Mastermyne Group Limited (MYE) Earnings Call Transcript & Summary

Good morning, and welcome to Mastermyne's Investor Webinar to discuss the company's FY '26 results. Presenting today will be CEO and Managing Director, Jeff Whiteman; and CFO, Matt Ruhl, who will go through the presentation released this morning on the ASX. [Operator Instructions] I'll now hand over to Jeff.

Thanks, Ben, and good morning, everyone. Welcome to the FY '26 Full-Year Results Call for Mastermyne Group Limited. As Ben says, I'm Jeff Whiteman, the Managing Director and Chief Executive, and I'm joined by our CFO, Matt Ruhl. Thanks for taking the time to dial in. So, just turning to our results document now. Here we go. So, starting with the highlights for FY '26. I'm very pleased that they show a marked return to growth. Revenue of $237 million was up 13% on the prior period, above the upper end of guidance that we provided back in February with the first half results. Similarly, underlying EBITDA was above guidance at $20.3 million, an impressive 47% increase on FY '25. Much of this translated into both net profit before tax of $15.7 million, 148% up on last year and also operating cash flow of $20.3 million. The ultimate outcome of this performance was a material increase in our net cash balance of $46.5 million by 30th of June. Our strategic focus on winning work closely aligned with our core capabilities has achieved strong order book growth being valued at the year-end at $432 million through a combination of new contracts and contract extensions with major clients, including Glencore, Anglo and Yancoal. The recent award post year-end of our Dendrobium contract to GM3 valued at $85 million in the initial 2-year term and up to $255 million in total across the full 6-year term builds on a strong foundation and provides great momentum as we enter FY '27. With increased activity across the year, including the ramp-up of our GM3 Appin project, we had already grown our workforce from 640 to 689 people by the end of June. With new Dendrobium contract to add another 140 people shortly and other near-term opportunities progressing well, this growth is anticipated to continue towards the 1,000 headcount mark. On the supply side, we've continued to build our relationships with strategic partners and notably have extended our exclusive agreement with Jennmar Holdings out to 2047, locking in long-term supply of our market-leading strata consolidation products. The business has evolved significantly in recent years, so we've included a brief overview here. Essentially, the company is a specialist provider of value-adding solutions to coal mining projects, currently focused on the underground sector. We operate under 2 brands, Mastermyne and Wilson Mining, both of which have been leaders in the market with greater than 30 years of history. The business is recognized for its high level of technical capability and holds long-term relationships with pretty much all of the global Tier 1 miners in Australian underground coal. And you'll see the names on the right there, very familiar names. Through its project portfolio offices and facilities, Mastermyne covers all of the major coal regions on the Australian East Coast and typically has activity at 12 to 15 mines at any time. Our market-leading solutions comprise a set of integrated capabilities categorized into 3 main areas: mining services. This is really around providing specialist labor, technical expertise and equipment to deliver safe, efficient production for our clients. In the middle box there, strata consolidation, where we use an exclusive range of market-leading resin injection and cavity filling products to ensure the safety and productivity of our clients' longwall operations. And then on the right-hand side there, in terms of our products area, where we cross-sell a growing range of specialists and innovative products and consumables into our client projects. I'll now hand over to Matt to take us through the financials.

Thanks, Jeff, and good morning, everyone. Firstly, on our earnings. FY '26 was a year of strong earnings growth, with both revenue and underlying EBITDA exceeding the upper end of the guidance range provided at the half year result. Revenue increased 13% to $237.7 million, while underlying EBITDA increased 47% to $20.3 million. This translated into a significant improvement in profitability, with underlying net profit before tax increasing 148% to $15.7 million. This result was driven by increased activity levels across the business, particularly within strata consolidation, the full-year contribution from the GM3 Appin project, greater client diversification and the recovery from prior year external events. Importantly, earnings growth outpaced revenue growth, resulting in EBITDA margin expanding from 6.6% to 8.5%. This reflects a favorable mix shift towards higher-margin activities, particularly strata consolidation, together with continued focus on productivity and cost discipline. Statutory profit was impacted by $8.8 million of non-underlying items, the largest being provisions and costs associated with legacy legal matters. Excluding these items, the underlying performance demonstrates the strength of the operating business and the progress made through FY '26. Moving to the next slide on the overall financial performance. Having covered the strong earnings outcome, one of the key features of FY '26 was the diversification of revenue sources. Growth was generated across multiple clients, projects and activity lines rather than relying on a single contract or customer. During the year, we benefit from the full run-rate contribution of the Appin project and contract growth across existing operations. In FY '26, revenue was spread across 3 major customers, each contributing more than 20% of revenue, with the top 3 customers accounting for 79% of the total revenue compared to 2 customers accounting for about 80% in FY '25. We also saw an improvement in business mix. Mining services remain the largest activity. However, strata consolidation increased its contribution to group revenue from 26% to 30%, supported by elevated longwall activity, strong customer demand and the critical nature of the services provided. This continues to demonstrate the value of our integrated business model and cross-sell strategy. We believe this provides a more balanced earnings profile and reduces reliance on any single customer relationship. Moving to cash flow. Our cash generation remained a key highlight for FY '26. Net operating cash flow increased 20% to $20.3 million, reflecting strong conversion of earnings into cash. Our current capital-light operating model continues to underpin this performance. Capital expenditure remained around 2% of revenue, allowing a substantial proportion of operating profits to be converted into cash flow. As a result, cash increased by $16.8 million during the year to $47.2 million at the end of June '26. The growth in cash was achieved while continuing to invest in working capital required to support expanding activity levels across the business. The strength of cash generation provides flexibility to pursue growth opportunities. On the balance sheet, the balance sheet strengthened materially during FY '26 and remains a significant strategic advantage for the group. Net cash increased to $46.5 million from $29.1 million in the prior year, representing a 60% improvement and providing substantial financial flexibility. Total assets increased to $124.5 million, primarily driven by higher cash holdings and increased receivables associated with the higher activity levels. Net assets increased to $76.7 million, while net tangible assets strengthened to approximately $0.21 per share. The group ended the year with minimal debt and significant liquidity. Subsequent to year-end, the company's $30 million Scott Pac working capital facility was renewed through to July 2028 and remain fully undrawn, further enhancing our financial capacity. This balance sheet strength supports both organic growth and selective acquisition opportunities while giving the group the flexibility to convert its substantial pipeline and order book into future earnings growth. I'll now hand back to Jeff.

