Thank you for standing by, and welcome to the Macmahon Holdings Limited H1 2022 results conference call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Mick Finnegan. Please go ahead.
Welcome, everyone, and thank you for joining us today for Macmahon's 2022 half-year results presentation. I'm Mick Finnegan, the Chief Executive Officer and Managing Director of Macmahon. With me today is our newly appointed CFO, Ursula Lummis. While new to the CFO role, Ursula has been a key member of Macmahon's finance team for a number of years and has met many of you during the handover from Peter Pollock. Additionally, I'd like to introduce you to our new Chief Commercial Officer, Donald James. We know how busy everyone is, and we appreciate you taking the time to run through the performance of our business. The presentation will take about 20 to 25 minutes, and we'll open to questions at completion, as we traditionally do. Slide 2 shows the financial highlights for the half.
As you can see, the business continued to perform well, particularly within the broader industry backdrop of tight labor market, supply chain disruptions, and ongoing COVID management requirements. Both revenue and underlying earnings increased, and with a number of new projects progressing through the ramp-up phase to steady state operation, Macmahon expects second half performance to be stronger than its first half and maintain its underlying EBITDA guidance of AUD 95 million-AUD 105 million. Our full-year revenue guidance has increased to reflect the high level of contracted revenue for FY 2022 of around AUD 1.6 billion. I'm proud of the team to have delivered this positive result in such a challenging environment. It really does demonstrate the resilience of the overall group.
Revenue was up 24% to just under AUD 810 million, driven by increased activity across the group, which included several new project startups in Australia over the last six to 12 months. This revenue number includes rise and fall adjustments to cover certain expenses associated with COVID and pass-through costs at Batu Hijau. While these recoveries and pass-through costs don't contribute margin, they are designed to protect earnings. This was reflected in the positive underlying EBITDA performance. EBITDA growth was not as high as revenue, but still a strong 14% to AUD 138.7 million, and with resilient margins at over 17%. Underlying EBITDA was steady at AUD 46.9 million.
Underlying NPAT was up 4% to AUD 31.7 million, and this excluded AUD 28 million of one-off costs, the majority of which relate to the GBF earn-out. Statutory NPAT was AUD 3.3 million, and the reconciliation on Slide 29 in the appendix outlines this in further detail. Underlying operating cash flow remained healthy at AUD 96.6 million, with cash conversion of 70%. Conversion was affected by increased working capital investment to support growth, an increase in critical inventory to mitigate COVID-related supply chain disruptions. A net debt of AUD 242.5 million reflects the continued investment in new contract starts over the last 12 months, while still remaining comfortable at around 0.87x EBITA.
Return on capital employed was 12.9% and also reflected the increased investment in new projects in the last 12 months. We expect this to begin trending up towards our stated target of 15% as new projects progress past the start-up phase. The order book remains very strong at AUD 5.2 billion, and as I mentioned earlier, with now AUD 1.6 billion already secured for FY 2022. At Batu Hijau, we previously disclosed our intention to move more parts through an extension discussion for phase VIII. This has been delayed by the continuation of COVID. However, we now expect to conclude these in the near term. This is important as it will extend the contract term and improve working capital. Slide 3 provides a little more detail on key developments in the half across our business divisions.
I've already provided a quick overview of our financials, but I wanted to add that we still have cash and available facilities of AUD 241 million. The dividend was also steady at 0.3 cents per share unfranked. New work won was again a feature of the half with around AUD 860 million of contract extensions and awards. This included a four-year extension at Tropicana for AngloGold Ashanti and Regis, a three-year extension at Telfer for Newcrest, and the contract at Warrawoona for Calidus, which has now been signed with commencement expected in March 2022. The underground mining division continued to perform well and increased to 24% of our overall revenue from 22% at the last reporting period. It is pleasing to see the growth aligned with the targets we set ourselves a number of years ago.
