Macmahon Holdings Limited (MAH) Earnings Call Transcript & Summary

Hello, and welcome to the Macmahon Fiscal Year 2023 Results Conference Call. [Operator Instructions] I will now turn the conference over to Mick Finnegan, Managing Director and Chief Executive Officer. Please go ahead.

Welcome to the Macmahon 2023 results presentation, and thank you for joining us today. I'm Mick Finnegan, the Chief Executive Officer and Managing Director of Macmahon, and I'm joined today by our CFO, Ursula Lummis; and Donald James, our Chief Commercial Officer. We appreciate your time and the opportunity to run you through today's presentation in what is clearly a busy time of the year, and there definitely will be an opportunity for questions following the presentation. Moving on to Slide 2 upfront, I'm pleased to report Macmahon performed well in FY '23 with record underlying earnings, margin improvement and positive free cash flow, which importantly signals the end of our CapEx-heavy growth cycle, consistent with our strategy. Our financial metrics were up across the board. This was in spite of a challenging operating environment experienced by the sector, which includes cost inflation, skilled labor shortages and unseasonal weather on the East Coast of Australia, largely experienced in the first half. In the second half, we saw improvement across the business, which was reflected in our quarter 4 underlying EBIT(A) margins reaching our 8% long-term target. This performance, as seen, made our revenue and earnings guidance for the sixth consecutive year and generates free cash flow. If you recall, we recently narrowed our guidance ranges, so this is an excellent achievement. Ursula will talk to our financial performance in detail, but some key callouts are, underlying revenue was up after commencing many new projects during '22 and '23, and order book increased after securing Greenbushes and key contract extensions at Telfer, Martabe, Byerwen and Batu Hijau. Underlying EBIT(A) was up 16% to $116.6 million from FY '22, and our margin for the year was 6.1%, up from 5.4% at the half. This is off the back of a strong Q4, which I mentioned earlier, and we will be looking to continue this momentum into FY '24. We also improved return on average capital employed to 14.5%, which is approaching our long-term target of 15%. I actually now expect this to be the floor, given the end of the high CapEx growth cycle and the focus on managing capital employed in our business. The growth in earnings and free cash flow allowed us to increase our dividend for the second half to $0.45 per share. This brings the full year dividend to $0.75 per share and equates to a 23.3% payout ratio, in line with our revised policy of 20% to 35% of underlying earnings per share. I'll talk more on our guidance for FY '24 when I discuss the outlook, but you'll see that we expect the positive earnings momentum to continue with a meaningful increase in expected underlying [ EBITDA ] and in margins. Our guidance performance on Slide 3 demonstrates our consistency in delivering on what we say. Notwithstanding some uncertain market conditions, particularly in recent years, and we're proud that we have reliably performed to our market guidance without surprises for an extended period. I'm incredibly proud of the entire Macmahon team for delivering on the guidance for the sixth consecutive year made possible by our team's dedication to continuous improvement and the disciplined execution of our order book and strategy. Slide 4 outlines the progress we have made in diversifying and expanding our revenue to include more underground mining, mining support services and civil infrastructure projects. This has continued to be a major focus and has contributed to our positive results. We believe we made meaningful progress during FY '23, particularly in the underground space where revenue of almost $500 million accounts for 1/4 of Macmahon's FY '23 revenue. Furthermore, underground opportunities make up over 1/3 of the $10.6 billion tender pipeline, providing scope for future growth. Building our brand as a meaningful underground mining contractor will continue to be a priority as well accelerating growth in our mining support services and civil infrastructure business, which accounted