Mastermyne Group Limited (MYE) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Mastermyne Group Limited Half Year '26 Results Conference Call. [Operator Instructions] I'd now like to hand the conference over to Mr. Jeff Whiteman, Managing Director and Chief Executive Officer. Please go ahead.

Thank you, Darcy. Good morning, and welcome to the FY '26 First Half Results Call for Mastermyne Group Limited. I'm Jeff Whiteman, the Managing Director and Chief Executive. I'm joined by our CFO, Matt Ruhl; and Stephen Rogers, our Company Secretary. Thank you for taking time to join us. I note that we have a number of people joining by phone, so we will refer to the slide numbers in the investor pack released on the ASX this morning as we go. On Page 1, as we have a number of new attendees preregistered for the call today, we've decided to set out some useful information about the company here. You'll see Imva shareholders analysis at Mining, a member of the Resources Group remains our largest shareholder with 54%, which has been the case for almost 3 years now following a placement back in May '23. The Board has an independent chair and nonexecutive directors, including one of the most line cofounders, Mr. Andrew Watts, and 2 highly experienced and resources represent Mr. Ben Gaget and Mr. Wan Bill. Turning to Page 2, you will see our strong headline financials for the half. Pleasingly, we have delivered growth in earnings, net cash and the order book. Whilst our\ revenue was lower than the prior comparable period as a consequence of external events, we delivered underlying EBITDA of $8.3 million, 5% up on the pcp. $4.1 million of underlying NPAT more than double the pcp and an increase of $4 million in net cash, giving us a balance at 31 December to $33.1 million. Also of note, there was 79% increase in the order book up to $441 million, providing a robust base for us going forward. On Page 3, we achieved a number of highlights in the half. As reported previously, FY '25 was adversely impacted by reduced activity as a consequence of separate ignition events at Grosvenor and Moranbah Norman, with the second half of FY '25 is really bearing the brunt. Having successfully navigated these challenges through disciplined cost management and targeted diversification of our project portfolio, the first half just ended showed a return to revenue growth and improved margins. Notably, underlying EBITDA of $8.3 million was 41%, up from the FY '25 second half, and net cash rise 14% in that period to $33.1 million. Beyond the large order book of 400 [indiscernible] carefully constructed pipeline of opportunities [indiscernible] over $1 billion, which, together with improved [indiscernible] provides a level of confidence that the growth achieved is sustainable going forward. Over the recent business leader, focusing on our core capabilities continuing legacy activities. The final step on this journey was achieved earlier this month with the sale of the [indiscernible]. A good outcome for all 3 parties. You may notice but largely due to the lack of synergy loss making and has been treated as discontinued operations. Our long-term with critical products utilized in our Strata consolidation business was acquired last year by Jennmar, a large U.S.-based company. A strong relationship with Jennmar quickly developed, which assisted in reaching agreement for an extension of our exclusive distribution rights in Australia out until 2047. Turning now to the operational review on Page 4. For those less familiar with Mastermyne, essentially, we are the experts in underground coal mining, and we have a broad range of integrated capabilities across the value chain, which are now categorized into 5 key areas. With the growth of our products and consumables business unit now meriting its own mention. I won't go through each of these capabilities. Suffice to say that the overriding focus is on developing and delivering value-add solutions for our clients. In terms of operations in the half, the business continues to manage the challenges created by external events, whilst also successfully mobilizing our new Appin project with over 200 roles filled, leading to a 17% increase in revenue compared to the second half of FY '25. Our order book growth was driven by the Appin contract, which was signed mid last year and bolstered our 6-month extension of our Anglo contracts through to April 2026, together with new contracts with both Yancoal and Glencore. Post the period end, we've received a letter of intent from Anglo in relation to the further extension of 12 months through to April 2027, which should take us through to past the completion of Anglo's current sale process. For clarity, this expected 12-month extension is in our pipeline figure, not the order book at this stage. The first half finished with a high level of demand for strata consolidation services, which our team showed great commitment in meeting, particularly over the festive period, and this activity level has continued into the current period. Turning now to Page 5. You'll see our project portfolio set out there, particularly the long-term relationships that we've developed with each of the major mine owners been covering all 3 of the major undergoing coal regions. Central Queensland, Hunter Valley Northern New South Wales and the Illawarra region. We've got contracts with many of the largest mine owners in the sector, including Anglo, Whitehaven, Glencore and Peabody together with a more recent entrant in [indiscernible], which is associated with our major shareholder and resources on which acquired Baffin and then drove mines in 2025. I should just clarify, the contract expiry shown on this slide related to the current term with several of those contracts actually having extension options remaining beyond that date. Looking at Page 6, Safety, people and sustainability. We've been implementing a project over the past 2.5 years now focused on elevating safety performance. It's a multifaceted project but underpinned by developing our project leadership skills, nurturing a positive safety behavioral culture and effectively managing the critical controls in our business. Our actions have shown a significant improvement in our safety metrics. And during the half, we celebrated 12 months recordable injury free across our Queensland projects. Whilst the total recordable injury frequency rate or TRIFR for short, has tempered slightly since then, the lower all injury -- sorry, all incident frequency rate has been maintained, and the severity of recordable injuries continues to be low. And most importantly, we've maintained zero life-changing events in the period, and remain highly committed to this goal going forward. As an update on the prosecutions instigated by the regulator in relation to 2 serious incidents back in 2021, 2022. One of those relates to a tragic incident at KronaMine and is listed for a jury trial next month in March. We are a people business. On the goal of mine since I started with the company was to implement a purpose-designed project leadership training course, and I'm very pleased that our team has achieved this goal with the first cohort completing the 9-month course during the half. Joint effort between our people team and our HSE team has also resulted in good progress on our approach to psychosocial risk management. And our all employee survey, which we conduct annual has shown increased engagement letters and importantly, an ongoing commitment to our keep safe value. And finally, we are preparing for the new sustainability reporting requirements, which were a part of us from FY '27 onwards. I'll now hand over to Matt to take us through the financial slides.

