NRW Holdings Limited (NWH) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the NRW Holdings Full Year Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Jules Pemberton, Chief Executive Officer; and Richard Simons, Chief Financial Officer. Please go ahead.

Thank you very much, and good morning or good afternoon, everyone. Welcome to our FY '23 full year results. So I'd like to start by obviously acknowledging the incredible results that the team has produced during the year despite a very challenging environment, not only for weather, through continued labor challenges and skills challenges, but the overall atmosphere, obviously, our mining services continues to be challenging, but we've delivered an exceptional result. So before I get through to the highlights. We have a highlight slide there on Page 4. I might deal with that in the summary slide. So we'll go over and talk about the restatement that we had in the prior period. So the restatement of FY '22 prior period was due to an error identified in Primero's revenue recognition for 2 projects that completed construction in that financial year. Revenue and margin was overstated by $10.3 million in FY '22. Primero is required to reverse the overstatement and restate its '22 annual financial statements. NRW had to restated its Group's '22 results to correct the error in accordance with the requirements of an Australian Accounting Standard, AASB 108. Now the quantum is not material in terms of NRW's accounts, so it's 0.4% of revenue and 3.6% of EBITDA in '22. But we are confirming that the area does not extend beyond those 2 projects, of which the final accounting for the 2 projects is closed out in FY '23. So upon the finalization of business as usual contractual claims, there is no further impact beyond FY '23, to be clear. And we have appointed executive leadership, new executive leadership to Primero for a number of reasons, but also to ensure that management and reporting of contracts is consistent with this Group processes. Additional review processes implemented at a group level to ensure that the error will not be repeated across any of the group businesses. And the Primero and MET division is positioned for strong FY '24 performance and beyond and margin recovery. So we'll talk about it a bit later, but we do expect those margins to recover to at least 6% in this forthcoming financial year. So the results overview. Plenty of records. So in terms of this challenging year that we've had, again, we achieved record revenue of $2.7 billion, a record EBITDA of $288.8 million, a record EBITA of $166.3 million and record cash as well with cash conversion at 99%. So versus what the position we had at the first half of a very strong improvement in second half cash conversion and cash flows. We're also at a record order book of $5.9 billion, some of which comes off the back of our Fimiston award as well, which is a recent major award for the Primero side of the business. And again, sort of helps us be confident about the revenue and margin improvement as we go forward because of the structure of that contract. It has a very different risk profile with a target cost estimate, style structure and not lump sum risk. Record secured work for FY '24 of $2.7 billion, and we're forecasting in our guidance of $2.8 billion minimum revenue as well. So a very, very strong position in terms of our work in hand. And again, a lot of that we talked about in the slides and in the summary page is a very different risk profile for the business. In addition, and again, I think I'll talk about it on the summary slide, but it might be worth mentioning here as well. We already have $2.5 billion of revenue secured for the FY '25 year. So if you think about where the business is and its reliance on large civil projects in the Pilbara historically. We've had none of those this year, but the business is never positioned better for execution of a wide range of services across multiple disciplines in FY '24, '25 and beyond. So incredibly strong position for the business to be in at the moment. We've also had a record dividend payout ratio on a comparable frank basis, around 60%, but it's at the very upper end of our target ranges that we've had historically. And again, that's due to the sort of business mix changes that we have, it's not all about investment in capital in the mining business. It's about investment across the business and those free cash flows will be generated from lower capital intensity parts of our group. Fully franked dividend of $0.08 per share, you will be aware that the interim dividend was a unfranked dividend. So in terms of that, we are -- we've seen an increase in the dividend payout going forward. Net debt, again, gearing is very, very low, which gives us plenty of firepower to grow the business across our capital initiatives. So to be clear, diversification strategy that we've set apart in prior years is absolutely paying off in terms of the order book and the future for the business in '24 and beyond. I'll just make a few comments on ESG. The health and safety side of our business, we had a continued focus on health and safety of our workforce, obviously, and a lot of training and increased support for new hires to make sure that we have the appropriate capability in our business. Psychosocial risk assessment conducted in line with working health and safety regulations, with some more commentary on that in the appendix slides. And we've implemented a group-wide integrated health, safety and environment management system as well across each of the businesses in the group. And pleasingly, the TRIFR frequency rate has also decreased across the group. Group headcount did increase from 7,000 to 7,200. Again, those sort of flexes up would come from major projects coming into the business, we see things like Fimiston coming towards us now, which we're in the process of being ready for during this half and obviously beyond for the next 2.5 years. But also when we see larger civil wins as well, which the civil business, as I said, earlier I commented around that, we haven't had any of those major projects in Pilbara, but there's a lot of opportunity coming towards us. And again, that will require us to increase our workforce. But the development of our people remains the top priority. We've employed a total of 234 apprentices and trainees and significant training for our graduates and undergraduates and over 240 members of staff going through these formal training programs. On to climate-related disclosure. We've got a carbon reduction commitment set a 25% of reduction in Scope 1 and Scope 2 greenhouse gas emissions from 2020 levels by 2030. This will be achieved by a number of initiatives, things like implementation of renewable energy, transitioning to hybrid and electric vehicles where practically to reduce our fuel consumption, and investing in modernized and hybrid road transport options to minimize the diesel consumptions within our transport activities. They're just some of the things that we're working on. Obviously, it's a much larger initiative than that. And again, more detail can be found in the appendix slides. So what I'll do now is I'll just hand over to Richard to go through the financial overview, and then I'll talk again about the business and many of the strategy. Thank you.