for 9% of revenue in FY '23. This will include bolstering our capability and capacity as well as expanding strategic partnerships that will enable us to successfully execute larger scale civil infrastructure projects in the coming years. Our strategic progress has enabled Macmahon to consolidate and optimize our core surface mining business, which provides scale and contract tenure. This foundation is being leveraged to diversify more selectively in a lower capital-intensive project opportunities. While our surface mining business does have more room to grow, our key focus is on optimizing margins, cost and capital efficiency and pursuing lower capital-intensive opportunities. We believe this shift into less capital-intensive work will not only play a critical role in achieving our long-term target of building a prudently managed, more resilient, diversified and scalable business, but will also enable a sustainable delivery of a return on average capital employed of greater than 15%. Turning to Slide 5 and talking margins. As you may know, our underlying EBIT(A) margin target is 8% or greater, I'm pleased to report our second half performance has seen us move closer to this target, with the business achieving 7.2% for the second half and 6.8% underlying EBIT(A) margin for the full year when you exclude the 0 margin cost recovery revenue related to the Batu Hijau Phase 7 contract. This result was impacted by the unseasonal wet weather on the East Coast during the first half, returning to normality in the second half, the Batu Hijau 8 agreement commencing in April, which removed the 0 margin cost recoveries, inflation moderating, allowing rise and fall mechanisms to catch up and our underground business achieving scale of nearly $500 million a year in revenue. Notably, we have seen margin improvement as the year progressed, with the final quarter of FY '23 seeing us reach our target and deliver 8.1% underlying EBIT(A) margin, positioning us well for FY '24. Now on Slide 6. From an operational perspective, the profitable and safe execution of existing contracts while managing the industry headwinds I noted, has been a focus this year. In the surface space, Telfer is extended and continues to perform well. The King of the Hills project achieved record gold production in the last quarter of FY '23, which is very pleasing, and $2.6 billion of strategically aligned new work was secured during the year. This included the $1.1 billion Greenbushes Lithium project, which commenced on the 1st of July 2023. In Underground, as I mentioned earlier, we have grown our business significantly with revenue increasing from $53 million a year in FY '18 to $472 million a year in FY '23. This has been achieved through optimizing and growing our operations at Gwalia, Boston Shaker, King of the Hills and Deflector. We are looking to continue this momentum and are targeting a further 50% increase in underground revenue over the next 2 to 3 years to achieve real scale and be a meaningful participant in this sector. In Mining Support Services and Civil Infrastructure, we have a significant focus on building internal capability and capacity to execute larger scale civil infrastructure engineering rehabilitation projects. The Fimiston Tailings Storage Facility project commenced during the year and is progressing well. Our tender pipeline is highly filtered and focused on where Macmahon has existing relationships and a competitive advantage. And at a corporate level, we've been able to attract talent in a tight skilled labor market and have increased our workforce by over 500 people during the year to 8,368 people. And in recent times, we have seen retention improve, which is critical for us. Skilled labor shortages do continue in Australia, particularly in the equipment maintenance and skilled operator area, whilst in Southeast Asia, it's continued to be a more balanced market. Although supply chain shortages and delays are normalizing and higher cost inflation is moderating, we will continue to manage these areas of the business as proactively as possible. Slide 7 is a recap of our key projects, the tenure, cost curve profile and related commodity exposure. Some key callouts include the addition of the Greenbushes project, where we commenced on 1 