MLG Oz Limited (MLG) Earnings Call Transcript & Summary

Okay. Good morning, and thank you for joining MLG's FY 2026 Full Year Results Presentation. My name is Mark Hatfield, Chief Executive Officer of MLG. Unfortunately, our Chief Financial Officer, Phil Mirams, is unable to attend today due to family matters. For this reason, our Chief Development Officer and long-term executive, Tom Gregorczyk, is stepping in to present the financial results on Phil's behalf. Murray Leahy, our Executive Chairman, together with members of the Board, are also on the call today. FY 2026 has been a strong year for MLG, delivering improved profitability, stronger margins, continued investment in the business and increased returns to shareholders. Most pleasingly, these results were achieved while navigating a leadership transition, operational challenges and broader market volatility. The outcome reflects the strength of our people, our business model and our customer relationships. Our central message today is straightforward. MLG has converted disciplined execution into stronger margins, increased shareholder returns while continuing to invest for sustainable growth. We will present the presentation before opening up for questions. FY '26 was a strong year for MLG, delivering growth across all key profitability metrics and demonstrating the benefits of our focus on operational discipline and margin improvement. While revenue increased by 3.9%, EBITDA grew 14.2%, EBIT increased 25.7%, and NPAT increased 34.7%, highlighting the quality of earnings growth achieved during the year. The improvement in profitability translated into stronger shareholder returns with earnings per share increasing to $0.09 and the Board declaring a fully franked final dividend of $0.013 per share, bringing the full year fully franked dividend to $0.0255 per share. Importantly, we achieved these results while continuing to invest in the business, strengthened our balance sheet and positioned MLG for future growth. The second half EBITDA margin improved to 14.1%, contributing to a full year EBITDA margin of 13.4%. This demonstrates the ongoing momentum within the business and provides evidence that the margin improvements are becoming increasingly sustainable. While our business is influenced by factors such as weather events, ore availability and project mobilization and demobilization cycles, this chart demonstrates a clear long-term improvement in profitability and provides confidence that the actions we have taken are delivering sustainable returns. A major focus throughout the year was improving profitability through disciplined operational execution. I'm incredibly proud of how our people responded to that challenge, improving operational performance, supporting our customers and increasing equipment utilization across the business. We saw stronger margins driven by consistent haulage performance, increased crushing utilization and disciplined cost control. Pleasingly, the crushing team was able to capitalize on growing market demand and secured a number of longer-term projects contributing to improved utilization and performance during the year. I would also like to recognize our haulage team who delivered consistently and managed significant weather disruptions throughout the year while maintaining strong operational performance and tight cost control. We also continue to improve employee engagement, reduced workforce turnover and maintained a disciplined approach to capital allocation and equipment utilization. As we can see here, we have remained disciplined on revenue growth while increasing EBIT at a compound annual growth rate of 35.6%, reflecting our focus on the quality of earnings rather than growth for growth's sake. In line with the strong growth in revenue and EBIT, MLG continued to deliver growth in earnings per share with EPS increasing to $0.09 per share in FY '26. This reflects our continued focus on improving profitability and creating value for shareholders while maintaining disciplined capital allocation and investing in future growth. In relation to fuel, the industry experienced significant fuel price volatility throughout FY '26, particularly during the second half. Pleasingly, MLG managed this exposure very effectively. Around 75% of MLG's fuel supplied directly by our clients on a free issued basis. For the balance, we have contractual levies and other fuel recovery mechanisms in place, which were implemented quickly as prices increased during the second half. As a result, there was no material impact on group profitability associated with direct fuel costs. For those who are not familiar with our service offerings, MLG provides integrated services across the mining value chain. This allows us to become a critical long-term partner to our customers while creating additional opportunities for growth and margin expansion. Services span site establishment, mining support, haulage, logistics, crushing and aggregates. Our integrated model drives reoccurring revenue and deeper customer relationships. We have the ability to provide multiple services, especially with our expansive haulage fleet, which differentiates MLG from our competitors. We create strong opportunities for organic growth and improved returns. Looking at our client profile, MLG continues to derive the majority of its revenue from the gold sector, partnering with many of Australia's leading gold producers while also supporting a growing number of emerging mining companies. Our customer base remains one of the key strengths of the business, providing diversity across projects, commodities and mine life cycles. During the year, we successfully completed our first engagement with Rio Tinto at Western Turner Syncline while also renewing several important long-term contracts with customers, including Evolution, Newmont, Northern Star and Gold Fields. These outcomes reflect the confidence our customers have in MLG's ability to consistently deliver safe and reliable outcomes. We also expanded our service offerings through new contract awards with Endurance Mining, New Murchison Gold, Greatland Gold and Develop Mining. Importantly, much of our growth continues to come from existing customer relationships where we are increasing both the scope of our services provided and our involvement in customer operations. Our footprint gives us operational flexibility and positions us closer to existing customers as they expand their operations. It provides customer diversification, operational flexibility and a strong platform from which to continue growing alongside our clients. MLG has now grown into a business generating more than $550 million in annual revenue, supported by a fleet and operating asset base exceeding $200 million. We continue to provide critical services to many of Australia's leading gold producers and remain embedded within our customers' supply chains. Strong cash generation, a conservative debt structure and continued investment in technology provide a solid platform for future growth. We are also proud of the role we play in regional and remote communities, including our partnerships with traditional transitional owners and across a number of operations. Importantly, our integrated service offering and recurring revenue streams continue to create opportunities to expand within existing customer relationships and drive long-term value. I'll now hand over to Tom to go through the financials.