Thanks, Jules. Good morning, everyone. So as Jules has noted, we had a very strong revenue outcome in the year. Our revenue was at -- came in at $2.7 billion, which is an 11.4% increase from last year. And that was across the contributions from all 3 of our operating segments that all delivered growth in revenue as the activity levels across their various major contracts and projects all picked up. And that's a really positive outcome for us to see, as all of the businesses are continuing to increase their activity levels post the COVID impacts of 2 years ago. We also saw growth in EBITA of 13.3% to $166.3 million. And the key driver behind this was the strong margin improvement year-on-year in the mining business. That occurred over the second half. And the mining business made a huge amount of ground up from the results in the first half and particularly the weather impacts the casts such a big shadow across our East Coast operations. The margin performance across each of our component businesses varied and each of them really responded to significant bearing challenges in their respective markets. But I think what that really underpins and the real strength of NRW is the diversification of its business model where segments can cover for all the segments if something happens in a particular area. Overall, margin improvement was broadly consistent with FY '22. And our final margin is at 6.2%, up from 6.1% last year. As we highlighted in the first half, we had to overcome the weather impacts from La Nina across our East Coast operations. The continued delayed award of new projects and the extra costs that we had to carry through longer and more repetitive tendering cycles. We also were investing in building out capacity in Primero's North American operations, and we're beginning to see some of the benefit of that coming free. So during the second half, we saw improvements in pretty much all of those conditions, particularly weather. And pleasingly, the flow of awards has commenced again, and we expect that to continue through into FY '24. The other key factor I guess in our margin performance over the course of '23 has been our strong commitment to disciplined and responsible pricing. We've said many times, and we will continue to say that we will not chase margins down to win contracts. And therefore, we'll either choose not to bid and walk away or we'll let those opportunities go to competitors who are willing to sacrifice margins. That's a really strong discipline which just underpins everything that we do in the business. You'll see that we had the impact of some non-recurring transactions. And as you would all be aware, from the first half, Gascon Resources was really the principal cause of that. And then in the final result, we've also taken the provision against the receivable we have on Nathan River Resources as well. Interest costs over the course of the year increased by about 30%. And that really reflected rate rises on the funding of new capital expenditure over the course of this year. We undertook about -- around about $104 million of growth expenditure, growth CapEx and that was really to support the expansion of the mining portfolio. Our effective tax rate for the year is approximately 31.4%. And what that reflects is the impact of some non-deductible expenses and non-recoverable international withholding taxes through our expanding portfolio of international work. We maintained a good level of tax losses that will help us to mitigate our cash tax expense over the course of the year. I'll touch on that in a moment. From the balance sheet perspective, as Jules has noted, we had a very strong closing cash position of $227.6 million, up from $154.8 million at the half and with 99% cash conversion. Really strong result and one that we are very proud of. And we did say at the half, we expected this to recover as the large construction projects that were underway, Strandline and Covalent in particular, complete. And in addition, we had new large mining contracts particularly Karara and Jellinbah, that we're still working towards achieving their full operational cadence, so we can now see the benefit of that flowing through. From a net debt perspective, that improved markedly from the half where we were at $172 million, and we closed out at $84.3 million. Significantly better than we'd forecast and of course, with a stronger closing cash position resulted in a big reduction in gearing from 28.5% at the half to 13.8% at year-end. And if you exclude the leases, 5.4%. So as Jules has noted, we have substantial capacity in the balance sheet to continue to support growth in the business. Our PPE balance over the year increased as a result of new CapEx that we undertook of $183 million. That was lower than what we expended last year. Last year, we expended $206 million. And that, I guess, is in large part a reflection of the disciplined approach to capital allocation that we've talked about before. Of the CapEx that we did spend about $105 million of it was related to growth, and that was mainly the balance of the Karara equipment coming through and Golding. And our sustaining CapEx was $78 million, which as many of you would know, is really a normal level of expenditure for the business. With respect to our tax balances on the balance sheet, they're carried as net tax liabilities and included within that are carried forward tax losses. The main movement that we had here between the period was the $39 million of temporary full expensing benefit, which related to CapEx that occurred over the course of the year. Now that's lower than we had expected in the first half, and that really reflects lower CapEx spend. As I said, resulting from our continued disciplined approach to tendering and also in part due to supply chain delays of the OEMS. So the flow-on effect of that is that we will be paying some cash tax in FY '24, which is earlier than we had expected to the half. But it does allow us to return to -- sorry, paying fully franked dividends. Finally, the movement in intangibles and goodwill, small movement relates to the OFI acquisition that we undertook earlier this year. Just in terms of cash flow, we've probably touched on all of the key points so far. As I say, we are very proud of that cash conversion. Now that, of course, will ebb and flow over the course of the year as projects progress, but it's obviously something we keep a very close eye on. Over the course of the year, we undertook some minor acquisitions of listed investments. Again, one of you will all be familiar with GT1 and Green Metals. And we also had a payment related to the acquisition of the OFI business. In terms of proceeds and borrowings that really relates to the growth CapEx and we had our order recourse debt repayments. Finally, as Jules said, a solid dividend result or the final dividend over the course of FY '23, we paid $69.8 million in dividends, which is the largest value of dividend payments that we've made since the company listed. Thanks. I'll hand back to Jules.