We expect this to continue with the start-up of King of the Hills in April, following our surface mining start a few weeks back in January. This is also supported by the strong performance of our underground services division. To round out the half-year developments, the mining support services division has grown from 3%-6% of our revenue from the end of the last financial year. We indicated at that time that demand was growing for this offering, and we are still encouraged by the addressable market we're seeing across our West, East, and international regions. Growing the mining support services part of the business is a key strategic priority and benefits the business in many ways.
In terms of outlook, we've maintained our earnings guidance for the year, supported by our AUD 5.2 billion order book, which includes the AUD 1.6 billion of secured work for FY 2022 already mentioned. The tender pipeline is higher than this time last year and stands at around AUD 8.7 billion of carefully selected, strategically aligned opportunities. It's this that provides us important medium- to long-term visibility, which is critical as we implement strategic priorities. Turning to Slide 4 on health and safety. I say at every results briefing that the safety of our people is our number one business priority. We also repeat this within our business to reinforce the message.
I'm therefore pleased that our efforts around safety delivered an improved result in the first half of FY 2022, with a reduction in the total recordable injury frequency rate while increasing the size of our workforce. Mental safety and wellness is an important part of our safety. We continue extending our leading Strong Minds, Strong Mines program to the wider industry and community. We're also take our responsibilities as an employer very seriously and want to ensure we have a safe and inclusive working environment for everyone in our team. The executive and broader, we're continuing to implement a number of actions to deliver the outcomes. Pleasingly, we feel the focus on this area has increased significantly as a result of the WA Parliamentary inquiry into sexual harassment in FIFO, where we did provide evidence.
Driving demand for skilled labor across the mining industry and increasing labor costs have been significant challenges during the period, as we have all seen from the comments across the industry. These have been magnified by ongoing COVID requirements and border restrictions, particularly in WA and more recently. I'm pleased to say that the business has managed these challenges proactively through a considerable focus on internal development and training. At 31 December, we had 563 people on our Grow Our Own programs, which is around 30% higher than six months earlier. This was in addition to our leadership and maintenance program that provide development pathways to our people. I'll talk a bit more about resourcing in the next slide.
Turning to this slide, we have high-level numbers on workforce diversity, with around 5% of our Australian workforce made up of Indigenous Australians and around 15% female. We continue to encourage greater diversity in our workforce and leadership. Slide 5 outlines our people requirements in more detail. We have successfully commenced five projects over the last 12 months, requiring in the region of 650 people. Foxleigh and Gwalia commenced towards the end of FY 2021. Dawson project commenced in July 2021 in Queensland. The Fimiston Buttress project in November 2021 in Kalgoorlie, and the King of the Hills project successfully achieved first bucketing ground on January 26th of this year. Looking out to the second half, we are managing closely the startups at Warrawoona and King of the Hills underground, despite industry-wide labor constraints and COVID impacts.
Pleasingly, we are already on both sites, which does facilitate a more effective ramp- up into operations. The internal training and development program, coupled with our 402 visa program, is an instrumental part of the workforce solution for our business. Our contract structures provide protection against input costs, including labor. Approximately 60% of our revenue is from alliance-style contracts. The remainder of our revenue is schedule of rates contracts containing rise and fall provisions, which are adjusted at prescribed intervals, meaning we can respond to market rates relatively quickly and obviously use these current labor rates in all the new contracts and tenders submitted. Moving on to Slide 6. This shows a quick overview of some of our key projects.
I won't go through each project in detail, but note a good proportion of our contracts are long-term alliance and/or life of mine contracts, which operate in the bottom half of the global cost curve. It is this that underpins the longer term sustainability of our business and allows us the ability to evolve the business consistent with our strategy. I'd like to take the time to touch on some key contracts. Tropicana Surface Operations is a life of mine alliance-style contract, and the life of that operation being extended by four years early this financial year is very meaningful for us. Tropicana project has been a flagship project for Macmahon since 2012, and confirmation of the operations life extending allows us to build on the already strong relationship and further utilize the existing assets on that site.
The order book increased by AUD 470 million as a result of this extension. The Telfer extension into West Dome Stage 5 was announced in August 2021 under newly negotiated rates that achieve the company's internal financial hurdles. This is meaningful for Macmahon because as volumes increase in Stage Five, the expectation is that Telfer will start to perform in line with traditional returns.