Thanks, Jeff, and welcome, everyone. Turning first to Slide 7. As Jeff mentioned earlier, the second half of FY '25 represented the low point for the business following the operational disruptions experienced through FY '25. What we are seeing in the first half of FY '26 is a clear rebound from the trough, both in activity levels and earnings. Revenue increased 17% compared to the half 2 in FY '25, reflecting the progressive return of work volumes and the mobilization of new contracts. More importantly, that revenue recovery has translated into a material uplift in earnings with underlying EBITDA up 41% and underlying net profit before tax more than doubling relative to the previous half. This is not just a revenue-driven recovery, margins have improved as well, demonstrating that the business has come out of the low point with a stronger performance focus. The charts on this slide clearly show the inflection point being half 2 of FY '25 at the bottom and half 1 '26 marks the return to growth and profitability momentum. Moving to Slide 8. It shows how the recovery is flowing through the income statement. Compared to the second half of FY '25, revenue increased from $93.3 million to $108.9 million, while underlying EBITDA rose from $5.9 million to $8.3 million, lifting EBITDA margins to 7.6%. That margin expansion is important as it reflects the benefit of higher activity levels and disciplined cost management following the previous half low point. Profit before tax more than doubled versus half 2 FY '25 and underlying net profit after tax increased by 95%, confirming that the earnings recovery is broad-based and not reliant on one-off items. Overall, the profit and loss demonstrates that the business has successfully navigated through the external disruptions and is now delivering stronger, more sustainable earnings with momentum carrying into the second half of FY '26. Turning to the cash flow on Slide 9. The recovery we're seeing in earnings is also translating into improved cash generation. Net operating cash flow was $5.5 million in the first half of FY '26, an improvement on the previous half after absorbing a $1.6 million increase in working capital to support the higher activity levels. This is a key point. The business is growing again and cash flow is strengthening despite that growth. Capital expenditure has remained disciplined and in line with prior periods. And as a result, cash increased to $34.1 million at period end. This highlights that we are not just emerging from the low point of half 2 FY '25 in an accounting sense, but also in a cash and liquidity sense, reinforcing the quality and sustainability of the earnings recovery. Whilst it was pleasing to provide a cash return to shareholders in FY '25 in the form of a franked dividend, the Board has taken a strategic decision to declare no final dividend for the first half with the intention of further building our capital position to align with our organic and inorganic growth strategies. The Board will continue to assess the position going forward. And finally, Slide 10 shows the balance sheet strength that underpins this recovery. At the end of the first half of FY '26, the group was in a net cash position of $33.1 million with minimal debt and up to $40 million of undrawn facilities. Net tangible assets increased to $64.8 million, equivalent to $0.21 per share, including $0.11 per share in cash. This balance sheet strength provides both resilience and flexibility as the business continues to scale activity levels and pursue growth opportunities. Importantly, coming out of the half 2 FY '25 low point, the business is now positioned with strong liquidity, low leverage and improving -- improved earnings, which together create a solid platform for continued growth through the second half of FY '26 and beyond. In summary, across these financial outcomes, the low point in half 2 of FY '25 can be clearly seen in the strength of the rebound in the first half of FY '26, operationally, financially and from a balance sheet perspective, setting the foundation for the outlook and guidance will cover next. Thanks, Jeff.

