 million. With a robust balance sheet, we remain well positioned this year to pursue additional work from our extensive tender pipeline as well as assess strategic growth options. In closing, I'd like to thank everyone in the Macmahon team for their commitment and strong contributions during these challenging times. I also acknowledge our clients who are essential to our business. We value our strong relationships and look forward to supporting their goals well into the future. On another note, I'd like to make special mention of Giles Everist who recently resigned as our Chief Financial Officer. Giles has made a significant contribution to the business for the last 7.5 years, both as a director and more recently as our CFO since 2017. We wish him all the very best for the future. In addition, I'm pleased to introduce Peter Pollard today, who is also seated at this table and is our new CFO. Peter has extensive experience in our sector, and we look forward to working with him. Finally, I wish to extend my appreciation to Eva, the rest of the Board and the senior management team for their unwavering support. And importantly, I'd also like to thank our shareholders for their ongoing support. With that, I'll now hand back to Eva, who will continue with the items outlined in the notice of meeting and take any questions. Thank you.

Thank you, Mick. This now brings us to the formal part of the meeting. The items of business to be considered at this meeting have been listed in the Notice of Meeting. The Notice of Meeting has been made available to shareholders on the 18th of September 2020, and I will take it as read. Before we consider the items of business, there are a number of procedural matters I would draw to your attention. While our visitors and guests are most welcome here today, this is a shareholders' meeting and only shareholders, their attorneys, proxies and authorized company representatives are entitled to ask questions and vote at this meeting. I am holding undirected proxies in my capacity as chair, and it is my intention to vote all such proxies in favor of all resolutions. Any directed proxies that have not voted at the meeting will automatically default to me as Chair of the meeting, and I'm required to vote those proxies as directed. The specific voting preferences indicated by proxies holding approximately 751,250,148 shares who have either directed their voting preferences or have led their voting preferences open to be cast by the nominated representative or the Chair are set out in the overhead slide that appears before you. I propose to take this slide as read. The first item of business deals with the financial statements and reports. These have been forwarded to shareholders who requested them and are now laid before the meeting. These financial statements and reports are for the financial year ended 30 June 2020. This is not a resolution and no vote is required on it. As I have advised, representatives for the company's auditors are in attendance to answer any questions shareholders may wish to direct to them in relation to the conduct of their audit or in relation to the preparation of the financial statements. If you have a question on this item and have not yet submitted it using the chat box, please tap on the question icon on your screen and type your question in the chat box now. I will give you a moment to do this. Katina, as company's secretary, can you please read out any questions received regarding this item?

There are no questions on this item.

Thank you. As there are no questions, we'll now move on to the formal resolutions. The next item of business asks shareholders to adopt the company's remuneration report for the year ended 30 June 2020. The remuneration report is included on Pages 58 to 69 of the annual report that has been made available to shareholders. Unless there is an objection, I'll take the motions being read and refer you to the screen with details of the proxies received for this resolution. Whilst this is a nonbinding advisory vote to shareholders, the views and comments of shareholders will certainly be taken into account by directors in further considering remuneration matters. I note that a voting exclusion applies to this resolution as set out in the Notice of Meeting. The Board recommends that shareholders vote in favor of this resolution. If you have a question on this item and have not yet submitted it using the chat box, please tap on the question icon on your screen and type your question in the chat box now. I'll give you a moment to do this. Katina, as company's secretary, can you please read out any questions received regarding resolution 1?

There were no questions on this item.

As there are no questions, I'll now draw your attention to the resolution and the proxies received on the screen. I now put the resolution to the meeting. If you have not done so, please now cast your vote on this item. [Voting]

As the next item of business relates to my own reelection, I pass the chair to Mick Finnegan.

Thank you, Eva. The next item of business that requires voting is the reelection of Eva Skira. Details of Eva's qualifications and experience are set out in the Notice of Meeting and the company's 2020 annual report. Ms. Skira joined the Board as a non-executive director in September 2011 and was appointed Chair of the Board on the 27th of June 2019. Unless there is an objection, I'll take the motion as being read and refer you to the screen for the details of the proxies received for this resolution. The Board recommends that shareholders vote in favor of this resolution. If you have any -- if you have a question on this item and have not yet submitted it using the chat box, please tap on the question icon on your screen and type your question in the chat box now. I'll give you a moment to do this. Katina, as company's secretary, can you please read out any questions received regarding resolution 2?