And as Richard mentioned, I mean, I know we've crossed over a few things together in terms of some of these key highlights. But I think the next page in terms of our growth strategy really highlights what we've done to the sustainability of this business model. And despite the fact that we haven't had those major civil projects. The rest of the business continues to perform very well. A recap on that. The Golding acquisition obviously was a part of geographical acquisition as well as improving our mining and civil capability on the East Coast. RCR was the first pillar of our METs division, which is now doing sort of circa $750 million per annum and is a very important part of our future. We've added scale through Diab and obviously the BGC contracting business. But then, Primero gives us that end-to-end capability in terms of our delivery, both across the resource model and mining services. Recent acquisitions of OFI, which I think we talked about at the half year, be small, but it's in the electrical space. There's a major decarbonization strategy or future in front of us. And again, this is a very small step in terms of the opportunity that sits there and also supplements our construction business across Primero and RCR. So a very, very important acquisition. So when we look at the next page, it kind of gives you a sense of, and we haven't shown this to you before, just what we can do across that entire mining and resources life cycle. It's really from concept to completion and all of our different business units play a part in that. So the sales of the clients can be a whole of mine sell. We're getting very early through some of the FEED studies and things we do in the Primero business, which we can supplement with mining development services, mining, drill and blast, construction of rail, construction of road infrastructure, construction of plant, building and operate crushing plants. There's really nothing that we can do to service the sector, and we're truly without peer in terms of our delivery capability even into the renewable space as well. So one of the things on the next slide. I mean, the lithium story has obviously been a very positive one. It continues to be a very positive one. Primero is at the forefront of that, and that was really the primary driver for myself to be -- to look at that business. It was very well positioned very early on with clients like [indiscernible] where NRW was a JV partner with Primero at the time. The future for that business, obviously, there's been some challenges in terms of performance of legacy projects that were bid in during COVID. And those are now behind us. And with the change of management as well, we've got a very clear focus on the future of that business and its capability. In North America, where we've had an office, I think, for nearly 5 years in Montreal. We just added another office in Toronto and Houston. And we're pretty much working with every single lithium or downstream clients of which those diagrams can show you. So we talk about the lithium mining clients in the North America, Canada space, but also down in the U.S., we're engaged on multiple projects for various studies on the auto manufacturers down there. So that's a very big future in front of us at the moment. They're generally study design engineering work, supported by the Australian business at very good margins. But there's also the opportunity for us to look at construction in the future under very low-risk joint venture models with construction partners there. So those are things that we're developing, not committing to, but this kind of gives you the sense of the opportunity particularly to satisfy the U.S. demand for battery by lithium. So if you talk to some of the business performances and the segment capability, you've seen before on Page 15, which just sort of talks about the services that we can do with those various pillars. We'll move on to civil. So Civil's revenue improved by around 13% based on a bunch of projects around the country. Golding's order book, as we look forward, looks very strong. But the opportunity is really for that WA side of the business to win and secure some contracts in the Pilbara to continue to grow that business as we go forward. From a margin perspective, it's been pretty flat. We talked about at the half. We have an overhead in the capability in that business that we continue to be very disciplined about the projects that we bid. And we're not being -- we're not driving down margin on the basis of winning bids at any cost. We're being very selective and the opportunities that are in front of us at the moment in the civil cycle are very, very good. A large improvement in sustaining CapEx cycle and the pipeline of new mine developments and upgrades is expected to start significantly in FY '25, which is across the iron ore space. But in the meantime, we continue to bid a lot of civil infrastructure projects for Main Roads and again in Golding's coast for the East Coast. Golding actually won a floods remedy project recently again, on a very low risk kind of cost and materials type cost plus style projects. So we do expect the margin to improve and also the run rate of that business to improve as we look forward. On to the mining side. As Richard touched in his financial update, very strong improvement in the second half. A lot of that was driven by those weather impacts that we had, and those mining contracts are really starting to fire across Jellinbah and Karara in the second half. Some good wins during the year, and Jellinbah East, the Talison Lithium contracts for ADB and more recently, the Allkem Mt Cattlin project as well, which was pretty much used up most of the available fleet that we have. And we still have some fleet that we're bidding in the projects in West tier at the moment. So a very strong performance from that mining business this year. We continue to have again a disciplined approach to capital allocation as well and minimum investment returns, which again has cost us some projects that we bid, but they require significant capital investment and the returns for us just weren't good enough for us to want to participate in them. When we go on to net. As I mentioned at the outset, when we talked about the restatement, we're very confident with the change in management and the focus that we have now in this business, particularly with some of these projects rolling off that impacted performance in the second half that, that margin will recover strongly. RCR also saw some delays in terms of projects that we thought that were going to be delivered in the second half, move into the first half of FY '25. So we're quite confident that delays for the cycle is not in front of us at the moment and with the win in Fimiston as well under that cost target estimate style structure, we can be very confident that margin is going to bounce back very strongly. Again, as I said, it's a very important part of our business. We've talked it up in the last few years. It's been disappointing the result this year. However, our focus and the opportunities are in front of us in terms of the order book strength and the types of projects that we're working on, we're going to see a much improved performance from this business in FY '24 and beyond, just given the opportunities that we have. So very positive right. So down to the summary. The near-term tender pipeline is still very strong at around $17 billion. We have $1.6 billion in projects tenders and awaiting award or decisions on. But the group order book is a record $5.9 billion. So again, as I said at the outset, we have $2.7 billion secured already for '24. We're saying our guidance outlook at this stage is $2.8 billion of the full year revenue. So we're very well positioned in terms of meeting that revenue guidance. And we've also got $2.5 billion of work already secured for FY '25. So we can be selective, and we can be targeting specific projects where we can get superior returns, which is what our focus is based on. Our guidance on EBITA for FY '24 is expected to be between $175 million to $185 million. Our cash and gearing level is expected to remain in those long-term sort of averages. And as I said, the outlook that we now have is probably better than I've ever seen in the business to have multiyear outlook of the strength of the pipeline we have now, I don't think we've ever been in this position and particularly with a business that is so diversified and have so many opportunities in front of it. So a very positive position that we are in now. I think that's really it. So happy to go to questions now.

