Mastermyne Group Limited (MYE) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the 2020 Annual General Meeting of the Mastermyne Group Limited. Whether you're attending today at the physical venue of our meeting, the company's head office here in Mackay or via the online platform provided by our share registry provider, Link Market Services. My name is Colin Bloomfield, and I am the Chair of Directors of your company and the chair of this meeting. As stated in our notice of meeting, this is a hybrid meeting in accordance with relief provided by the Commonwealth Treasurer. Mastermyne is strongly committed to innovation, and we are pleased that our shareholders can participate in this meeting conveniently, comfortably and safely wherever they are in the world. It is now 11:00 a.m., the appointed time for the meeting, and the necessary quorum is present. I therefore declare the meeting open. Before we proceed with the meeting, I have some housekeeping points for those in attendance at the venue in Mackay. Please switch all your mobile devices to silent mode and do not make or accept a call during the meeting. Recording devices and cameras must not be used during the meeting. In the event of emergency, please follow the emergency exit signs and the instructions of staff at the venue. I table the minutes of the company's last AGM held 19th November 2019, which were approved by the Board and signed by me as a record -- correct record of that meeting. They are available for review by shareholders at this meeting. The agenda for today's meeting is set out in the Notice of Meeting dated 16th of October 2020, which was released through the ASX and made available to all shareholders of the company's website in the manner required by the relief provided by the Commonwealth Treasurer. I'll take the Notice of Meeting as read. We will proceed as follows. Firstly, I will present my address, which has been released through the ASX prior to the commencement of this meeting. Following that, Tony Caruso, your Managing Director, will present his review of the Mastermyne Group's activities, which has also been released through the ASX. We will then proceed with the formal business of the meeting as set out in the Notice of Meeting, where we ask shareholders to participate by asking questions or making comments relevant to each item of business and voting on each resolution. At conclusion of the formal business, I will close the polls and close the meeting. The results of voting via the online platforms and via the voting cards of those attending at the meeting in Mackay will be collected and processed by our share registry. And we will determine and announce the results of the meeting on the ASX announcement platform and on the company's website as soon as they are available. The company's directors, auditor and senior executives are in attendance today. At the meeting venue in Mackay, independent nonexecutive directors, myself, Mr. Gabe Meena, Ms. Julie Whitcombe; Managing Director and Chief Executive, Mr. Tony Caruso; Company Secretary and Chief Financial Officer, Mr. Brett Maff; Executive General Manager Human resources, Ms. Viv Gayton; Executive General Manager, Strategy and Growth, Mr. David Sykes; Executive General Manager, Mining, New South Wales, Mr. Wayne Price, and Executive General Manager, Mining, Queensland, Mr. Paul Green. Via the online meeting platform and by audio link, Nonexecutive Director, Mr. Andrew Watts. And Mr. Jason Evans, lead audit partner from your company's auditors, Pitcher Partners, is also attending this meeting via the online meeting platform and by audio link. So welcome, everyone. It is a pleasure to be talking to you after the company's most successful year since listing around 10 years ago. The results the Mastermyne team produced were excellent. But I will leave it to Tony to take you through them in detail. Importantly, we have delivered total shareholder returns exceeding 16% per annum over the last 3 years and a resumption of dividend payments. Dividends last year totaled $0.06 per share. This performance has its roots in the strategy the company has adopted since the coal industry was affected by a strong downturn during 2013 to 2016. During that period, very low prices saw producers do what they always do: cut production and reduce costs. At that time, Mastermyne had net debt of around $10 million and significant exposure to overhead costs, meaning that the reduction in revenue caused financial losses and significant pressure from our bank. The Board and management did what was necessary to restore financial health, including substantially cutting overheads, meaning people lost their jobs, eliminating dividends, stopping capital investment and prioritizing debt repayments. Thankfully, these actions bolstered our balance sheet. And eventually, coal prices recovered as they always do, and profitability improved. More importantly, the Board adjusted our strategy to better recognize the industry cycles and ensure financial health through the full economic cycle. Overhead reductions were sustained by investments in our systems, allowing us to leverage processes company-wide and retain more margin from new contracts. Excess cash was allocated to eliminating debt and establishing a strong net cash position. Dividends recommenced once the balance sheet reached a position of strength, rewarding our patient shareholders. The company ended this latest financial period with a net cash position of $21.4 million, even with a significant investment in fleet renewal. We are well positioned to invest in opportunities in a countercyclical fashion when the economics of many investments are more favorable. And while sadly, a lot of people have left the company as contracts have ended in the current downturn, we have been able to retain many talented leaders and redeploy them. In our full year results, we articulated our approach to managing our capital. We will aim to maintain a net cash position of up to $20 million. This is essential to ensure the company can operate within an industry renowned for its strong price cycles. We will pay out 40% to 60% of net profit after tax in dividends to shareholders. Dividends will be weighted with a more conservative interim dividend. Other capital management initiatives will be considered from time to time, and we will continue to invest in growth. In the year ahead, the Board is focused on strong performance at our existing contracts, facilitated by a continued investment in our people and technologies. This development of our people is a critical goal on our business strategy, and we strongly believe this is a source of competitive advantage. This investment is occurring through on-the-job learning programs, feedback systems and formal training and development. These initiatives are backed up by a succession planning process to ensure the availability of high-quality people to lead our business for a long time to come. The Board continues to evaluate opportunities to establish whole of mine operations for suitable clients. This model is well suited to clients with access to mining leases but with limited knowledge capability or resources to develop underground operations. We continue to evaluate a number of opportunities, and we are confident that at some point, one of these will be initiated. The other main area of potential growth is the underground metalliferous sector. After successfully acquiring and integrating Wilson Mining into the Mastermyne Group last year, we have been introducing its products and services into this sector. Already, we have delivered successful projects to underground metalliferous mines. Beyond this, we are looking to strengthen our capability in this sector. And evaluate other potential entry points. The company continues to enjoy the benefit of a stable, high-quality leadership team under Tony Caruso's leadership. In a year that presented numerous challenges, the whole Mastermyne team has performed magnificently. I thank all Board members and the leadership team for their outstanding contribution to leading Mastermyne. I also thank all of our employees for their continued efforts and contribution to Mastermyne's performance. I'll now hand over to Tony Caruso for his presentation.