The King of the Hills project for Red 5 commenced on time on January 26 this year. This is a five-year, AUD 660 million opportunity, including both surface and underground scope. It is an exciting opportunity for Macmahon, with a strong outlook and a model we hope to offer more in coming years. The underground business' current priority is on completing the ramp up at Gwalia and embedding improvement initiatives being worked on by both organizations.
This includes a new development methodology and delineating an area of the mine for specific upskilling and training initiatives to assist in managing the current tightness in the skills market. Not shown on the slide individually, but something I'd expect to include in coming presentations is civil and infrastructure projects. Growth in WA and Indonesian businesses has seen the mining support services division increase to 6% of our overall business. This is expected to continue to grow as the scale of the project in those jurisdictions increases and the Queensland market increases, which is supported by current tender activity. With previous presentations, we have provided some more detail on the world-class Barramia project on Slide 7, given its significance to the business and the relationship with our major shareholder. By way of update, the workforce on site have recently returned to a pre-COVID roster.
This is a credit to the professionalism of the management team, that they have been able to maintain business continuity throughout this challenging time. While some controls remain in place, operational performance metrics are pleasingly at expected levels. Now, while no one can predict the future impact of the pandemic, it would appear the site is regaining a form of normality similar to pre-COVID, which has allowed the recommencement of discussing the phase VIII other contract enhancements we previously disclosed. Now move to sustainability. This is an area where we have made a considerable effort to improve our disclosure and performance. We published a standalone sustainability report, a new sustainability policy in August last year.
Our ESG priorities have been guided by a materiality assessment we conducted with our investors and stakeholders in 2020, which highlighted safety, health and wellbeing, the environment and governance as key areas to focus and report on, which you see on the slide. I've already talked about some of our ongoing health and safety and wellbeing initiatives, but we also have started to do more work on our emissions disclosure, as well as developing a Climate Change Statement.
On the corporate governance front, the majority of board members are independent, comprising four out of seven, including the chair. We also published our Modern Slavery Statement in December 2021, and we'll again publish a Sustainability Report later this year that will provide more detail on our ongoing sustainability journey. I'd now like to hand over to Ursula to talk about our financials, and I will return to conclude with some comments on our strategy and outlook.
Thanks, Mick, and good morning, everyone. Thank you again for joining us today. I'll start with the usual quick overview of the company's financial performance on Slide 10, and then talk about some of the numbers in a bit more detail later. As Mick mentioned earlier, increased activity on existing projects, commencement of new projects, and the recovery of certain COVID-related expenses has resulted in the increase to revenue.
While the recoveries of costs highlight the strength of our line style or rise in full contracts, these recoveries do not contribute to margin, as can be seen with a lower underlying EBITDA margin in the chart in the bottom right. The key takeaways from this slide is that the business continues to perform well, with revenue and underlying EBITDA showing good growth, as you can see from the charts on the left.
Slide 11 shows our historical performance against market guidance and how we are tracking to date. As Mick mentioned earlier, the first half puts us in a good position to again deliver on our first half guidance. We have maintained our full year EBITA guidance of AUD 95 million-AUD 100 million, and have increased our revenue guidance to a range of AUD 1.6 billion-AUD 1.7 billion to reflect an increased level of secured work for FY 2022 of AUD 1.6 billion. The previous guidance range of AUD 1.4 billion-AUD 1.5 billion assumes certain pass-through costs at Barramia, the transition to AMNT from 1st July, 2021. However, with a focus on managing COVID in Indonesia, this has been postponed to likely FY 2023.
Our forward guidance, of course, is subject to COVID-19 not significantly disrupting our business further. Moving to our profit and loss statement on Slide 12, I'd like to note a few factors behind our performance for the half. For the reasons previously mentioned, you can see that revenue has increased by 24%. Underlying EBITDA growth was solid at 14%, reflecting the contributions from new projects as well as cost recoveries from clients, preserving our earnings in a period where some costs have risen sharply. Margins remained resilient despite volatility in the cost base, which demonstrates the benefit of having a diversified business. EBITA growth was more subdued, taking into account the project ramp-ups and COVID impacts, including the increased labor costs and cost recoveries.