[Operator Instructions] Your first question comes from William Park from Citi.

Could we perhaps start with the overstatement that you pointed out? Can you step through additional review processes that you alluded to and which projects and that you're referring to, please?

Will, thanks for your question. I'll answer that. We're not really at liberty to talk about the results of specific projects. I think as everyone is aware, that's not something that we've done historically and indeed, the confidentiality requirements that our clients impose on us, prevent us from talking about the results of specific projects. What we have done is at a group level, we have implemented a number of review controls right across all of the businesses that allow us to independently of the businesses go back and effectively prove the margin up from each of the reported results. Now we maintain a very close review process with the business leadership. And on a monthly basis, they present the results of their business to us and we step through every project. But what we -- and that's a really important control for us and something that also -- our orders is verified as being an important control. But what I'm talking about now is something completely independent of that, which we undertake through the corporate team. And that's to go back to the source data and really perform a series of checks to make sure that the estimates that are being made in terms of percentage to complete, the forecast cost to complete, et cetera, can be supported through independent -- an independent data review and analysis of that data. We are also making a number of system changes across the business. So these have been ongoing for a little while, but they continue. And that's a group-wide ERP system, which is in the process of being implemented. RCR has been the first business to come on to that. Primero is currently going through the scoping and will be on that system by the end of the calendar year, and we'll be bringing the rest of the businesses on to that as we go forward over the course of the next 12 to 18 months. So it's effectively a series of different things that we've undertaken. We're not reliant upon any 1 particular measure or any 1 particular check. We have a series of cross checks in place that now gives us the confidence going forward.