Thanks, Mark, and good morning, everyone. Okay. So turning to the financial performance. As Mark mentioned in the earlier slides, the key call-out is the improvement in the quality of earnings that we've delivered this half and this financial year. Our focus has been on profitable growth rather than simply growing the top line revenue, generating the right margins and returns and continuing to improve the performance of the portfolio. You can see that coming through in the result. On a pro forma basis, revenue is up 4% to $561 million, whilst EBITDA is up 14% to $75.5 million and EBIT is up more than 25%. If we look at margins in a little bit more detail, the improvement in the result is best captured in the uplift in the EBITDA margins, having increased from 12.2% in FY '25 to 13.4% in FY '26. The second half result is probably the most encouraging part of what we're delivering today. From H1 to H2, EBITDA increased from $36.5 million to $38.9 million, with the margin improving from 12.8% in the first half to 14.1% in the second half. We delivered that uplift despite lower revenue following the completion of the Castle Hill haul road construction project and Western Turner Syncline project for Rio Tinto also coming to an end. What we're now seeing is the portfolio is performing more consistently month-on-month. The key highlights in the second half include the stronger crushing activity with all of our assets largely deployed at year-end, continued productivity improvements across the haulage and site services division and continued discipline around cost control and commercial terms, which are delivering bottom line savings. The FY '26 result really is a testament to the teams on the ground delivering the operational outcomes for the business. Turning to the balance sheet. It remains in a strong position. Net assets increased to just under $160 million. Net debt increased to $75.5 million, up from $61 million at the half, and that reflects the deliberate capital we put back into the business in the second half. We continue to invest in our core fleet, but despite that continued investment, gearing remains modest at around 1x EBITDA. It's a level that we're really comfortable with. Moving on to the cash flow. Underlying operating cash generation remains strong. Pretax operating cash flow was approximately $68.5 million, representing approximately 91% conversion of EBITDA into cash. That's broadly consistent with what we delivered in FY '25 and demonstrates that the increase in earnings is translating well into cash. Statutory operating cash flow after tax was $51.9 million, down from $57.8 million in FY '25. And you'll note the main movement there is a material increase in the tax -- cash tax paid in the year, which increased from $3 million in FY '25 to just $16.6 million in FY '26. That increase in tax paid reflects the higher profitability of the business that we've delivered over the past few periods and has also been impacted by some cash -- or timing of the cash payments throughout the year. Moving to CapEx. Total CapEx for the year was $63.6 million, with that investment directed towards maintaining the quality of the fleet, supporting profitable growth and improving the economics of the existing business. That comprised of $30.6 million of sustaining CapEx, which includes major components, technology and end-of-life replacement, $24.5 million of growth CapEx and a further $8.5 million invested to replace externally hired fleet, which will drive a margin uplift for the business in future periods. As I mentioned, despite the increase in the capital investment, gearing remains conservative at around 1x EBITDA. It's important to note that we continue to have significant capacity within our existing facilities with approximately $30 million of available liquidity at year-end. That comprised of a $20 million working capital facility and approximately $10 million of cash on hand. That gives us the flexibility to continue to support the requirements of the business whilst retaining capacity to consider strategic investments going forward. Maintaining discipline around capital allocation remains a key focus for management. We've got capacity to invest, but we'll continue to deploy the capital where we see the right strategic fit and return for the business. Finally, just briefly on the structure of our debt. The majority of our borrowings are asset-backed equipment finance loans rather than conventional corporate debt. The facilities are predominantly fixed rate, structured against -- or secured rather against the equipment, structured over 3 to 5 years and spread across multiple lenders and maturities. So there's really no significant refinancing cliff coming at us at any point. Importantly, what you'll note is that debt is self-amortizing with principal repaid monthly over the life of the loans. So what you see listed as current financial liabilities on our balance sheet simply represents the scheduled repayments for the next 12 months rather than any near-term refinancing requirement. So to close out, we finished FY '26 with stronger earnings, improved margins, strong underlying cash generation whilst maintaining balance sheet flexibility. The $0.013 fully franked dividend, taking the full year dividend to $0.0255 reflects the strength of the result whilst retaining capacity to continue to invest in the business. Overall, MLG enters FY '27 with improved earnings quality, a more efficient business and clear momentum across the portfolio. With that, I'll hand back to Mark to take us through the outlook.