Thanks, Col. So I thought I'd just start by recapping on the FY '20 year and, as Col alluded to in his report, was a record year for the business, and it's left us in really good shape after a very strong revenue and profit throughout the year. Importantly, safety has also been our primary concern. And this year, we had another good year in terms of our safety performance with a lot of our projects recording long periods of injury-free work. Margins have also improved over the year, and that's been benefited by the strong operating leverage across the business in terms of being able to leverage our overheads but also the strategic investment in equipment. And we're seeing that pay off in terms of equipment hire and improved margins across our equipment and also disciplined project management, so through the performance of our KPIs on our projects. So the combination of those things has resulted in our EBITDA margins increasing to 9.8% for the year. So that, on top of the record revenue, has increased profitability across the business. New projects were mobilized over the year at Appin and Moranbah North, and those mobilizations occurred during the year with not only people going into those projects but also a good suite of equipment as well. The Wilson's mining business continues to -- continue to be integrated into the Mastermyne operations, and we're seeing quite a few new projects coming through in the Wilson's mining area with the chemical business. Also importantly, this recent announcement is around the growth strategy with whole of mine, and we've recently announced being appointed as the operator at Crinum mine and are waiting for that final project to be approved by Gregory Crinum and the Sojitz Board and hopefully moving into operations. Our order book remains in really good shape. So we have an order book of $656 million. And I'll talk more about where we're heading with our order book and this year's performance. In terms of safe operations, this year has probably been dominated by the events that occurred at Grosvenor and the board of inquiry in Queensland, and that's just really reinforced the importance of safety across our operations. We've also seen this year a number of new legislations passed in the Queensland Parliament, which have also come about as a result of some of those incidents. Importantly, for our business, we've been very much ahead of the curve in terms of our focus on risk management and our leading safety indicators, which continue to guide our efforts. So a combination of good risk management but also our behavioral safety approach has left our business -- or sees our business continuing to perform quite well in the area of safety and making sure that our people go home safely. We've had a number of sites which have performed long periods of injury-free work, and we're working hard to replicate that across all our operations. More recently, we've seen coal prices affected, and it's really a lag of the effects of COVID on the international markets. Thermal prices and metallurgical coal prices have been affected. A reminder, Mastermyne's business is primarily exposed to metallurgical coal. 95% of our revenue comes through that metallurgical coal. And what we're obviously seeing across the board is prices affected, which has caused some of our clients to take some evasive action, particularly in the thermal coal area. So we have seen some contraction of business in New South Wales. But importantly, all the commentary suggests that we should see a recovery in therm -- in met coal prices early in the new year, and that will continue to drive work for the Mastermyne business. In terms of our order book for this year, we had $208 million of contracts locked in. And in addition to that, we have about $30 million of recurring revenue, which comes through from the Wilson's mining business as well as our consumables business, which gives us visibility on an order book of about $240 million for the year. The order book is split sort of 45%, 55% weighted between the first half and second half, and we're on track to deliver that. Margins remain in that 8% to 10% area. The business has been well positioned to weather the sort of -- the flexibility to weather the current softening in coal prices. And like everyone, we've taken some measures to reduce our cost to make sure that our margins remain strong through this part of the cycle. With the Gregory Crinum underground project, as mentioned, we've now announced the -- moving into the operator status for the Gregory Crinum project. And in the best case scenario, if the project is approved on the current time line, we may see some revenue come through in the second half from the Gregory project. We're also progressing a number of other whole of mine opportunities. We've signed a binding term sheet with the Dysart East project, and we're still progressing other whole of mine projects as well as the Dysart and the Crinum projects. The plan for growth remains the same. So it's really about maximizing our returns from our core coal business, which is about converting our current tender pipeline. It's about strategic -- continued strategic investment in equipment particularly being countercyclic. As the cycle is down a little bit, there are some opportunities for strategic investment in equipment and also looking to unlock our operating leverage. So that's very much through technology reducing our overhead costs. Expanding our underground service offering, so leveraging off the Wilson's mining business to expand into the hard rock sector. We've been successful recently in getting on some tender list in the hard rock area, and we'll continue to explore that organic growth. But also as part of that strategic expansion, we'll continue to investigate opportunities for acquisitions in that area as well. The third part of the growth strategy is around the whole of mine opportunities which, as I've spoken about, there's a number of those projects working their way through the pipeline. Most of which will be largely dependent on a bit of a recovery in the met coal price, but we look forward to seeing those projects come through sometime next year. So I guess in summing up, we're, again, in excellent shape after a very strong FY '20 year. As we move into FY '21, we've got a strong order book. We'll deliver those operations over this year with similar margins to what we've seen in that 8% to 10% range, focusing very much on that organic growth as well as delivering our whole of mine projects and continuing to explore that expansion into the hard rock business.