As of 31st of December, the effective borrowing costs remained low at 4.1%, down from the 4.6% as of 30th of June 2021. Reported NPAT of AUD 3.3 million includes the one-off GBF earn-out costs of AUD 22 million. Underlying NPAT, excluding this earn-out and other one-off adjustments, was AUD 31.7 million, up 4% on the comparative period. A quick note of tax. The first half effective tax rate was 65%, which was impacted by the GBF earn-out costs not being deductible. Excluding this, the tax rate would be around 20%. A final comment on the slide regarding dividends.
The interim dividend of AUD 0.003 per share unfranked is consistent with the first half of FY 2021, and in line with the policy capped range of 10%-25% of underlying earnings per share. Slide 13 outlines the diversity in the business across clients, commodities, geography, and divisions. As you can see, we have good diversity across our major clients, while gold and copper gold accounts for 75% of our revenue. Around 80% of our work is generated in Australia, with the remainder in Indonesia. Looking at the activity chart, you will note we have increased our mining support services to 6% and underground to 24%.
Looking at Slide 14, the net debt cash flow waterfall provides an overview of the major cash movements during the half that have contributed to the closing net debt position as of 31st, December 2021. EBITDA was the primary cash inflow item at AUD 139 million. Outflows included the investments in working capital of around AUD 42.1 million relating to the start-up of new projects and the increased inventories as we acted to manage COVID-related supply chain constraints. Consistent with the comparative period, underlying operating cash flow was AUD 96.6 million. EBITDA cash conversion was around 70%, reflecting the investments in working capital and increased inventories I mentioned earlier. We expect the cash conversion to increase in the second half.
The largest cash outflow was CapEx of AUD 152.7 million, comprising around AUD 80 million of growth CapEx and around AUD 73 million of sustaining CapEx. Key growth projects included Gwalia, Dawson South, King of the Hills, and Warrawoona. Other cash outflows related to the payment of the final dividends for FY 2021 and the GBF earn-out. Slide 15 summarizes our balance sheet position at the end of the first half. The key takeaway here is that the balance sheet and liquidity position of the business remain relatively strong while we are in a high growth phase. This is supported by the net debt to EBITDA of 0.87x below our target range of 1x. Gearing did increase to 31.1% due to the investments in new projects and the additional inventory spend.
We expect this to trend lower into FY 2023. Cash and available banking facilities were AUD 241 million, which includes the new asset finance facility at competitive interest rates. The other ratio to note in the slide is a return on average capital employed, which you can see was lower at 12.9%. As I mentioned earlier, this is primarily impacted by the upfront growth CapEx for the new awards. Thank you for your attention, and I will now hand back over to Mick to talk through our strategy and outlook.
Thanks, Ursula. Slide 17 provides an overview of our strategy, our approach to building a diversified and scalable business. This strategy has provided a solid foundation for growing our business over the last five years through a period of heightened market uncertainty. Our core strategy is focused on delivering long-term outcomes and has therefore remained unchanged during this period.
We have delivered outcomes across all of these areas, consistency of execution and earnings delivery, investing in equipment, people, and technology to maintain and enhance our competitive advantage. Diversifying into new areas of business, including underground and mining support services, and expanding our service offering to clients. King of the Hills is the key example of this and how the company has evolved to provide a comprehensive range of services to our clients and be able to secure integrated projects such as this one.
We are currently in an investment phase in the business to support new contract wins. However, we remain very focused on disciplined capital management and longer-term target returns. We expect our margins to improve as we progress our major new contract awards past the start-up phase and towards our target returns. Long-term, we continue to look to diversify and expand our service offering across the mining value chain, with a specific focus on lower capital-intensive mining support services such as civil, construction, and underground, and smart investments in technology. Slide 18 illustrates how we have diversified and expanded our business towards the achievement of our longer-term targets. In FY 2018, nearly 90% of our revenue came from surface mining. This is currently around 70%, with the underground now accounting for nearly a quarter of our revenue.