Thanks, Tom. We entered FY '27 from a position of strength supported by profitability, a strong customer base and a growing pipeline of opportunities. Recent contract wins, including the mobilization of Develop Mining's Pioneer Dome project, provide confidence in our near-term outlook, while we continue to see opportunities for growth from existing customer relationships. The improvement in profit margin achieved during FY '26 has been a major focus, and we believe these margins are now sustainable with further opportunities for improvement through operational efficiencies and technology. During FY '27, we will continue investing in technology and operational capability to improve productivity, scalability and customer outcomes. Growth remains a priority through both organic opportunities and selective acquisitions that strengthen our service offering and improve returns. Mineral processing remains an area of strategic focus for MLG, and we continue to assess suitable opportunities that would allow us to expand our capability in a disciplined and value-accretive manner. In closing, FY '26 has been a year of change, challenge and achievement for MLG. I'm incredibly proud of how our people responded, continuing to deliver safely for our customers while improving profitability and strengthening the business. Those outcomes give us the confidence as we enter FY '27 with stronger margins, a growing pipeline of opportunities and a clear focus on sustainable growth. I would like to sincerely thank Murray, the Board, our leadership team and every member of MLG for their support throughout the year and since my appointment as CEO. Thank you for your continued support of MLG. We look forward to answering your questions. [Operator Instructions]

Okay, Max.

Congrats on the really good result you've put out. The first one for me, just on the crushing, it sounds like you're exiting the year really strongly there with all your gear mobilized. Do you have any line of sight on how long these assets could be mobilized for coming into FY 2027?

Yes. So as it stands, we were successful in securing a number of longer-term projects. So that sort of secures half the fleet for the next sort of 2 years to 36 months. And then the shorter campaigns that we're going, we're seeing that pipeline extend. And so we're quite bullish in the sense that we think that we're going to be fully occupied for FY '27 with hopefully some opportunities to secure some other larger jobs, which will justify an expansion of the fleet.

Excellent. That's great. And on the EBITDA margins, good step-up there in the second half. Are you expecting in FY '27 to build on the second half '26 EBITDA margin or just the full year margin?

So the challenge with the business is that we are susceptible to peak and troughs during -- if there's weather events or if there's any ore shortages or if we're mobbing or demobbing different projects. We're confident that we're going to see a continued growth in EBITDA margin over the next 12 months. But there may be something that occurs in either half that might have some small hiccup, but the overall expectation is to see that continued growth.

Excellent. And maybe just one more. Just on the civils pipeline, I don't know if you could just talk about what you're seeing there, any potential wins to come?

Yes. Like we said at the half, the order book for civil is really expanding. We're really pleased to be able to secure Develop Mining’s Pioneer Dome, and we're in the process of mobilizing that. We've got another 2 large jobs that we're hoping that are not too far away from being awarded. And we are quite confident that with the pipeline that we've got at the moment that we should see a number of wins come through the year. Our expectation is that we should see civil to be a growth year for '27.

And if we do look at that year-on-year, Mark, what you'll see is that we entered FY '26 with a soft order book across civils. So the Develop, being a $70 million contract and has hit the ground running from the start of this financial year, it's really going to start to deliver a strong profile moving forward into the full year.

Gavin? Okay, Gavin.

Good morning, team. Thanks for that. Just sort of a bigger picture question for me. You did mention that you can see growth from your existing customer relationships, which is terrific. But I'm just wondering how we think about overall top line growth in '27. Is there some manner you can kind of guide us as we run rate the second half? And perhaps as a segue, just tying into civils as an opportunity to extend customer relationships.

Yes, absolutely. So I guess with the basis of how we've forecasted FY '27, we would expect to see similar sort of growth as this year with the work that we have in hand at the moment and a continued growth in the profitability. With the order book that we've got for civil work, that's our opportunity at the moment. And if we can secure 1 or 2 of those, we should be able to see a much bigger top line growth from there. The work that we -- that the BD team has put into the last 12 months, we are quite optimistic, but some of these projects have just taken longer than we'd expect to actually to go from the tender process to execution.

Yes. Got it. And just maybe just one follow-up to that. Just on the civil side, which you had -- you made good inroads on, how have you found the competitive environment on that front?

Yes. It is -- there is quite a lot of new competitors in the civil space, especially on that -- in that smaller scale. You would have noted that in the last month, we announced the JV partnership with Marlinyu Ghoorlie for the [ TO ] area for the Kalgoorlie region. We believe with partnerships with some of the traditional owner groups, that's going to open the door to more of those smaller end of the civil opportunities, and we think that, that's a real opportunity for us. And then in the bigger end, we think that civil opportunities that lead into our broader service offering is also a good way to differentiate ourselves against our competitors. So we've sort of taken a 2-step approach, and we think that that's a good differentiation versus our peer group. But yes, there is a bit of competition in that market, and it's definitely -- there's definitely a lot of parties showing up to the tenders. Is there any more questions?

Sam Turner.

Okay, Sam.