That's very clear. Just in terms of, I guess, the near-term project award opportunities that you're seeing, please. Can you just step through some of the major ones that's worthwhile sort of pointing out? And whether if you've seen any changes from competitive dynamics perspective? I mean, about -- at the interim results, you talked about tender losses due to competition, taking a more I guess, best disciplined approach in comparison to NRW, but just wondering whether you've seen any changes in the last 6 months or so?

Not really Will. I mean, I think, the jobs that others might have won in civil earthworks since we wanted to lose. We didn't want to win. So we've been pretty clear on our approach to that and obviously improving margins across our civil business, particularly. So we've been very diligent around that. But the level of competitors aren't there. So I think in the East Coast, Golding has got a very full order book, continuing to bid work, but they're really full for sort of '24 and into '25. Primero is obviously very busy with the result of the Fimiston award. We're busy at Primero minerals and other projects as well. So we've got a pretty full order book. If you think about major awards, in the hundreds and hundreds of -- you don't -- you're not really going to see much I wouldn't have thought until the second half, because we're so full in terms of our order book at the moment. But we do have a pipeline -- sorry, of bids that have been submitted at $1.6 billion. And we're being very disciplined across the mining business as well, making sure that we're not going in there at the kind of margin that we bidded in the last 3 years and expect a different outcome when the cost of capital has gone up. Cost of interest rates have gone up. So we're being very disciplined. And fortunately, we are in a good position because we have a lot of work on the book, and it's a lot of work under different style contract structures as I sort of said on that summary page. So a very different profile and a much better risk profile for us.

And just 1 last one. When I'm sort of thinking about your revenue guidance for FY '24, given the level of visibility that you have over the next 12 to 24 months and your commentary around $2.8 billion being minimum revenue, I understand the tight labor market is probably 1 of the key constraining factor in getting that $2.8 billion to say, $2.9 billion and $3 billion and so forth. But just in terms of your headcount, I guess given that you were able to sort of increase headcount quite a bit from first half levels. Would you say there's -- I guess, it really depends on it, your ability to continue to add that to your headcount as these projects -- as you secure these projects. But I'm just trying to get a sense of whether there's a -- whether if it's reasonable to assume sort of a meaningful upside to about $2.8 billion as we stand here today?

Well, I mean, I think -- if you think, you look at guidance we've given in the past and the level of order book that was locked in at that time, it's probably better than it's ever been. So you can assume that if we're saying, we're in $2.7 billion and our revenue focus $2.8 billion, I think previously, we've had kind of $300 million to book and do or something in prior years. And your comment on labor, yes, well, we had some challenges on certain projects during a particular point in time, and some of that was kind of COVID-related people returning east. It wasn't so much getting them from here, it's other sort of things. A lot of those issues are somewhat abated. And if we have to work, we do get the people. So whilst we're training more green east to go into the mining business, et cetera, the professionals that work in those larger construction projects, whether it's in the civil business or in Primero do come and they follow the company because of the loyalty to the company. So you'll start to see the people numbers grow at the detriment of other contractors is what I would say in terms of that labor market. But if you look at anything across, whether it's the Alabama projects or whatever else, the contract styles have changed markedly. And I think that's another important thing for the market to understand in terms of our risk profile going forward and why we're so confident with the business bouncing back strongly.

The next question comes from Jake Cakarnis from Jarden.

I'll try after Will's question a different way. The coverage that you've got from the work in hand on your revenue guidance is 96% this year. It's the highest that it's ever been. What's keeping you conservative on the upside for the revenue guidance for '24? What things do we need to be thinking about? Obviously, weather was impactful in the first half of '23. If we move to a more stable environment. Is there anything else operationally that we need to be considering when we have a look at the revenue versus historical patterns of the coverage versus what you planned on revenue?

Look, we hope so, we're not weather forecasters. But I mean, we didn't necessarily see what we were going to see this year. I mean, I think, it's the first time we have put a slide in on the weather in the half year presentation, because of its level of impact. So if you kind of cross your fingers and hope everything is going to be right in the weather sense, yes, there is clearly potential to do more. However, being conservative for now is probably appropriate. The scheduling of some projects, ramp up of some projects is also not always out of our control, but that can be a risk in terms of delivering more.