There are no questions on this item.

Thanks, Katina. As there are no questions, I'll now draw your attention to resolution 2 and the proxies received on the screen. I'll now put the resolution to the meeting. And if you have not done so, please now cast your vote on this item. [Voting]

I now invite Eva Skira to resume the chair.

Thank you, Mick. The next item of business that requires voting is the reelection of Alexander Ramlie. Details of Alex's qualifications and experience are set out in the Notice of Meeting and the company's 2020 annual report. Mr. Ramlie joined the Board as a non-executive and nonindependent director in August 2017 and is also a commissioner of PT Amman Mineral Nusa Tenggara. Unless there is an objection, I will take the motion as being read and refer you to the screen for details of the proxies received for this resolution. The Board recommends that shareholders vote in favor of this resolution. If you have a question on this item and have not yet submitted it using the chat box, please tap on the question icon on your screen and type your question in the chat box now. I will give you a moment to do this. Katina, as company's secretary, can you please read out any questions received regarding resolution 3?

There are no questions on this item.

As there are no questions, I'll now draw your attention to resolution 3 and the proxies received on the screen. I now put the resolution to the meeting. If you have not done so, please now cast your vote on this item. [Voting]

The next item of business that requires voting is the reelection of Arief Sidarto. Details of Arief's qualifications and experience are set out in the Notice of Meeting and the company's 2020 annual report. Mr. Sidarto joined the Board as a non-executive and nonindependent director in August 2017 and is also a commissioner of PT Amman Mineral Nusa Tenggara. Unless there is an objection, I will take the motion as being read and refer you to the screen for details of the proxies received for this resolution. The Board recommends that shareholders vote in favor of this resolution. If you have a question on this item and have not yet submitted it using the chat box, please tap on the question icon on your screen and type your question in the chat box now. I'll give you a moment to do this. Katina, as company's secretary, can you please read out any questions received regarding resolution 4?

There are no questions on these items.

Thank you. As there are no questions, I'll now draw your attention to resolution 4 and the proxies received on the screen. I now put the resolution to the meeting. If you have not done so, please now cast your vote on this item. [Voting]

The next item of business that requires voting is that the proportional takeover provision set out in Rule 29.8 and Schedule 2 of the constitution of the company be renewed for a period of 3 years. Corporations Act require certain information to be included in the Notice of Meeting where a company seeks the approval of its shareholders to adopt proportional takeover provisions. This information is set out in the Notice of Meeting. Please note that this item of business requires approval as a special resolution. Unless there is an objection, I will take the motion as being read and refer you to the screen for details of the proxies received for this resolution. The Board recommends that shareholders vote in favor of this resolution. If you have a question on this item and have not yet submitted it using the chat box, please tap on the question icon on your screen and type your question in the chat box now. I will give you a moment to do this. Katina, as company's secretary, can you please read out any questions received regarding resolution 5?

There are no questions on this item.

Thanks, Katina. As there are no questions, I'll now draw your attention to resolution 5 and the proxies received on the screen. I now put the resolution to the meeting. If you have not done so, please now cast your vote on this item. [Voting]

Ladies and gentlemen, that concludes our discussion on the items of the business for this Annual General Meeting. Shortly, I will close the voting system. Please ensure that you have cast your vote on all the resolutions. I will now pause to allow you time to finalize those votes. [Voting]

I now declare the poll closed. After the votes on the resolutions have been counted and reviewed, the results of the poll will be announced on the ASX via an ASX announcement and on the company's website. At an Annual General Meeting, shareholders are entitled to ask questions about or make comments on the management of the company. Before calling this meeting to a close, I would like to provide shareholders with this opportunity to ask any questions that you may not have asked earlier. Katina, can you please read out any questions received?

There were no questions received.

Okay. Thank you, Katina. As mentioned earlier, the results of the poll will be available shortly and will be announced on the ASX and on the company's website. Thank you all for your attendance at this meeting and your interest in the company. On behalf of the Board, we look forward to your continued support. I now declare the meeting closed.