Macmahon Holdings Ltd Ord

Thank you for standing by and welcome to the McMahon FY26 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask the question during Q&A time, simply press star followed by the number 1 on your telephone keypad. And to withdraw your question, press the star 1 again. For operator assistance throughout the call, please press star 0. And finally, I would like to advise all participants, this call is being recorded. I'd now like to welcome Mick Finnegan, Managing Director and Chief Executive Officer to begin the conference. Mick?

Hi everyone. Welcome to the McMahon results presentation for financial year 2026 and thank you for joining us today during the busy ASX reporting period. We always appreciate your time and interest in McMahon and the opportunity to run through the results presentations. After the presentation, Ursula and I will be happy to take your questions. Starting with the financial highlights on slide 2, McMahon has had another strong year with the business delivering record revenue and underlying earnings growth. We continue to improve the return on average capital employed towards the 25% target only recently set. The increase to 22% was due to our clear focus on improving productivity and discipline across the business and strategic new awards building scale in the target areas which has increased the delivery of free cash flow. As you know, managing capital intensity in the business has been an ongoing focus for us and the improved returns have allowed us to again increase our dividend payout to shareholders. Global geopolitical instability and its impact on commodity prices, trade and the cost of doing business continue to present challenges, particularly with regards to energy costs. Tremarne has been navigating these well, underpinned by our diverse order book and client base. We have been closely monitoring and managing costs and risks and will continue to do so as we execute on our strategy to deliver value for our clients and our shareholders. Some highlights I'd like to call out include new records for revenue and EBITDA and further strengthening of our balance sheet as we again reduce net debt. Revenue and EBITDA were $2.6 billion and $190.1 million respectively and we saw improvement in our EBITDA margin to 7.3% from 7.1% in the prior year. Cash flow generation remains a highlight of the result with underlying operating cash flow of $387 million remaining strong and free cash flow of $103.1 million. Free cash flow is down on the previous year primarily due to McMahon paying the final FY25 tax in FY26 together with the FY26 provisional tax payment. Net debt of $111.1 million reduced 32% on FY25. Importantly, gearing has dropped to 13%, which is in line with our expectations for the year. Both debt and gearing are now below pre-decknell acquisition levels, which reflects our rigorous and disciplined approach to capital management. Total dividends for the year increased by 47% to 2.2 cents per share fully franked, representing a payout ratio of 41% from underlying earnings per share. FY26 Roachi was 22% which exceeded our previous long term target of 20% and up from the 21.2% at the half. We believe we can continue to increase Roachi through our strategy and are tracking well towards our current long term Roachi target of above 25%. The order book is currently $5.9 billion, up from $5.1 billion at the half, and strongly supported by a robust tender pipeline of $25 billion, of which $13.8 billion is expected to be awarded within the coming 12 months. The order book includes major contract awards announced post-30 June, including the $355 million three-year Mt Marion contract with Mineral Resources, The $406 million 5-year Snowy River project in New Zealand with Endura Mining And the $50 million Mamre Road project with transport to NSW in Sydney Work in hand already locked in for FY27 is $2.2 billion but this does not include the $240 million preferred contractor announcement made last week in relation to Medallion Metals Ravensdorf Gold project It also excludes short-term civil and underground churn work and future contract cost escalation recoveries as per our usual reporting practice. Slide 3 shows our historical performance relative to our guidance but also the long-term track record and consistency in delivering growth. I'm very pleased we have extended our track record of meeting or exceeding our market guidance to 10 consecutive years. Our CAGR over this period has been 25% in revenue and 21% in EBITDA. I can again assure you that we are very motivated to maintain this track record of consistent success into the future. I appreciate many of you are familiar with our business, so I will only briefly touch on slide 4 to recap how our business is structured. Our three operating business groups being surface and underground mining businesses and our civil infrastructure business. Each of these operating teams brings its own specialised skills and expertise to the group and allows McMahon to deliver a wide range of services to our clients in Australia, Indonesia and across our region. Our corporate team is focused on strategic growth Leveraging home ground to secure strategic partnerships and pursuing M&A growth opportunities to establish a hollow mine service offering FY26 highlights in our mining business as shown on slide 5 Purpose and underground mining combined generated almost $2 billion in revenue for the group Underlying EBITDA was up 6% on FY25 to $157 million and the EBITDA margin increased to our long-held target of 8%, again an improvement on our FY25 results. Our surface mining team secured over $1.1 billion of new work, including a $792 million extension at Byden, $190 million five-year letter of intent for open pit mining at Wollowinta, and $150 million contracts for the restart of open pit mining at Mount Carlton. Our surface tender pipeline of $10 billion of which $5.6 billion is expected to be awarded in the next 12 months is a very selective pipeline including key strategic partnerships. Our underground business had another successful year winning new work including an initial $55 million 12 month award at Majestic. which was then followed by a 12-month extension, a $36 million contract at Kuching Leah in Indonesia and commencing early works at Mount Carbon where we received a letter of intent in March. Since June 30, our underground team has won a $355 million contract at Mount Marion and a $406 million contract at the Snowy River Project in New Zealand. The underground business is growing in line with our expectations and now contributes 24% of group revenue. We continue to target revenue growth from our underground business to achieve the $750 million run rate by the end of FY28. This expectation is underpinned by an underground pipeline of $6.2 billion of which $3.1 billion is expected to be awarded in the next 12 months. Included in this pipeline is the Ravensdorf Gold Project which Medallion Metals recently announced us as preferred contract owners. Some highlights from our civil business over the year are outlined on slide 6. The Decknell civil infrastructure business continues to grow and its contribution to the group has increased to 26% of group