And I think probably good to add to that point that Jules has just made. One of those factors that is outside of our control and has been a real pain for us over the course of this year. It's just been the delays in clients being able to obtain the regulatory approvals that they need around environment, around heritage, and that has been completely unpredictable for clients and of course, for us. And so that's something that I guess also is a factor that we are conscious of in putting that guidance together.

Understood. And then similarly, just for the earnings guidance, a narrow difference between the top end and the low end obviously, $10 million delta. What's the difference there that kind of holds true? What's the assumption that drives that $10 million delta in the guidance that you provided, please?

It's really the same sort of things, Jake. If we have another run of wet months, we've got people and equipment sitting around unable to be deployed. It's things of that nature. So it's really the same sorts of factors. And again, if for whatever reason, and we saw this on projects that we were tendering this year, where clients were just pushing back start dates each month by a couple of months as they couldn't secure the regulatory approvals. I think, there is such a volume of projects going through the government approval cycle across each state that given the time lines for these things, as to some degree, quite unpredictable. And we're having to keep people if we find ourselves in a position again where we were during the year, where we're having to keep people and equipment on standby, that is costly. Now as I said -- as we've said before, we can see that position is improving markedly, and we don't see why it should return to that. But it is a risk, and it's a risk outside of everyone's control.

Understood. And then just final one, just a broad commentary on the inflationary trends and labor availability that you're seeing across the industry. I think Jules mentioned that there's a fair bit to go into training for some of the labor mix that you're getting. How are we looking relative to the past 2 years? And then I guess then if we go back to pre-COVID as things normalizing from a cost and availability perspective back towards those pre-COVID trends?

I wouldn't say from an availability perspective, but we're obviously being able to pass costs on. So that's the big difference because obviously, any inflationary pressures or risks that we would have had in contracts kind of pretty close but they are not there anymore. So your pricing in that inflationary risk through the contract structures, the commercial structures that we're negotiating now. So in mining, obviously, you've got rise and fall, you might have a bit of a disconnect between the timing of those rise and fall and agreements coming in. But generally, in mining, turnover is a lot lower particularly in WA, Queensland is a little more elevated just purely because of the activity across the country in terms of turnover levels. But -- so you're not really seeing anything in the labor pool, but the labor pool is not growing dramatically either. So there's obviously a lot of project activity across civil infrastructure in the public work space plus mining and the lithium stuff, everything else. So there's a lot of work. But generally, we -- as I said before, we find that people follow up once we pick up those larger projects, they come back and work for us. So we're not concerned about attracting that labor or being able to train it up as well in terms of the lower skilled labor required on driving mining trucks as an example.

Your next question comes from Nicholas Rawlinson from Jefferies.

On mining, you had a very strong second half with $77 million EBIT at 11% EBIT margins, which is something we haven't seen for a long time. Any factors that should stop us from just annualizing that second half and perhaps even adding a bit of growth given the Mt Cattlin win?

Look, Nick, I think you're right. It was a very strong second half out of the mining group. And those guys and girls really pulled out all stops to try and recover from what was a very, very difficult first half. I think that's probably something that is a standout. I don't know that we have all of the mechanisms in place to really bank that has been the new norm going forward. There are a number of factors that worked in our favor to allow us to get to that outcome in the second half. I don't know that we'd -- so look, I don't know that we would want to bake that in as being the new norm. Our Mining Group, East Coast and West Coast, has had a very strong track record of performance and delivery. And I think we would want to continue to really plan for margins from that group being more the long-term launch that you're probably used to.

Yes. So in fact sort of an 8% to 9% EBIT margin more probably more appropriate for next year rather than in the double digits?

Look, I mean, I think we're blessed with the right weather and the right level of volumes, as I said to people is probably that was the issue or rather that we're really not just around and we accepted the second half. But we've got things like [indiscernible] which is coming on in drill and blast, so it's building up. So it's just kind of how you see it in a half-on-half basis. I mean, ideally, yes. We would like to be in the whole point of not being successful on some bid is making sure that we're focusing on margin improvement across our mining business, not just spending $250 million and sticking with the market, not to spend $250 million CapEx. So we are trying to work on improving them. And historically, there's been various factors that have had the margins much higher. So that's all I can tell you to focus. But as Richard said, can you bake it in right now? Maybe we want to be more conservative at this point.

Okay. That's helpful. And just on MET. Can we talk through the margin structure in the Fimiston contract a bit more maybe in bad terms, like if you reach the target cost, which meant it expect to be cost plus? Is it sort of a mid-single-digit EBIT margin? Or is it even higher? And then in general terms, like how low and how high can it go depending on productivity?