We will continue to look for appropriate opportunities to grow our underground and mining support services businesses, including building internal capabilities and organic growth. Importantly, the increasing diversification of our business has also assisted our profitability targets with underground, typically a lower capital intensive and higher margin business. Now, while margins and return on capital investment have been lower in the business in this half year period, this has been due to short-term isolated headwinds and a period of increased investment, which we expect will deliver higher sustained returns in the longer term. Our longer term target is to continue to diversify the business mix with underground surface and mining support services representing a more even mix.
This will create a more scalable business and support us in exceeding our stated financial targets of EBITDA margins of 20%, EBITA margins of 8%, and return on average capital employed of 15%. Our order book and tender pipeline shown on Slide 19 continue to underpin our confidence in our positive outlook. The total order book has increased to AUD 5.2 billion, with AUD 1.6 billion of this secured for FY 2022.
The column chart shows the order book runoff, and you can see we are very well positioned for continued growth over the next few years. It is important to note this excludes any short-term churn work and the Batu Hijau phase VIII extension. The order book is largely made up of high quality clients and long-term alliance style contracts, providing us with excellent revenue visibility over the medium term.
The tender pipeline of credible project opportunities has also increased in the last six months by around 22% to over AUD 8.7 billion. The majority of these opportunities are in Australian gold and copper projects. They offer scale and diversity through opportunities in underground and mining support services. Underground opportunities now represent 38% of the pipeline, while mining support services represent 21% of the pipeline. This is a really clear lead indicator that if successful in securing our fair share of this work, it will drive the business towards our strategic objective. When you combine our significant order book and tender pipeline, we're in a good position to deliver strategically aligned, sustainable growth over the coming years. To conclude our presentation today, we've provided some final comments on our priorities and outlook on Slide 20.
At the macro level, there are three broad themes impacting our industry. A strong demand outlook supported by a post-COVID rebound in global economic growth, demand for commodities, energy transition, and rising commodity prices. These are some of the drivers behind the buoyant tender pipeline we see. Then there's uncertainty related to continuing and new potential COVID impacts, particularly with regards to impact on supply chains and skilled labor. Of course, increasing cost pressures and inflation. If we continue to effectively manage COVID risks and invest in the development of our people, as we have done today, we will be very well-placed to capitalize on the growth opportunities we are seeing through our tender pipeline. We continue to view the outlook for the business as positive, underpinned by a strong order book.
The focus areas for the remainder of this financial year include continuing to improve our safety performance, effectively managing COVID, complete project ramp-ups, and closely monitor project performance and cost escalation to deliver expected EBITDA margin, finalize the Batu Hijau phase VIII extension, improve scalability through diversifying earnings in underground and other mining support services, maintain disciplined management of capital, and continue to focus on progress in developing mining technology and digital transformational solutions. Our guidance for FY 2022 is for revenue in the range of AUD 1.6 billion-AUD 1.7 billion and EBITDA in the range of AUD 95 million-AUD 105 million. This is supported by a strong order book of AUD 5.2 billion, and in particular, around AUD 1.6 billion of work already secured for FY 2022.
We've again demonstrated the resilience of our business by delivering growth in an evolving and challenging market and remain very well-positioned to continue this in the second half of the year. This is on the back of a clear long-term strategy, careful investment in the business, and the dedication and commitment of our talented team and workforce. With that, I'd like to hand back to our operator to open for questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on the speaker phone, please pick up the handset to ask your question. First question comes from James Wilson from Ord Minnett Australia. Please go ahead.
Hey, guys. Just a few questions from me. Firstly, just around the full year margin implications. Do you see potential upside to the EBIT guidance you've provided us with, given that you've upgraded at the top line and the Western Australian border might open, say, the fourth quarter of FY 2022?