July, and I'll talk a little bit more about that shortly; the addition of Fimiston which commenced during the year; and 2 of our alliance projects, Batu Hijau and Byerwen, which were importantly extended this year. Slide 8 is another regular feature in our presentations and outlines the portfolio diversity in the business. As you can see, we have strengthened diversity across our major clients. Our commodity mix is made up of approximately 75% gold and gold/copper on a revenue basis. Pleasingly, next year, we will have the addition of the battery mineral lithium with the commencement of Greenbushes. We are also diversifying our business mix into the lower capital density business of underground and mining support services and civil infrastructure with these businesses accounting for 35% of the FY '23 revenue. Slide 9 provides a summary of our recently commenced Greenbushes Lithium project. It is owned by Talison Lithium, an excellent partner who we have built a great relationship with during both the tendering and start-up phases. Since commencement, key equipment and ancillary plant has been mobilized and ramp-up will occur through FY '24. Over 190 Macmahon employees have been inducted on site and are working on the project. The total workforce is planned to be approximately 350 people by the end of FY '24. I'd like to thank the whole team for getting us to this point successfully, and I'm looking forward to seeing continued growth at this project. Critical to our business is safety management and the engagement of our people and our progress in this space is outlined on Slide 10. On the safety and well-being front, our TRIFR showed another year of positive progress decreasing from 4.8% to 3.9% during the year. This is significant considering our team grew to nearly 8,400 people, and the proportion of industry new entrants is higher than normal. There was also work completed to improve risk management processes across the business with an external review and strengthening of our critical risk management program, plus education and training to ensure we effectively manage this. Throughout the year, we have continued to invest in international recruits, apprenticeships, skill upgrade programs and new to industry training through the Grow Our Own program. We trained 758 people, including 453 internal trainees, 149 external trainees, 30 graduates and 126 apprentices. In addition to these programs, we've recently launched a new-to-industry program for the Australian defense force veterans. FY '23 saw continued focus on embedding our evolved company values through the Winning at Macmahon program and the rollout of our diversity and inclusion road map. We'll continue to evolve and execute key initiatives in FY '24, which includes additional pulse checks and engagement surveys to monitor progress. In FY '24, our primary focus will be on further developing our culture. In August 2022, Macmahon introduced its evolved company values, defining how we collaborate, interact and contribute to the ongoing success of our organization. These values have become the driving force behind our achievements, and we are determined to build upon them to create an even stronger and more cohesive team. Moving to sustainability on Slide 11. At Macmahon, we are committed to embedding sustainability within our business strategy, operations and culture so we can continue to grow responsibly and in a way that delivers positive outcomes to our team members, customers, investors and the communities in which we operate. While we do have a separate Sustainability Report that we have just released, I would like to call out some highlights from last year. We developed our sustainability framework and are now baselining our environmental footprint to inform our targets from road map development. Our First Nations representation was 4.7% with overall attrition decreasing. We had female representation at our highest levels, including 1/3 female nonexecutive directors and 57% in our executive leadership positions. We continue to execute our sexual harassment road map, including bystander training, independent culture reviews and pulse checks to ensure we are making solid progress. I'll now hand over to Ursula, who will take us through our year-end financials.