Thank you, Tony. All right. Now -- we now come to the formal business of the meeting as set out in the Notice of Meeting and accompanying explanatory statement. Before moving to the resolutions to be considered, I outline the procedures for this meeting. Voting. In accordance with the company's constitution as set out in the Notice of Meeting, we have determined that voting on each resolution will be conducted by poll rather than on a show of hands. This procedure is required for a virtual or hybrid meeting. I now declare open the poll on each resolution. The polls will close 5 minutes after the close of the meeting. So if you have not completed your voting cards and submitted your vote by the close of the meeting, please do so as quickly as possible after the close. I will shortly touch on procedures for voting at this meeting. I have appointed Ms. Rachel Teo of Link Market Services, the company's share registry, as returning officer for all of the polls conducted at this meeting. The result of the poll on each resolution will be declared and released to the ASX later today. We have adopted some other procedures to ensure that the views of as many shareholders as possible are represented at the meeting. Only shareholders, proxy holders or appointed representatives are entitled to speak or vote at this meeting. Only shareholders who are entitled to vote at this meeting may cast a direct vote on a resolution. The majority of the proxies received appoint the chair of the meeting. And on each resolution, I will vote directed proxies as directed. And as detailed in the Notice of Meeting, where authorized, I will vote undirected proxies in favor of the resolution. As we consider each proposed resolution, I will disclose the direct voting and proxy voting directions that the company has received for that resolution prior to the meeting. Shareholders and proxy holders attending at the venue will cast their votes by filling out the paper voting card they receive when they registered their attendance at the door. If you are registered with a yellow voting card, you are a voting shareholder, proxy holder or corporate representative and have chosen to vote using a paper voting card. You're also entitled to speak at the meeting. If you are registered with a blue card, you are a nonvoting shareholder. While you're entitled to ask questions and make comments, you are not entitled to vote at the meeting. If you are registered with a white card, you're a visitor, and you are not entitled to speak or vote at the meeting. [ Frank Connelly ] will collect your completed voting cards at the close of the meeting for inclusion in the polls. If there is anybody at this venue, whether shareholder, proxy holder or visitor, who's not registered, please see [ Frank Connelly ] immediately. If you are a shareholder participating in the meeting via the online platform, you can cast your direct vote using the electronic voting card that you received when you validated your holding by providing your SRN or HIN in the shareholder number field when you click on the get a voting card button at the virtual meeting platform. If you have any questions about casting your vote online, please refer to the online platform guide or call the numbers set out in the guide or on the screen in front of you. If we experience any technical issues today, a short recess or an adjournment may be required, depending on the number of shareholders being affected. If this occurs, I'll advise you immediately. We value your questions and comments. At each item of business at this meeting, shareholders and authorized representatives of shareholders are invited to ask questions or make comments relevant to that item of business. We ask that you do so respectfully. If you're attending at the venue and hold a yellow or blue card, please raise your hand at the appropriate time. And when invited to speak, please identify yourself to the meeting. If you're participating as a shareholder or proxy holder registered on the online meeting platform, you'll be able to submit your questions by selecting the Ask a Question tab. If you have not obtained a voting card before this, you will be prompted to provide your shareholder number, that is your SRN or HIN, before you can proceed. I will consider the questions submitted online after I've taken questions from the floor. Out of fairness to everyone present, I encourage you to submit your questions now so we can schedule your questions to be answered when the related item of business is being considered. For shareholders who are present with us here in the room, I ask that you submit your questions or comment one at a time and restrict them to the item or resolution that is under consideration. As a chair of the meeting, in the interest of the meeting as a whole, I may rule a question to be out of order if it does not pertain to the business of the meeting. Ladies and gentlemen, the first item of business at this meeting is to receive and consider the company's annual report. Financial statements, directors' report and auditor's report for the year ended 30 June 2020 were approved by the directors and audited and released through the ASX on 18th of August 2020. The company's annual report, including the financial statements, directors' report and auditor's report has been publicly available on both the ASX website and the company's website for many weeks. And a copy was sent to any shareholder who specifically requested it. I'll take the reports as received and read. Under the Corporations Act, the financial -- annual financial report is now formally presented to you, the shareholders at this meeting. And whilst no resolution is required and no resolution is proposed in relation to the annual financial report, the Act allows shareholders the opportunity to -- at this meeting to ask questions or make statements about the accounts, the audit and company management. So I now invite questions on the accounts and the reports, including any question relevant to the audit. If the question is relevant to the audit or otherwise appropriate for the auditor, I'll ask the auditor's representative to respond. Are there any questions from the floor?