Hi, James. How are you? Look, at the moment, we've obviously predicted a heavier second half. In the current environment, I think it would probably be a bit bullish to be talking about upping any guidance, but it's probably a good chance to talk to the second half. The heavier weighting is as we pass through the ramp-up stage for a number of these projects to steady state, that'll have an impact. They're performing in line with expectation, pleasingly. That's projects like Foxleigh, Dawson, Gwalia, King of the Hills, and Warrawoona, which starts in March, April this coming year. The other benefits to the second half will be Telfer are moving more into the Stage 5 material, underground increasing in scale, of course.
The unusually high cost recovery items that we've seen in the first half because of the impacts of COVID in some of our alliances and in some of the extensions, whilst they don't attract margin at this stage, when we reset the cost base, they become part of the cost base and then attract margin. Obviously, there's reliance on performance there, which is important. The other thing which will help the margins is we intended or expected to have those pass-through costs at Batu Hijau managed by the AMNT as of 1 July. Obviously, that's why the guidance is materially different around revenue. With that not being the case, we've had to adjust the guidance to include those.
We still anticipate now we're getting to post-COVID environment on site at the moment that should happen hopefully early in FY 2023. There's a number of factors there, and I know I've steered away a little bit from your question, but the second half at the moment is heavier than the first half. There's a level of confidence around that, so we don't wanna be talking about more at this stage, given some of the uncertainty out there.
Okay, great. That makes sense. Secondly, are you able to just give us a little bit more clarity around what you're expecting to see on the inventory build-up and working capital pressures that you face now going into the second half of 2022?
Yeah, absolutely. The majority of our projects, with the exception of Warrawoona, have established those payment terms. The AUD 42 million increase you can see in working capital incorporates most of that. There'll be a little bit more, I guess, in the second half with Warrawoona. The portion of that that's inventory, I think we've seen the most of that now. Obviously for us it's all about positioning our company, so when we come through the uncertainty, we're in a really good position to deliver for our clients and make the most of the high commodity price environment. We didn't wanna try and penny pinch now and put some of those relationships at risk and then be repairing the business when that environment comes.
We've dialed up the inventory component, but as soon as we can, and we've got a good line of sight on that, supply chain and the logistics piece, we'll just sensibly dial that back. I think we've seen the worst of that. I mean, for cash conversion for us, for the whole year, we're still expecting 80%-85%. If you look at the first half at 70%, you can see that it's a strong second half in terms of cash conversion, and that's quite traditional in our business over the last couple of years.
Cool. Okay. Just around some of the labor issues that I guess have been called out across the sector, this result season, are you seeing an improvement in labor productivity, labor access, or is it still much the same given the border's closed?
Look, I mean, that's a really interesting question, and all of our peers, I think, have done a good job managing this in what's been a difficult situation to just deliver solid results. But for us, our specific situation is being spread across Indonesia, East Coast and WA has provided a little bit of benefit. There early on Indonesia was hit very hard and those companies and our partners managed that very well, so we're through most of it there. I'd say on the East Coast, while it's still hard to attract high-skilled labor, we're through the worst of the impacts, I guess, there. Now of course in WA, we're getting to that point now.
We're getting through the COVID impact, the limitations on travel and the restrictions, but there is a skill shortage, particularly in Australia, which is probably 55% of our workforce. That's why you can see we've got 563 people at the moment in our Grow Our Own development pool. We're hoping to grow that to 700-800 in the next three to six months. I know our peers and our clients are doing something similar, bringing in 482s. At a higher number, there's more critical roles on that list now that will allow us to fill the void while we train local people to fill that void. It is absolutely tough, James, but you know, we're getting through. I think the biggest solution to all of that is to work within your means.
We're very, very careful in our pipeline. It's not just about does the project fit strategically? It's does it fit our bandwidth? When does it start, and would we be able to ramp it up and maintain our quality? We're very aware that we could start 10 projects, nine go well, one would go badly, and that's the one you get remembered for. We don't wanna be in that position.
Great. Okay. Just so finally, one more question from me, guys. On the dividend, you guys moved from 20% franking at the first half of 2021 now to an unfranked dividend. Can you just speak to the thinking behind that shift?
James, it's simply the fact we have no more franking credits.
Okay. Thanks, guys.
Once again, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Stuart McKinnon from The West Australian. Please go ahead.