Thanks, Mick. Good morning, everyone, and thank you again for joining us today. Further to Mick's overview on our FY '23 results, Slide 13 provides some additional context on our financial performance. For FY '23, we continued to deliver growth in revenue, underlying EBITDA and EBIT(A). This was primarily driven by organic growth across the business, the ramp-up of existing projects, including Deflector and Boston Shaker and also the inclusion of a full year of revenue from projects that commenced in FY '22 being the King of the Hills, both surface and underground sites and Warrawoona. Turning to the chart at the bottom right, whilst the underlying EBIT(A) margin for the year increased to 6.1%. This was subdued in the first half with the unseasonal wet weather on the East Coast and the ongoing inclusion of the 0 margin pass-through costs of Batu Hijau Phase 7. Slide 14 provides more details on our financial performance, including the performance for the half years over the past 2 years. Although revenue for the year was up 12% to $1.9 billion, the reduction in the second half of FY '23 was primarily driven by the commencement of Batu Hijau Phase 8. From the 1st of April 2023, the 0 margin pass-through costs, I previously mentioned, have now been removed. Underlying EBITDA and EBIT(A) growth was positive at 6% and 16%, respectively, with the organic growth across the business and the full ramp-up of all projects. As previously mentioned, the underlying EBIT(A) margin improved over the second half of FY '23 from 5.4% to 6.8% due to the reasons noted. Importantly, with ongoing improvement across the business and the removal of the pass-through costs from the 1st of April '23, we achieved an EBIT(A) margin for the fourth quarter of 8.1%. Effective borrowing costs increased to 5.7% at 30 June, 2023, up from 4.8% in the prior year. This reflects increases in the cash rate during the year. Underlying net profit after tax was up 7% to $67.7 million, driving our underlying earnings per share to $0.0322, a nice improvement on the prior year with a good half-on-half growth. And as Mick said in his introduction, on the back of this performance, we have declared a final dividend of $0.45 per share, bringing our full year dividend to $0.75 per share with a payout ratio of 23.3% and an increase on last year. Management is focused on driving cash flow generation throughout the year. So it's pleasing to see on Slide 15, an increase in underlying operating cash flow before interest and tax to $306 million, up 13%. Underlying EBITDA cash conversion was 99%, up from 93% in FY '22. The chart on the right-hand side shows our return on average capital employed in the business. We achieved a return of 14.5%, up from FY '22 and approaching our 15% target. We expect this return to continue increasing as the capital intensity of the business reduces and earnings growth continues, together with a meaningful contribution from Greenbushes as the project ramps up to steady state. The cash flow net debt waterfall on Slide 16 provides an overview of the major cash movements during the year that have contributed to the reducing closing net debt position at 30 June, 2023. Underlying EBITDA was a major driver of cash generation with $308 million in FY '23, up 6%. The primary differences between underlying EBITDA and net operating cash flow was a cash conversion of 99% and payments for interest, tax, software-as-a-service and the corporate development costs. The largest cash outflow for the year was expenditure for property, plants and equipment of $239 million and includes $29 million in new tire fitments during the year. Excluding the tires, CapEx spend of $211 million, all sustaining an extension was above our original forecast of $194 million, and this was primarily due to the Martabe contract extension, where certain equipment with longer lead times arrived on site shortly prior to the end of the financial year. The inclusion of tires through CapEx previously recognized in accrual is due to the extension of tire lives beyond 1 year, resulting in a change in treatment at the end of FY '22. On average, this does not have a significant impact to the EBIT(A) as the tires continue to be expensed across the year as they're consumed. FY '24 CapEx, excluding the new tire fitments, is expected to be $203 million, which includes sustaining CapEx of $171 million and growth CapEx of $32 million, primarily for Greenbushes. The key highlight on this slide is the company produced $34.7 million of free cash flow, and this is after paying interest and tax. The strength in balance sheet and liquidity position at the end of the financial year is summarized on Slide 17. Net debt, including right of use, reduced from $215 million to $202 million at year-end with a corresponding reduction in gearing from 27.8% to 24.9%. Net debt to underlying EBITDA improved to 0.65x. These metrics are below our internal guardrails of less than or equal to 30% and 1x, respectively. Cash on hand of $218 million, together with the unutilized facilities at year-end totaled $300 million, improved from June 2022 of $256 million. In July, the company added a new $50 million tranche to the existing syndicated debt facility which, after a $6 million amortized payment further improves the liquidity by net $44 million that can be used for general corporate purposes. The new tranche matures in September 2026, in line with the existing facility. The other key ratio on this slide is a return on average capital employed of 14.5% for FY '23. This was in line with our expectations and is an improvement from FY '22. As I've mentioned before, the business is well positioned to deliver on an average capital employment target of greater than 15% moving forward. Thank you for your attention, and I will now hand you back to Mick before we open for questions.