Thanks, Matt. And moving on to Slide 11 and talk about our strategic direction. Impressively, Mastermyne turns 30 years old this year, having started back in 1996. This provides a strong foundation with a proven track record, which combined with our market position, financial stability and high levels of liquidity positions us to deliver on our priorities of organic growth and strategic acquisitions. Through our networks and those of our major shareholders, we get to see a range of opportunities. Trimbo may have an adjacent capability to Mastermyne through to larger potentially more transformative transactions. However, it's important to highlight that the Board is focused on a disciplined approach to capital deployment of any type for organic projects or potential acquisitions. Our organic business plan is focused on leveraging client relationships and strategic partnerships such as Jennmar, in addition to developing innovative value-adding solutions for our clients. whilst also striving for efficiency gains internally to enhance our competitive positioning. Looking at our order book and pipeline on Page 12. We have a strong foundation for continued growth in the current half and beyond, underpinned by a $441 million order book complemented by a $1 billion pipeline. Notably, as a result of our diversification strategy, both the order book and the pipeline are spread across New South Wales and Queensland, reducing our reliance on any individual project. The order book has grown with the addition of Whitehaven and Yancoal plus the extension of Anglo through to April '26. The anticipated 12-month extension of Anglo [indiscernible] to his number. Underlying the pipeline are some favorable market dynamics with a number of longwall operations either starting up or recommencing production, creating additional activity and in particular, potential demand for Strata consolidation services. In conclusion, turning to Page 13. The outlook for the balance of FY '26 and heading into FY '27 is positive. We have a $441 million order book. We have a $1 billion pipeline supported by an increased coal price environment. We're exploring various organic growth and strategic acquisition opportunities. And we have a supportive long-term major shareholder with a strong network. Whilst our any business for our risk and, in our case, potential future coal price fluctuations and some uncertainty arising from the sale of Anglo steelmaking coal business. We are confident that with our position to manage this risk, and we are pleased to initiate guidance to FY '26 with $220 million to $230 million expected in revenue and underlying EBITDA expected in the range of $17 million to $18 million. Thank you again for taking an interest in Mastermyne. And I'll hand back to our moderator Darcy to take any questions on the phone line before we address questions submitted on the web platform.

[Operator Instructions] As there are currently no phone questions, I'll hand back for any webcast questions to be addressed.

Thank you, Darcy. My name is Steve Rogers, I'll just be moderating some of the questions here today. Jeff, there's a number of questions that have come through so far, and I'll start running through those. Firstly, we've got a question here from a shareholder inquiring about what would it take to increase the EBITDA margins from the current 8% margins to a 10% margin, which was, I think, the prior target?

Thanks, Steve, and I'll take that one. So the uplift in the half reflects higher utilization, better operating in a more stable operating environment. We are targeting to further improve EBITDA margins through our growth strategies which are focused on higher-margin products and activities as well as economies of scale as we continue to grow.

Thank you, Matt. There's another question here, and there's probably one more for Jeff. If the Anglo 12-month extension was signed now, what effect would that have on the order book?

Look, the level of activity at Anglo going forward has certainly got some growth potential. The restriction on production at North mine is lifted a couple of weeks ago. And Anglo has got plans to have more operating, returning to full production over future months. At this point, I would say we would anticipate that the current level of activity but it would be around about $60 million. So I guess we would just be on the $500 million type order book, but we have some growth potential above that as well depending on the activity levels.

Thanks, Jeff. We've got another question here. Are there any further opportunities to win new work because of the M Group relationship that Mastermyne has?

Yes. Look, certainly, the resources grew is very well network through the industry as we have. We've obviously got our own 30 years. So we have very good relationships across the industry and resources very good relationships quite often at different levels and in some different organizations. So I say it is certainly helpful having a supportive long-term shareholder like resources out there and they do certainly open the door for us in cases.

Okay. Thanks again, Jeff. There's a couple of questions here on this subject. So we might sort of just try to bundle them into one. The inquiries about whether or not we can identify any key criteria for what potential acquisitions might look like as a strategic fit for Mastermyne? And what the financial metrics that might involve?