Thanks, Matt. So moving on to safety, people and sustainability. We have maintained a strong focus on our elevating safety performance project, which is multifaceted, but underpinned by developing our project leadership skills and nurturing a positive safety behavioral culture. Our actions have shown a significant improvement in our safety metrics over the past 3 years, notably with reduced severity of injuries. Most importantly, we achieved 0 life-changing events in FY '26 and remain committed to this goal going forward. We undertake regular employee surveys and pulse checks, which provide confirmation of our team's unwavering commitment to keeping safe and a high level of engagement in addition to very useful feedback to develop our strategies going forward. Given the recent contract wins and the near-term pipeline, our well established and proven recruitment capability is a key differentiator and risk mitigant when facing the challenge of building the size of the team in a short time frame. On the sustainability front, we're making good progress with developing a framework to identify and evaluate the associated risks and opportunities. We're privileged to work with some of the world's largest mining companies operating across rural and regional communities across Queensland and New South Wales, with long-term relationships dating back up to almost 25 years. Our extensive and diversified contract portfolio reflects both the history of Mastermyne and a conscious strategy to broaden our exposure across a number of clients and mining projects. Our most recent client, GM3, is a joint venture formed in 2025 involving our major shareholder, M Group, which acquired Appin and Dendrobium mines from South32. Where contracts show an end date of 2026, we are well progressed in negotiations with those clients for extensions or renewals. It's also worth highlighting that products and ad hoc strata consolidation work is typically performed under purchase order and is therefore on top of this and not included in our order book values. Over the past 18 to 24 months, we've been firmly focused on building a targeted pipeline aligned with our core capabilities and converting those strategic opportunities into awarded contracts. This focus has resulted in a 67% increase in the pipeline to $1.5 billion and a 38% increase in the order book to $432 million. These factors, combined with the recent award of Dendrobium mining services contract provides strong visibility over FY '27. We have approximately $200 million of that order book, including the recent Dendrobium award secured as of today relating to FY '27. That's before any further renewals and/or new contracts currently sitting in our near-term pipeline are awarded. In terms of our future direction, we continue to pursue a disciplined growth and diversification strategy with 2 key pathways. Organically, there is scope to build and convert our existing pipeline, seeking to leverage our deep long-term relationships in the sector. From a cross-sell perspective, we are actively expanding our range of services and product offerings, which can achieve growth at existing client projects. Further, we're not sitting still, but rather investing in innovation and technical expertise to remain ahead of the game and drive new revenue streams and margin growth. The second pathway is focused on acquisitions, where there's a really good strategic fit and where we can leverage our well-capitalized balance sheet, healthy liquidity and a strong relationship with our major shareholder, M Group. In this way, we can build broader capabilities and scale. The key takeaway is the level of discipline being applied in identifying and evaluating potential acquisition opportunities. Given the focus on both organic growth and acquisitions, the Board has taken a strategic decision to declare a nil final dividend for FY '26, with the intention of further building our capital position to align with our organic and acquisition growth strategies. And we revisit our capital management periodically on the way through. And so lost my point. And so we'll -- so I completely lost my train of thought here. So yes, we revisit our capital management strategies on the way through, and we'll advise on that at future period ends. On the outlook, to finish, I can say that I am confident that the momentum built for FY '26 is set to continue into FY '27 and continued growth is underpinned by a number of key drivers, including a significant near-term pipeline weighted to first half of FY '27, increased market demand as a number of longwall mines restart and ramp up, supportive industry conditions, including good demand for coal and higher coal prices. Our long-term exclusive agreement with Jennmar for strata consolidation products now extended out to 2047, and our strong balance sheet with $76 million of available liquidity to support organic growth and strategic acquisitions. I'll now hand back to Ben to take any questions.