Oh, good day, mate. Mick, thanks for taking the time. You touched on the parliamentary inquiry into sexual assault in the resources sector. I know you gave evidence and you mentioned that you had given evidence to the inquiry. That was back in November. I think you said that you conceded that the company had failed to protect women with its existing policies and the issue had since been shifted from HR issue to a safety issue. I think you mentioned at the time that you were conducting a company-wide review into the whole issue. I was just wondering, has there been any results from that review? Will you be making it public in the same way Rio did recently?
Has there been any other sort of developments in this area since you gave evidence to the inquiry?
Yeah, Stuart, look, I think what I said was, you know, one case of sexual harassment or assault is one case too many, and it's something that we all need to focus on. To answer your question, you know, prior to that, it was an important issue to us. I think since then, we've all got more visibility of the real issue, and we've made a lot of progress on the action plan that we provided to the Parliamentary inquiry. That was around. You know, we've put out a new sexual harassment policy. We've got respectful workplace training just to make it clear what is and isn't acceptable. Bystander training, which we think is really meaningful. You know, it's the people that are seeing this happen can intervene and have confidence doing it.
The All Call whistleblower line to provide people a lot more opportunities to put their hand up and notify us anonymously or non-anonymously is all part of the solution. It's on our board agenda every time the board meets at the moment to make sure that it doesn't slip away. Making sure we've got an inclusive and safe workforce for our entire team is critically important to us. We'll disclose we've already had some shareholders reach out directly, Stuart, and we've provided feedback and also indicated that in our sustainability report and annual report, we'll be highlighting some of the feedback we're receiving from that and the results that we're seeing. We have seen some really meaningful responses, actions, outcomes as a result of this.
People indicating that, you know, some of the things they've been doing normally, albeit minor, was probably leading to some issues in this area. You know, two people who are friends and have banter, in a way that maybe is right on the line makes everyone else feel that that's condoned when it's not. But we've had really meaningful discussions. I got on a call with the entire leadership group throughout the business in various different jurisdictions to just make it clear what we stood for. I had some real positive feedback from those people. And of course, we're pushing diversity in the workforce. You can see in our leadership group, female participation has increased significantly as well, and we hope for that to permeate through the rest of the business. To answer your question, absolute priority, and it's just the right thing to do.
Thanks, Mick.
Next question comes from Cameron Bell from Canaccord Genuity. Please go ahead.
Thanks. Good day, guys. You may have actually touched on this a couple of questions ago. My phone cut out. I was hoping you could just quantify the AMNT passthrough element.
Yeah, Cameron. Thanks, mate. As I've said, we're in the process of confirming that. Some have said, "Is that just cosmetic?" It's not. It's actually really important to our business because it'll manage the working capital that's tied up in that contract. It's beneficial and acceptable to both parties having those reimbursable costs removed or managed by AMNT that aren't tied to margin. That could vary. It could be between AUD 60 million-AUD 80 million, for example, for the first half. That's just one of the aspects we're working through with them now. We've got the opportunity and some clean air to do so. Obviously the other one is phase VIII.
Yep. Okay. Actually, on phase VIII, is it fair to say any CapEx related to that side of the business is definitely FY 2023 at the earliest?
Yeah, absolutely, Cameron. Anything in addition to what we've got there won't be in FY 2022. It's probably a good call-out because one of the other things that we're talking to, and it's beneficial to both parties, is anything we do put in there, and I think I've said in the past, the default in the contract is the client provides it. Obviously that would affect earnings. We're working through what makes sense in terms of what we can afford and the type of earnings we want to achieve, obviously off the back of good performance.
That said, one of the other things we're discussing is that anything that we put there would have a, maybe a put and call or a tripartite arrangement, so that should anything happen in terms of that contract, we'd never get left with stranded assets, offshore from Australia.
Yeah. Okay. Thanks, guys.
Thanks, Cameron.
There are no further questions at this time. I will now hand back to Mr. Finnegan for closing remarks.
