Release Date: February 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Macmahon Holdings Ltd (ASX:MAH, Financial) reported a strong start to the financial year with earnings up across the board, margin improvement, and increased operating cash flow.
- Underlying EBITDA increased by 17.9% to $176 million, and EBIT(A) rose by 26.9% to $68.1 million.
- Operating cash flow saw significant growth, up 31% to $138.2 million for the half.
- The company increased its interim dividend by 50% to $0.045 per share, supported by a strong balance sheet.
- Macmahon Holdings Ltd (ASX:MAH) has a robust order book of $4.4 billion and a tender pipeline of $11.6 billion, indicating strong future prospects.
Negative Points
- Reported revenue decreased by around 2% to $966 million due to the removal of Batu Hijau Phase 7 cost recovery revenue.
- The company continues to face challenges around costs, skilled labor shortages, and volatility in commodity prices.
- TRIFR (Total Recordable Injury Frequency Rate) increased slightly from 3.94% to 4.36%, indicating a slight decline in safety performance.
- Net debt increased from June 2023, primarily due to increased working capital relating to the timing of receipts from customers and project ramp-ups.
- The effective tax rate was 29.2%, reflecting a $15 million tax expense incurred in the first half.
Q & A Highlights
Q: Mick and Ursula, well done on the results. Just a quick question on your depreciation and CapEx. So is it fair to assume going forward, I mean you mentioned you passed the peak. Where do you see CapEx as a proportion of depreciation getting to? Is it likely that CapEx will sort of come below depreciation or around about the same? Or where do you sort of see it going in the next 3 to 4 years?
A: Thanks for the question, James. Over the longer term, we'd expect CapEx to just be slightly above depreciation, but we would see depreciation being a smaller proportion of overall revenue and obviously, earnings as we pivot towards a lower capital-intensive earnings that we're looking at. And you can see in our pipeline. But we'd say the absolute number probably staying the same as earnings increase and are attracted from other areas that don't require as much capital.
Q: Mick, well done on the result. Just a quick question on the tender pipeline. I think it's on the Slide 19. You point out you've got $2.2 billion of tenders submitted and at ECI stage. Can you just give us a bit of color on capital intensity of the tenders? I think casting my mind back to Talison, I think it was $1.1 billion off the top of my head and something like $128 million in capital or CapEx. So can you just give us a bit of guidance around the tender pipeline? How intensive is that in terms of CapEx?
A: Yes, for sure. Thanks, Alexander. Look, of the $11.6 billion as you can see, 2/3 is underground and civil mining support services, and that's very intentional. And you'll see the mining support services, civil infrastructure is $4.2 billion of the $11.6 billion. And you'll see in one of the earlier slides, that's grown from 0 years ago. And we did that very deliberately so we could grow a long-term foundation in surface so that we had the ability to be selective in new work we bring on. So as a result of that, and obviously, it's the reason we have confidence lifting the return on average capital employed target now from 15% to 20%, and we expect to do it even further in the future. That's off the back of the fact that almost all of the tenders submitted at the moment are low CapEx tenders, and I would say, below 20% to 25% of CapEx for every annual revenue dollar. So you're dead right with Greenbushes. That was about $1.1 billion at the time and $128 million was the top end of the CapEx. And we did say at the time we're looking for different ways to do that. And we've been moderately successful in doing that, but this would be a much lower capital intensity than Greenbushes. And in some cases, over half of those jobs are effectively only working capital, no capital outlay for fleet. The other thing that contributes to that are things that like the Emeco rental agreement that we've agreed with Emeco as part of the Pit N Portal deal. By getting competitive rates there does make us competitive in the civil infrastructure area and means we don't have to lever off our balance sheet. The only time we do that in the civil area is if we add idle assets, which at the moment, we have very little.
Q: And just one other question. Just on the dividend. I think it's unfranked from memory. But I noted you've started paying tax and you'll likely continue to pay tax. Just in terms of the franking, can you give us some guidance on what level of franking we should expect going forward?
A: Alex, just for the first half, we've utilized all the tax losses. We have not started paying tax yet. So we will, by 30 June be in a tax-paying position. The franking will only accredited to Macmahon the minute we pay that tax, which is December 25, albeit though the ATO can come back and request us start making provisional payments. But at this point, we're still not generating banking credits.
Q: Mick, Tony here. Congratulations again on the good result, similar to the other guy. Just wondering, with your shareholding in Calidus, I don't know if I pronounced that right, comfortable holding it for the moment. Does it sort of help you work more as a partnership with them if additional work comes on -- comes from their minds? What are your thoughts on that?
A: Yes. We did a very intensive JV before we took that move, and we're obviously comfortable with Dave Reeves and his team there. It does allow us to work more in a partnering way, Tony, and there is future work there. But obviously, longer term, we don't intend to be equity holders in our clients. But at the moment, it helps we do respect and enjoy working with Dave and his team. We see that project and that company growing with what they're doing. And at the right time, we'll convert that back to cash.
Q: Mick, the question with regard to franking credits has been answered. Now that we pass the high CapEx growth, when do you see that the payout ratio will be increased to 50%?
A: Yes, you're spot on. We did mention at the end of last financial year that we've moved to the 20% to 35%. I think as Ursula said, we expect net debt gearing to reduce this full year as we did at the start of the year. We'll probably have a couple of years at this level and then we do intend to put the company towards that 50-50 payout ratio position in the future. All we want to do is -- I think once we exceed the 20% return on average capital employed cash-back target, it would coincide with those sorts of numbers.
Q: I just wondered if I could get a bit more color on the Cassini contract that you guys picked up from Pit N Portal and how you'll expect they'll reflect on the business. And just as well, if you could talk about any impact for you guys on the slowdown at Greenbushes as well.
A: Yes. So in terms of Cassini and Durkin, Simone, we had a pretty good line of sight or a level of expectation what would happen there. And obviously, we took that into account in the acquisition and Emeco and we're very forthright in how we structured that. So we understood that. For us, the priority in that transaction really was to get additional immediate order book, a number of really skilled people in a market that's really hard to attract, those sorts of skilled people and obviously, the rental arrangements. So we're pleased with what we've down there and obviously, in the future, depending on what happens, we've got to position there if and when that comes back. In terms of Greenb
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