Very good question.

I'm not sure that we can go into a great amount of detail on that, Nick. But as you know, and hopefully, everyone understands, it is an incentivized target cost contract. So to be really clear, we do not have fixed price exposure on this contract in a way that you've seen in the Primero book historically. So the way that this contract works is that there's a target cost that we and Northern Star have worked together to define over the course of the past effectively 2 years as we've worked through the detailed FEED study for the project. The margin percentage has the potential to increase through the gain sharing mechanism, if we are able to bring the project in -- at or below the target costs. And I think you could refer to Northern Star's own announcements around that. And of course, if we jointly deliver the project at a cost, which exceeds the target, then there is some margin deterioration. Now the base level of margin that's baked into the contract is, let's call it, high single digits. And if we overperform and deliver the project, at a cost below the target, then we can add probably up to sort of 2% to that outcome. So it's a fantastic structure for us. And it really, I guess, had softer Northern Star, they've adopted a very mature approach to this in terms of wanting to ensure that their project can be delivered within the time frame as opposed to just trying to shift all the risk to the contractor and guaranteeing that they end up in a fight rather than a completed project. So this structure really does provide the maximum incentive possible for both parties to deliver what is a very, very significant project within the target 3-year time frame.

That's very helpful. And just on that contract, am I right the construction doesn't start until the second half? So should we expect a bit of a 2H skew for revenue and margins? Or is it sort of pretty consistent throughout FY '23?

No, it will be a bit more of a second half, right. But the other thing just to finish off on Richard's commentary, there's also escalation built in. I think, it's a little inconsistent potentially with the statement made by the [indiscernible] does have an escalation model do it and again, we need -- it's a long-term contract. We need to make sure that we're not at risk or we're not taking that risk on our project for that. So again, very, very positive and well-structured contract for us a little bit.

Now Nick, construction will start until FY '25. So over the course of this year, what we're really doing is building the engineering team who will be doing -- working through all of the detailed engineering as for construction drawings, working out the procurement and pricing up all of that to go out to the market. So it was really an engineering-led and procurement-led focus for the first 12 months ahead of us mobilizing to site on MET in FY '25.

Yes. Okay. Got it. And just the last one for me. Can you sort of elaborate on what your plans are in the U.S.? My understanding was that -- or North America generally rather, my understanding was that you'd sort of be adopting an EPCM model, but it sounds like you might be considering doing some boots on the ground construction?

Look, the EPCM style model or the study work and engineering work we're doing at the moment is great business, high-margin growth business, but we do have the opportunity to do more than that. But again, we will be very conscious of that in terms of our involvement in the IP and the intelligent part of it. And also being aware of risks. So contract structure not dissimilar to a Northern Star style structure if we ever were to enter into it. So the potential clearly is there to be a construction partner again, if you think what's being built in Western Australia at the mine, doing their own stuff. I think there's no one else that's built anything. Certainly been involved in the industry as much as Primero has. So those are the things that we are considering. We're not committing to them at this point, but we certainly have those opportunities in front of us to do more than just that EPCM style model.

Your next question comes from Evan Karatzas from UBS.

Look, clearly, you've made a step change in the mining margin, civil sort of added flows that sort of led us with the MET's business. I appreciate the comment on how you expect to return to that 6% EBITDA margin there. Can we just go, I guess, into a bit more detail what's driving the confidence you have returning that division to a 6%-plus type EBITA margin? Just given it's obviously a big swing factor, I guess, into earnings year of '24?

So obviously, the contract structure that we've just spoken about at length in terms of the new business that we're writing will contribute to that. I had some kind of one-off delays in that second -- well, in the second half, which impacted obviously us as well. Diab, the prior year had a lower reporting period, but this year actually performed very well. So if you think about when we first sort of started this, I think, we are targeting with the combination of Primero and Diab, that we should have had margins in excess of 7%. Because we have a manufacturing part, which is higher margin, some of the parts and products that we produce at a higher margin and it was going to be diluted somewhat by the lower margin Primero style business. The contracts that have obviously impacted us are behind us in terms of that margin drag. So again, that gives us the confidence that the business has new management, has a completely different focus and absolutely, we're confident of turning that business around very quickly.

Yes. Okay. So I guess the most important thing here is that the changes you've made in contract structure, personnel, et cetera, et cetera, means on a 2 to 3 VIPs work starts to ramp up, there's no reason. There's no structural reason why margins should return to about that 7% top level or whatever, as you were saying.