Thanks, Ursula. On Slide 19, we deep dive into our strategy, which focuses on responsibly growing our business and optimizing underlying EBIT(A) margins, cash flow and return on average capital employed through diversifying earnings mix and reducing the capital intensity of the business. It has remained consistent and provided a foundation for growing our business as we have faced changing market cycles and conditions. The first pillar focuses on consistently delivering target margins and improving operational performance for our people and mining technology offerings. Critical to delivering on our long-term targets is a continuing engagement and investment in our people and ensuring our processes and systems are relevant and efficient. This will ensure we have a competitive advantage, are sustainable and can provide unique offerings to our clients. Diversifying and expanding into more underground mining, mining support services and civil infrastructure projects has been a major focus for us and is captured under pillars 3 and 4. As I said earlier, we have made good progress in advancing our underground business now nearing $500 million of revenue per annum, and I see plenty of scope for this to grow further. And in our civil infrastructure business, there's clearly room and a strong desire to accelerate growth. This business currently comprises 9% of our FY '23 revenue. This shift in a less capital-intensive businesses will create a more diversified and scalable business and aligns with our targets to deliver an underlying EBIT(A) margin of greater than 8% and return on average capital employed of greater than 15%. With our financial targets in mind, we will continue to explore all opportunities to improve our balance sheet and accelerate this growth in focused strategic areas to drive earnings, cash flow and return on average capital employed. Before I talk about the outlook for FY '24, I want to walk you through our order book and tender pipeline on Slide 20. Our order book remains strong at $5.1 billion and includes $2.6 billion in new and extension work won in FY '23. It also factors in the removal of $500 million of 0 margin cost pass-through revenue related to the commencement of Batu Hijau Phase 8 in April of this year. The order book runoff chart on the left shows a high volume of secured work for FY '24 and '25 at $1.6 billion and $1.3 billion, respectively, and this excludes any short-term churn work, which is usually between $100 million to $150 million per annum, putting us in a very strong position for the years ahead. The tender pipeline of highly filtered strategically aligned and credible project opportunities has grown to $10.6 billion with continued activity in the mining sector and supports a positive longer-term outlook for our business. You can see from the pie chart on the right that we have identified a considerable number of opportunities in underground mining, mining support services and civil infrastructure, which together represents 65% of the pipeline. We see significant revenue growth potential for Macmahon in these areas. We believe demand for our services and skills has never been greater at a time where we are seeing progressive industry consolidation. We're in a unique position to leverage our capability to pursue valuable existing and emerging opportunities, which we believe will create long-term sustaining shareholder value enhancement. Macmahon's capital allocation policy is outlined on Slide 21. It reflects the importance of paying dividends to our shareholders, balanced with the priority of retaining financial flexibility to enable the continued execution of our strategy. With that in mind, we have reviewed our targeted dividend payout ratio range and from FY '24, we will increase the range from 10% to 25%, to 20% to 35% of underlying earnings per share. This is on the back of achieving consistent earnings growth, record underlying earnings, free cash flow and confidence in the outlook as we approach our long-term strategic targets. You can see in the graphs at the bottom of the slide that Macmahon has delivered significant growth in revenue, underlying NPAT and underlying earnings per share over the past 5 years, whilst maintaining strong disciplines around the balance sheet management. We have had consistent compliance with our internal net debt-to-EBITDA leverage ratio and gearing guiderails, and we are now seeing both reduce consistent with our plans. This will ensure we return stable cash to shareholders in accordance with our new dividend payout policy I just mentioned. I also note that our price-to-earnings ratio has more than halved during the same period, which presents in my view, an opportunity. That brings me to Slide 22, our priorities and outlook for FY '24. Our order book and robust tender pipeline continue to support a positive demand outlook for the business, supporting our confidence in continued growth. While we have seen interest rates continue to rise in response to high inflation, this is now beginning to moderate, and Macmahon continues to manage these as well as the tight labor market across Australia. We have demonstrated our ability to effectively manage these challenges through investment in developing and growing our workforce internally as well as our alliance approach to contracting. We will remain consistent in our areas of focus for the coming year with a particular emphasis on free cash flow, margins and return on average capital employed. Our guidance for FY '24 is for revenue in the range of $1.7 billion to $1.8 billion and growth in underlying EBITDA to $130 million to $140 million. This is supported by a strong order book of $5.1 billion with around $1.6 billion of work already secured for FY '24. Our established track record of growth and delivering on market guidance has been built on the back of a clear long-term strategy, careful investment in the business and the dedication and commitment of our incredible and talented workforce. Another priority will be to ensure the smooth transition of our Board with several Board changes announced post year-end. These include Directors, Alex Ramlie and Arief Sidarto stepping down and concentrate on the management of Amman, post its listing on the 7th of July. We subsequently welcome Dave Gibbs to the Board as the Amman nominee. Also our Chair, Eva Skira, announced her resignation as a Director and Chair of the Board at the conclusion of Macmahon's Annual General Meeting later this year after 12 years of amazing service. Hamish Tyrwhitt, the current Director, will assume the role of Chair after the AGM. On behalf of the Macmahon team, I want to sincerely thank our outgoing Directors for their significant contributions over the years and wish them all the very best. And I personally would like to thank Alex, Arief and Eva for their support over the years. With that, I'd like to hand back to the operator to open for questions.