None.

Okay. Are there any questions from the virtual meeting platform on this item of business?

No, Mr. Chairman, no questions received on this item.

Okay. With no further questions, we'll move on to the resolutions of the meeting. There are 6 proposed resolutions. We'll discuss and vote on each resolution in turn. Resolution 1: to adopt the remuneration report is advisory only and does not bind the directors or the company, but the Board will suffer a strike if at least 75% of the votes on the resolution are not in favor. The remuneration report dealing -- detailing the company's approach is contained within the 2020 Annual Report, which is available on the company's website. We'll take the remuneration report as read. Further details about resolution 1 are contained in the explanatory statement and that accompanied the Notice of Meeting. Voting exclusions. Under the Corporation Act, no director or other key management personnel named in the remuneration report and no closely related party of any of them can vote on resolution 1. Resolution 1 relates to matters including the remuneration of the directors of the Board. As a matter of corporate governance and in accordance with the spirit of Section 250R(4) of the Corporations Act, we make no recommendation in relation to this resolution. I now propose resolution 1, the adoption of the company's remuneration report for the financial year ended 30 June 2020. Are there any questions from the floor? Are there any questions from the online platform?

No, Mr. Chairman, there is no question.

Okay. As there are no questions, please now mark or select your vote for resolution 1 on your voting card if you have not already done so. Thank you. [Voting]

For resolution 2, I ask Gabe Meena to act as chair of this meeting for the next item of business, which is consideration of a proposal for my reelection as director.

ASX Listing Rules and the company's constitution require an election of directors each year and require directors to retire no later than 3 years after appointment or at the third AGM following appointment, whichever is the longer. In accordance with these requirements, Mr. Colin Bloomfield retires from office by rotation and submits himself for reelection as a nonexecutive director. Mr. Bloomfield was appointed a nonexecutive director of the company on the 6th of March 2014 and independent Chairman on the 26th of February 2015. Mr. Bloomfield brings to the company over 30 years of mining experience in technical, operations, management and corporate roles. He led BHP Billiton Illawarra Coal Group as President, Illawarra Coal, and was a Director of New South Wales Minerals Council for almost 9 years including 3 years as Chairman. He was also Chairman of Port Kembla Coal Terminal for over 8 years. He's also a nonexecutive director with the Flagstaff Group. Mr. Bloomfield is also a member of the Audit and Risk Management Committee and the Remuneration and Nomination Committee. Recommendation. The Board, with Mr. Bloomfield abstaining, unanimously recommends the reelection of Mr. Bloomfield as a Director of the company and that shareholders vote in favor of resolution 2 for this purpose. I am very pleased to propose resolution 2, the reelection of Colin Bloomfield as a Director of the company. Are there any questions from the floor? No. Are there any questions from online?

No, Mr. Chairman, no questions on that item.

Thank you. The details of the proxy votes for resolution 2 are shown on screen. As there are no further questions, please now mark or select your vote for resolution 2 on your voting card if you have not already done so. Thank you. [Voting]

I'll now hand over to Mr. Bloomfield to resume as chair.