revenue. Deckmill continued to perform well and has cemented its place in the group alongside our mining operating companies, generating opportunities to promote our unique combination of services. Deckmill secured inclusion into the highly strategic Rio Tinto Pilbara Bulk Earthworks Panel, which we anticipate will be a source of future work for the team in Western Australia. Order book growth remained a key focus for Deckmill. The business again won over $500 million in new work during the year. The Work 1 includes civil works across roads, accommodation villages, infrastructure and wind farms and a significant number of resource projects which create strategically important opportunities to partner and build operational synergies with our mining businesses. Since 30 June we announced a $50 million early works contract win with Transport for New South Wales on Stage 2 of the Mamre Road project in Western Sydney. We are targeting robust growth from Deck Mill with an $8.8 billion tender pipeline, of which $5.1 billion is currently expected to be awarded in the next 12 months. This short-term pipeline includes a key number of larger projects in both the east and west. Slide 7 shows our key surface mining projects. Like in underground, we have sought to diversify our portfolio across clients and commodities, typically with long mine lines. We also monitor their position on the cost curve and factor this into our risk assessments. Another point to highlight is the increasing prevalence of clients where we do both the surface and underground mining, such as Anglo-Baldashanti, Wolfram and Paboyo in Indonesia. This highlights the competitive advantage of having an integrated surface offering. Slide 8 shows our underground mining projects, including projects and extensions awarded since 30 June 2026. Our underground team have been awarded several major new contracts that advance our aspiration to become a Tier 1 regional underground mining operator. Slide 9 shows our growing list of key civil projects. I don't intend to go through each project separately, but some of the key points to call out include the inclusion of Deck Mill as one of the three civil infrastructure contractors on the Rio Quinto Pilbara Bulk Earthworks Panel, which creates a strong pipeline of future work. A growing list of civil infrastructure projects that are moving from the $20 to $50 million range to the $100 to $200 million range and the diversity of infrastructure projects across government, resources and renewables. Diversification has been a key part of our strategy both in terms of risk management but also a part of our efforts to reduce capital intensity in the business. Slide 10 summarises our revenue diversification across At a group level this slide clearly shows the changing contributions of our operating companies and the diversity of our revenue sources. Our surface mining business now contributes half of our group revenue whereas last year it was nearly 60%. This rebalance has been achieved through the growth in our underground and civil infrastructure businesses and their increasing contributions to the overall growth of the company. You may have noticed that gold is the predominant commodity of our keen mining projects. This has been a longer term feature of our order book and the markets we operate in and we continue to have a relatively large exposure to gold at 52% of revenue and we anticipate a growing contribution from lithium over the coming years driven by increased global demand. Our Indonesian business includes surface and underground mining and civil infrastructure services. Our expectation is that this will continue to grow its contribution to group revenue with a long-term target of between 15% to 20% of group revenue. We've been diversifying our business mix to achieve optimal capital intensity to increase ROACHI But also retain some of the barriers to entry we see in some areas. This is visible in the very deliberate growth in the underground and civil infrastructure in recent years. These businesses now account for 50% of group revenue. They have strong pipeline opportunities and we expect these businesses to continue growing strongly and increase overall share of revenue. Moving on to slide 11 on people and safety. This is a fundamental business priority and we continue to invest in this area. in the development of our people and in continued safety improvements. Our safety performance improved in FY26 with total recordable injuries frequency rates decreasing to 1.98 from 2.99 in FY25. This was a pleasing result when you consider we have a workforce of more than 10,000 people across our business. However, we remain focused on driving that number as low as possible. 18 graduates, 16 interns, 79 apprentices, 176 trainees and 201 emerging leaders participated in structured learning and training programs at McMahon. Training and development continue to be a priority for our business. 105 identified emerging leaders completed the McMahon Winning Way Leadership Program in FY26, which is intended to accelerate development of new leaders within our business. This is in addition to the rollout of the new training programs including the critical risk management and psychosocial safety leadership training. We remain committed to maintaining a safe, respectful and inclusive workplace and monitor our employee representation. In FY26 female representation in the Australian based workforce was 20.6% across all occupations and First Nations people represent 4.5% of the Australian workforce. Slide 12 outlines some of the initiatives in the business designed to develop and promote McMahon's culture and values, ensuring they remain at the core of our people development programs. Positive workplace culture is a key element of working at McMahon and making us an employer of choice. Culture and fit are important elements in our recruitment process. They are defined during onboarding and reinforced and embedded throughout the employment cycle. Some of these programs I've previously mentioned and you are familiar with including Respect at McMahon, the McMahon Winning Way, Emerging Leaders programs. Our Together Works employee value proposition was launched and rolled out across our businesses this year. Our EVP brings together our values and our people to ensure the experience of being a McMahon employee is rewarding for both the employee and the company. and is reinforced through our training programs and our communications across the MCMAHON Group Slide 13 outlines some of our sustainability related activities and metrics for FY26 We continued to take important steps during the year to enhance our environmental and sustainability reporting This included complying with new mandatory reporting obligations and maintaining strong governance McMahon's 2026 Sustainability Report is contained within our Annual Report and will be available on our website. It is compliant with our AASB S2 Disclosure Obligation and represents a substantial advancement in our governance and reporting on sustainability matters. But I am conscious of time so I won't go through the rest of the details on this slide now. I'll now hand over to Ursula to talk through the financials.