[Operator Instructions] Your first question comes from the line of James Wilson of Jarden Australia.

Just a couple of questions from me, if I may. Firstly, on your EBITDA sort of performance this year, are you able to maybe just run us through what you saw as the main, I guess, margin contractionary pressures that you experienced year-on-year relative to last year?

Yes. Look, the biggest one for us -- if you're comparing to previous years, probably the biggest -- the increase in the pass-through costs that we saw at Batu Hijau. But obviously, they're removed from April 1. Beyond that, it was a series of the wet weather on the East Coast that was largely unseasonal, which, again, we saw subside in the second half. And then just the challenges we're all trying to combat the headwinds through logistics inflation, supply chain and various items. But to be honest, for me, Q4 been 8.1% in a clean result is what we're trying to build the business from and that gives us confidence as we step into FY '24. And the challenge internally for our team was there was still plenty of opportunities there to improve. So that's where we're focusing. But please, I don't want to appear naive. There's definitely a number of headwinds out there, and it's important that we live within our means and work to a level and a capacity that we've got the skills to manage.

And then just expanding on that, heading into sort of your guidance, for next year, does that include any assumptions around some of those headwinds abating relative to what you've seen over the course of '23? Or is it purely driven by just earnings growth?

No, we've certainly contemplated that James -- sorry, it was James, wasn't it? Yes, it was.

Yes.

Yes, we've certainly contemplated that. And we spent a lot of time looking at Q4, and we've pointed the market to Q4 for a period of time. And even at the half -- and I think some recent presentations, the 2 things we wanted to point everyone to is Q4, and of course, our gearing and leverage topping out and starting to reduce. And we've contemplated all those headwinds in the result for next year, and we expect the momentum that we built in Q4 to continue, and it certainly had some allowances in there for the challenges that we've all been experiencing.

And one more for me, if I may. Just on that tires CapEx, I think it was $28 million for this year. Are you able to talk about sort of directionally where that's heading next year? Is it a similar contribution? Or do you think it will drop down given that it's not in the guidance?

Look, I'd expect it to be maybe slightly more, maybe 30% to 35%, but I'm estimating there, James. And the important part there, I suppose, to consider is where it goes above the $203 million PP&E CapEx guidance we gave. It also increases the EBITDA. So they almost net each other out when it comes to EBIT, free cash flow, various things like that. So for us, the only reason it's tipped from basically a current asset accrual that's expensed on consumption into a CapEx item that's expensed on consumption is we've had a little bit of success in our tile off, and it's -- on average, it's extended beyond 1 year. So that's the only reason. It doesn't really change how we deal with it, how we expense it. And looking forward, we've included that in our internal modeling, of course, with free cash flow, and we expect that to increase as we've been saying for a number of years beyond that 34.7% that we experienced this year.

Your next question comes from the line of James Lennon of Petra Capital.

Quickly -- just a quick one. Really a great result. Just wanted to ask you, in terms of that tender pipeline, the $10.6 billion, keen to know, is this all within Australia? Are you looking to diversify regionally as well? And also with the tendering for these contracts, is it based on alliance style contracts? How are you sort of looking at risks going forward?

Yes, for sure. Look, none of that is in a jurisdiction we're not already operating in. And loosely, the split, I think, is consistent with our current revenue split between Australia and Indo. And of course, the Indo jobs that we look at, we're very careful who we partner with, and we're lucky to have such a good partner on the register who will let us know who we should and shouldn't work with. The other split in that pipeline is, it's about 35% surface, but a lot of that surface is 2, 3, 4 years out, and it's more about replacing the current base. There's 35% of underground and the remaining 30% is mining support services. Civil and infrastructure and the underground and mining support services are nearer term, and that's really where we're very deliberately focusing the new work in the next year to 2 years, how we can continue to reduce the capital intensity of the business, increase the free cash flow and continue to bring down the gearing and the leverage obviously, and as you would have seen by that revision on the dividend policy on that new payout ratio that we've put out.

So just on that split there, if you look at the -- what you -- sort of term capital-intensive versus noncapital intensive, what would be the ideal split if you look at a longer-term view?

We've anecdotally put out 1/3, 1/3, 1/3. And if you look at surface in isolation, I made a comment a moment ago about getting to 15%. We now see that being the floor in terms of return on average capital employed moving forward. And that's the sort of number you'd expect to see on average in a surface business. So if we can add 1/3 of underground, add 1/3 of mining support services, civil infrastructure, you can see while we're now trying to point to that as a very important measure for the business.

Just one other question on the cash flow. I mean that was a good result there. Is this something that you think you'll sustain going forward? Or is there -- like working capital wise, is there any sort of buildup there that's due to happen? Or can we expect that sort of quite a clean conversion going forward?