Yes. Thank you, Jeff. Yes, we've got a fair few questions that have come through. [Operator Instructions] Just first question from James Bisinella of Unified Capital. Just, James has asked, you flagged significant opportunities expected to convert in the first half of '27, can you elaborate further? Is this within existing or new customers and strata versus mining services?

Yes. Thanks, Ben, and thanks, James, for the question. So, you will have seen from our pipeline that we have near-term opportunities within the pipeline of what was $823 million. That's come down a little bit with the recent award of Dendrobium, but we're still looking at a near-term pipeline around about -- in the order of $750 million. So, that's contracts that we expect to be awarded to the market within the next 12 months. And that is weighted towards the first half of FY '27 as well. So certainly, there are opportunities out there. It is a range of existing projects and also probably not brand new clients because we already worked with the majority of clients in the sector, but maybe new contracts with those clients or new capabilities for them. In terms of the mix between strata and mining services, that's varying, but I think we see strong opportunities in both of those activities and also with our products business as well, which has got some good growth opportunities in front of it.

Thank you, Jeff. Just on the broader market, this is also from James. So, he points out that coking coal prices have moved higher by 15% this week. Can you provide some comments around what you see on customer activity front as prices rise? And if this holds, do you see Mastermyne being a beneficiary?

We're exposed across predominantly met coal, but also thermal coal. Both of those prices have improved since 2025, where the prices were abnormally low. As the prices have picked up, again, met coal price picked up around October last year and thermal with the -- early this year with the Middle East situation. That certainly helped our clients make some more long-term decisions and I think be more confident in making their investment decisions. So it's certainly helpful. I think the recent price increase this week, the coal price is a commodity, so it goes up and down. I think for me, it's -- yes, it's supportive, but really the main thing is that as long as the coal prices remain at a sustainable level, then again, that makes our clients keen to invest and whilst there's a customer or client activity, that creates opportunities for us. And certainly, a big part of what we try to do is bring value-adding solutions to our clients, partly around improving safety, but also around improving operational efficiency. And so even if coal prices are a bit more depressed, that still creates an opportunity for us if we can see a way of helping our clients to deliver production through lower cost.

Thank you, Jeff. This one is from Ben Brownette of Petra Capital. Points out that the second half FY '26 benefited from strong working capital conversion, with receivables declining and payables increasing, while operating cash flow was approximately $14.8 million. With Dendrobium mobilizing in FY '27 and new projects, should we expect a material working capital outflow in the first half of '27? And is that expected to largely normalize by year-end?

Yes. Thanks for the question. So there is a -- with the Dendrobium project coming online, there will be organic working capital impacts to that. We do expect that, that over the 12 months will normalize. We'll definitely see the impact in the first 6 months. But pending activities across our strata and products, we're in a good position to be able to offset as much as possible. But equally, with our Scott Pac facility, we do have the options of being able to bring that cash forward. So, we're well positioned for the year, and I do expect that, that will flatline by the end of the year.

Thank you, Matt. We've had some questions around EBITDA margins. So, one of the questions this individual has calculated second half '26 EBITDA margin have been 19 -- sorry, 9.3%. What's required to hit your prior EBITDA margin target of 10%?

Yes. Thanks for the question. Firstly, we're really pleased with the progress for the year from the 6.6% to the 8.5% over the year. The result in the second half of the 9.3% very much reflects the improvement across the portfolio of the activity levels in our higher-margin activities of strata. We'll continue to diversify our client activities and deliver on our cross-sell strategies, which supports the EBIT margin growth. And our goal is to achieve previous margin levels as we look to deploy that.

Thank you, Matt. Next question was just -- we had some questions around Anglo. So, what shareholders expect to happen with the former Anglo American mine contracts expiring next year post Jennmar acquisition?

Yes. Thanks, Ben. Yes, we have been asked that a bit. Obviously, when there's an ownership change of a major asset, it does create some uncertainty. We have been with Anglo as we highlighted earlier in the pack since 2002. So it's a very long relationship. We are the largest contractor on site at both Aquila and Moranbah North mines. Grosvenor mine is still not producing currently. And yes -- so we're currently contracted out until April next year and are in discussions with them around continuing that relationship going forward. There's a risk it might be other players in the market trying to use that to get in, but I think we can rely on our points of differentiation now from the same as any other client. We just got to remain ahead of the pack and be very competitive. So it's one I have a level of confidence around.