Thanks Mick. Good morning everyone and thank you for joining us today. I want to start on slide 15 to recap our consistent growth financial performance over the past decade. Nick touched on this when he discussed our guidance track record, but I want to expand on this just a little. The slide shows steady and predictable annual improvements in revenue, underlying EBIT A, underlying EBIT DA, and the return on average capital employed, all of which are now at record levels since FY17. margins have shown growth across time but also relatively low variability EBIT A margins have progressively increased in recent years from 5.9% in FY22 to 7.3% in FY26 I am pleased to say that our efforts around trust management, efficiency and delivery of integrated lower capital services have been important drivers of margin growth You can also see the tangible results of our strategic focus on reducing the capital intensity and driving improved returns, with strong and sustained improvements in the return on average capital employed over the last five years. Slide 16 shows a summary of our profit and loss statements. I won't go through all the numbers on the slide, but I will provide some additional context to a few of the high level numbers. The 8% growth in revenue and 11% growth in underlying EBIT A were mainly attributed to the contract executions plus new work during the year from underground and civil. Earnings were driven by continuing the margin improvement, disciplined capital management and cost optimisation across the group. Growth in underlying EBITDA of 2% was lower than the 11% achieved in EBIT-A, primarily due to securing the new work in civil and underground businesses, which have a lower capital intensity. Our operating costs increased in line with revenue, albeit we started a number of new projects in this last quarter, including civil projects, which have a higher return on capital, however, slightly lower margins than received from our mining services. Our EBITDA margin was 7.3% for the year, driven by lower depreciation with the completion of two historical service projects, the Commencement of Lower Capital Working Underground and Civil, together with the operational improvements across the business in the second half. Effective borrowing cost was 6.72% at June 2026, compared to 6% for June 2025, reflecting the impact of the RBA interest rate increases that we've experienced in FY26. Our effective tax rate for the year was 30.6%, and the group retains approximately $104 million in franking credits as of 30 June 2026. Finally, as Mick mentioned earlier, the total full-year dividends was increased by 47% to 2.2 cents per share fully franked, with a far-out ratio of 41%. in line with our FY26 policy range of 30 cents to 45% of earnings per share. Slide 17 steps out the major cash flow movements between the closing net debt last year and this year. The chart shows year-on-year net debt decreasing through strong cash flow generations. Net debt of $111.1 million brings our debt levels lower than the levels pre the acquisition of Degmal. This is a significant achievement and in line with the target of net debt levels previously set, while substantially increasing returns to shareholders at the same time. Strong underlying operating cash flow before interest and tax of $387.4 million was the main driver to enable us to reduce the debt while increasing the shareholder returns. With strong working capital management, the cash conversion for the year was 98.4%, generating Free cash flow of $103.1 million Tax-related cash payments were higher than the statutory rate for the group which transitioned at the end of FY25 to a monthly taxpayer and paid the final FY25 tax instalment in December 25 together with the provisional tax payments for FY26. CapEx of $200.5 million included growth CapEx of approximately $20 million This was lower than expected for the new work winds moving towards the lower quarter of FY26, resulting in new work CapEx being moved into FY27. Our CapEx target for FY27 is sustaining capital of circa $200 million and growth capital of approximately $66 million. I'll finish with a snapshot of our year-end balance sheet on slide 18. I've already mentioned the reduction in our net debt. But you can see on this slide the breakdown of our borrowings as of 30 June 2026. And I won't go through this in detail, other than to reiterate that the business is in a very strong position with regard to available liquidity. Cash and available committed banking facilities is $566 million at the end of June 2026. And finally, Mick highlighted earlier that our FY26 return on average capital employed of 22% exceeds our previous long-term 20% target. and we are tracking well towards the new target of above 25%. Thank you for your attention and I will now hand back over to Nick before we open for questions.