Look, a couple of things there to answer that question. The first one is we're really pleased with that free cash flow because, as Ursula pointed out, some of the Martabe CapEx for that extension come earlier than expected. And also, we took equity in Calidus there to support that project because we have confidence in that project extending and continuing to grow. So when we started the year, we hadn't planned for those 2 items. So it was a pleasing result, especially when you consider those. Should we expect it to continue? Definitely. We took a long time to grow the base of the business at the expense of the balance sheet, and we stayed true to that plan so that when we do see to get leverage and gearing turn, we can maintain it, and that is the intent from here. So now that we've got a medium to long-term outlook in the base part of the business or the foundation part of the business that is secure, if we continue to do a good job for our clients. Now from this point, we're going to be very specific where we take on new work, and it's all around making sure that, that free cash flow continues to grow. And then, I guess we tried to signal that by increasing the payout ratio moving forward in the dividend policy. That was done as a bit of a signaling exercise. So the market could have confidence that we just wouldn't do that for 1 year and then remove it. We intend to maintain that policy, which is also hopefully another reflection of that intent.

Your next question comes from the line of Tony Greco of Private Investor.

Thanks for a fairly good results, so congratulations on that. A couple of questions. And one is almost following on from what you're saying about the signaling to the market about the increased dividend payout policy. Because it's interesting that your net tangible assets, you still say [ $0.278 ] compared to the share price of [ $0.16 ]. So my question is, why do you think the market -- why does the market not seeing to value the business even at net asset value? And is it because it's worried about the capital intensity? So just what are your thoughts there? And yes, you've noted that the PAT ratio is down at 4.8% on current price. So, just your thoughts on that to start with?

Yes. Look, Tony, I mean, I'm an equity holder as well. And there's a disappointment on my side personally and in the company that, that's the case in terms of where we're trading against NTA. And that's why we're trying to articulate clearly our strategy. That's why we're trying to articulate clearly -- this strategy has been in place for 4 years now and where we are along it and how we think -- sure, everyone in our sectors had to face the headwinds, but we have confidence we're still progressing that way. And we feel -- to James' question earlier, I guess, that if we get the blend of the business right, you'll be able to see gearing leverage come down. You'll be able to see an ability to pay that increased payout ratio. And I think in time, that value will be seen. So I probably won't speculate on the [ whys ], I'd only be giving my opinion, but we're going to stay focused on what we genuinely think will create the value. And internally, we have a lot of confidence about the outlook for this business. And if we continue to deliver that, we think the value will definitely come.

Yes, because I guess it seems like it's the fact that it may be -- it is a very capital-intensive business, and I guess, especially when you're trying to expand. So yes, the expansion is slower, maybe the less increase in capital. And maybe now, as we've said in the past, that the jobs are gearing up and their setup and maybe the requirement will be less. And just with that then the increase in the debt --

Do you mind if I jump in there, Tony, because that's a really good point. And please don't think I'm rude for intervening. On Slide 21, that graph on the bottom left, I think that's really important. And it goes to what you've said because the first stage of growth and the strategy to get the tenure, the scale of the outlook did come at the expense of the balance sheet. But we've always said, just keep an eye on when those line graphs start to turn and if they turn, and the earnings continue to increase. That will be the signal to the market that the next stage of growth is going to be that low capital intensity. And given that we're at 0.65x leverage and 24.5% gearing without coming down moving forward now with the new work that we'll be taking on. We think that that's obviously one of the contributors. And if we can demonstrate that, that should give a bit of confidence. Hopefully, I didn't waste everyone's time and repeat what I just said. I wanted to point to that graph though, Tony, apologies.

Yes. No, not a problem at all. Yes, because -- just then the question, just the increase in the debt facility by another $50 million, just the usage for that or the reason for that with -- and if you can't evolve anything, I understand that.

No, it was just to increase our liquidity buffer, or you go, Ursula?

Yes. So, it literally is just to increase our liquidity buffer, but also it's another source of debt that we can actually look at. We do try and monitor and manage the interest rates. So this gives us more flexibility in managing those interest rates where you can use different types of sources of debt.

There are no further questions at this time. I will now turn the call back to Mick Finnegan for closing remarks.

Yes. Thanks, [ Chao ]. Yes. Look, I just wanted to do this at the end of the call. I hope everyone understands, but I'd just like to thank everyone for joining. I do look forward to seeing everyone in the coming weeks, and we'll make ourselves available. And I'd just like to call out and acknowledge the passing of Bruce Munro. I don't want to go into too much detail here. I want to honor his privacy and that of his family, but suffice to say the business will miss him. I'll miss him and he had a huge impact to here. Thanks, [ Chao ].