Yes. Thanks, Steven, and thank you for the ass questions. It's always difficult talking about acquisitions for a couple of reasons. One is feature acquisition opportunity is quite different. The second one is being bound by confidentiality on these sort of issues. I can say we are considering opportunities, probably really at 2 levels. The first one being businesses that have adjacent capabilities and tangible synergies with our current mask line business. The other pathway relates to possibly larger businesses that accord with our strengths, but are more transformative than offer diversification away from the existing business. In both cases, we are applying a highly disciplined affective capital deployment and considering key metrics such as margins, return on capital employed and certainly prudent gearing levels.

Thanks, Jeff. This is a question for you, Matt. There's a comment on the question arising on the interest earned on cash and a question about top ST deposit accounts.

Yes. Thank you, Steven. Yes, we have about -- currently, with our $34 million cash balance, about 70% of that balance is sitting in short-term deposits. Positively, this half says move into earning interest income as opposed to previous half. as an expense. And the offset of where we're seeing the turn deposit income coming through is just on the last little bit around our debt that we have on some equipment and also leased equipment that we do have from an accounting perspective.

Thanks, Matt. Another one for you, Jeff. Are you able to comment on the competitive intensity in the underground coal mining contracting industry at the moment?

Yes. Thanks, Steve. Yes, I can comment on that. Like any industry, there is competition out there. When I run through our capabilities in the 5 different categories that we have we face different competitors probably in each one of those 5 areas. And certainly, some areas are more competitive than others. And we're very focused in terms of our growth strategies around really trying to live a higher margin type areas and just improve that mix over time. So if you might notice under products, we're really focused on safety innovations and technology solutions, for example, where the margins are better than what we're seeing in certainly straight labor high market, which is quite competitive these days and probably not helped by the same job signed paid legislation at the federal government was in place on the industry.

Okay. Thanks, Jeff. Another one probably for you, Jeff. What [indiscernible] impacts on the one half 2026 results because of the new Appin contract?

I'm not sure I fully understand the question. If it's asking me if there was any negative impact, certainly there was no real costs in there. We manage that mobilization through our existing support teams. And again, mine, in fact, is a positive one and we ramped up pretty quickly, it got fully mobilized, and we've been earning revenue on that pretty much as a whole first half.

Okay. Another one, Jeff, this is about unfortunately, the legal case that we've got coming up. Can you comment on any risk mitigation actions that we've taken or have taken as a consequence of the same?

Thanks, Steve. I can't -- obviously, these cases for court and Bekan and one in particular is going to trial in a couple of weeks' time. So we're not in a position to make a real comment on these cases right at the moment. Suffice to say, obviously, the fact we're going to trial on the crane incident shows that we are defending our position. There's been extensive amount of work gone into these cases over the past 3 or 4 years now. And we also had insurance in place at the time of these incidents, which is providing some level of mitigation for us on the cost. So [indiscernible] the legal costs to date have been partially mitigated by that insurance cover.

Thanks, Jeff. Yes. I think this might be the final one. The pipeline, which we've identified is mostly brownfield expansions rather than new mine development. Is it also including expiring contracts across the sector?

Yes. I suppose we're looking at whole range of things. So there are not many new coal mines being approved at the moment. So very much our focus is on working with our clients on existing coal mines. And I guess understanding where the growth opportunities might be. Again, I sort of keep talking about in solutions, but if we can help reduce the unit cost of production. It actually does make some areas of the mines may be more profitable and therefore, worth progressing than might have been the case otherwise.

Okay, Jeff. And I think this is the final one. Would you need to increase costs significantly as the business grows? How much annual revenue can the current cost base sustain?

Yes. So people that have been shareholders for a while might recall that we owned a business called Pybar, which we sold to Thiess in May 2024. Whilst we have taken some costs out of the business since then, but essentially, Pybar was a similar size to mass line and back, we turned over about $500 million. Obviously, there's reasonably fixed cost of running a listed company. And yes, I think we can certainly increase our revenue and utilizing the existing support base that there'll be semi-variable areas where we would have to put a few people back in, but essentially, the cost of running their listed vehicle might change and estate to get that leverage. And when Matt was talking about increasing our EBITDA margins and certainly the target there.

Great. Great. Well, that's it. Thanks, Jeff. Thanks, Matt.

Thanks very much, Steve. And I'll hand back to Darcy to [indiscernible].

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.