No, absolutely. I mean, I think the contract structures are entering and protect us as I said, an escalation, labor escalation, material escalation and we have cost target estimates. We have then put people on the ground and work on our productivity. And a lot of those things have been factored to maybe what we've achieved recently. So we understand the labor market. We're protected in that sense. We're very focused on some of the contracts that we have that contributed poorly. As I said, now out of that mix has got a very solid booking product. And the thing that we're seeing across not just lithium, but iron ore and other areas as well in terms of Tier 1 time engagement make us very optimistic about that. And that's where the margins of the business should be with that mix of businesses.

[Operator Instructions] Your next question comes from Matthew Chen from Moelis.

Just wanted to get your expectations for CapEx in the coming year end and potentially even the year after, given you've got some visibility in your order book.

Thanks, Matt. Look, we don't expect to have a CapEx expenditure this year beyond sort of historical norms. So we're expecting FY '24 CapEx -- sorry, FY '24 CapEx. [Technical Difficulty]

Pardon me, this is the operator. We have lost connection with the speaker lines. Please hold while we get them reconnected.

Are we back on?

You're now reconnected.

Thank you. Thank you. Apologies, I'm not sure what happened there. So Matt's question was around CapEx expectations for FY '24. And basically, Matt, as I was talking to myself, I was explaining to all assembled on this side that we're expecting an outcome pretty similar to what we incurred in FY '23. There's no major new mining projects in our plan. The plan with projects that we do have in our plan are smaller by size and can be managed through existing fleet. So it should be pretty similar to FY '23.

Sorry, just to clarify, it's the maintenance portion that will be similar and no requirement for that growth part?

A normal sort of requirement for growth part. So we will have to improve margin where we swap out a high plant for our own equipment. And in terms of the sort of maintenance CapEx, yes, we tend to operate around about the $80 million per annum mark, and we expect that to be the same in FY '24.

Great. And just also interested in your comments on submitted tenders, active tenders, noting that movement from the last trend. Just interested in your comments there.

Well, I think, again, as Jules said, right across the business, we have a very, very full order book. And so the reduction in tenders from the half to June really does, in fact, reflect some of the awards that we've managed to secure in the second half. And if you look at the list over the years, there's a significant number right across each of the segments. So as Jules said, there's $1.6 billion of tenders still pending award and that they are really going to be contributors into FY '25 and beyond. So at the moment, they're continuing to wind their way through, there's not very much additional coverage that we need to secure the guidance that we're providing into FY '24.

And similar commentary, I take it with pipeline, noting is it the kind of similar business?

Yes, very much so. And I guess, probably the only other factor I would add there is that we are very, very discriminating about what we put, what opportunities we devote our tender dollars to. So there are some things in the pipeline that we've looked at and discarded because we know we're just not going to bother tendering them, because we don't feel we will get the returns that we're seeking. So that's really, I guess, a reflection of the fact that we are full, we are busy. We don't want to over trade, and we're not going to waste money tendering things just for the hell of it.

Great. And last one, I just wanted to clarify that there's no more fixed price contract exposure across the rest of the business now? Or was that just a comment that applied to the Primero contract in the next business?

Look, I think, particularly in the Civil business, we've got a track record of successfully delivering very good margins out of fixed price projects and particularly around the smaller end of things, $20 million to kind of $100 million scopes, that's something that we've done a lot of historically is something that, particularly in the Civil segment, we are very accustomed to. And those are not -- how to put a big rolls of the dice. So that will continue to be a feature of that part of the business. And that really is just business as usual for us. What we're not going to do is we're not going to take the challenging complex risks building a process plant, particularly like a Primero style chemical processing plant on a fixed price basis, that just is not going to occur. So we will continue to take fixed price risk where it's normal for us, where we've done it historically and where we've got very experienced personnel continuing to deliver that portfolio. But we are not going to do it where it involves us stepping out beyond what has been our long-term historical comfort zone.

Great. That's helpful. And just a final 1 in terms of thoughts around capital management framework. Any potential changes given the strong cash, upper end of record payout?

Look, I think, we always like to give ourselves a bit of flexibility. If you look at the performance of the business over the past 5 or 6 years, we have been very acquisitive. We continue to look at opportunities regularly where they make sense for us to step out and expand our capacity and continue our diversification. So I think we always want to be in a position where we have the capacity to act and act quickly if we see the right opportunity. So I think we will always have an approach where we've got enough wiggle room to move, and that's what our current balance sheet certainly gives us.

There are no further questions at this time. I'll now hand back to Mr. Pemberton for closing remarks.

Okay. Thanks very much for listening, everybody, and have a great day and look forward to seeing you all soon.

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