Thanks, Emily. Look, I really appreciate everyone taking the time to stay on the line. I know that was a more detailed presentation than normal, but we did think that it would be wise to do so in the current environment, just to provide a little bit more detail. We are expecting a stronger second half for us. As I've said, the startups are going well in spite of the challenges, and we look forward to seeing everyone, maybe not this half with border restrictions still in place, but maybe at the end of the full year, if not beforehand. We appreciate everyone's support. Oh, hang on. We've got one more question. Emily, sorry, one more question popped up. Emily?
Your next question comes from Tony Greco, Private Investor. Please go ahead.
Oh, good day, Mick. Yeah, sorry to interrupt your summary there. Two questions for Ursula. One, firstly, just the doubtful debt there of AUD 3.5 million. Is that anything specific or is that just something the auditors sort of insist you've got to put something there given the revenue and the debtors?
Hi, Tony. I just wanna see 'cause having a look, we don't have doubtful debt for the half, so I just can't understand. Is this in the prior period that you're seeing?
Yeah, I think it's just the provision you're carrying. I think added AUD 200,000 to it or something this time.
The provision is based on the original expected credit loss model, which is a provision that was recognized in one of our debtors overseas with a project quite a while back. The only change in that is it's not actually a doubtful debt. The credit loss model requires you to do a weighting on your aging of your debtors, and you can see that's only moved by a marginal AUD 200,000. It shows that the aging of the debtors is still fairly pretty good.
Yeah. Is it? It's overseas, so it's sort of specific though? I mean, you've provided for it. Is that something you've probably had lost or it's just more of a statistical calculation just for the, you know, the revenue that's out there and the debt?
The historical one is for a specific debtor for which we have got a legal claim.
Okay. Yep. Fair enough.
That hasn't changed, but it's fully impaired, and it was impaired in 2019 or 2020 already.
Okay. Yeah, that's fair enough. The GBF earn-out, surprising that that wasn't accrued and that's just hit. AUD 22 million has hit this half.
Yeah. The GBF contract always contemplated that the earn-out could only be finalized after the release of our full year results, requiring an independent review performed. As of 30 June, this was reviewed by the auditors. We did go and do our understanding of the contract and for which we provided that. Then subsequently, there was an independent review that had a few interpretations that they took differently. That is all. If you see the detail, we did do an announcement in September where we put a lot of detail in around that in that announcement.
Yeah. I think, you know, I just was under the impression probably would have been accrued, you know, prior years, but clearly it wasn't or not sufficient.
Oh, Tony, it was the interpretation of the independent that put it there and adjusted it. There is a fair bit of detail in that announcement earlier, but take your point.
Yeah. Yeah. No, fair enough. Okay, yeah, 'cause I guess, yeah, it's the result itself, revenue is up. Unfortunately, that didn't translate to the, you know, to earnings, you know, after depreciation. Again, I guess you've explained that, yeah, the startup and the bit of COVID, but the startup has filled that up. Yeah, I guess we'll just have to wait six months just to have a look at the second half and just see whether, you know, the earnings start to flow through a little bit better. Probably a question you can't answer, in just the last few days, there seems to be, you know, a fair few more shares have been traded. Do you get to see that? I mean, major shareholders selling down a little bit or still too early to tell?
We haven't seen who's been trading in the last few days, Tony. Sorry. I'm not sure who it was. I did notice last Friday there was a little bit, but yeah, I don't think it's driven by anything specific.
Yeah. Okay. I mean, if it is a substantial shareholder, I guess they'll have to put in a notice at some stage, but. No, that's fine. All right. Thanks for that, Mick. Thanks, Ursula. Thanks for the explanation.
Your next question comes from Alexander Beer from Sona Capital. Please go ahead.
Hi, Nick. Look, well done on a tough operating result. Holding EBIT level is a pretty good result considering, I think. Look, I've got two questions, and we sort of touched on the first one earlier. Well, at least we touched on the outlook and the guidance and obviously the second half, you're sort of implying an improvement there in margin or small improvement in margin versus the first half. I just wanted to touch on the long-term targets. I mean, the business has clearly articulated the target being EBITDA margins of about 8%.
You've mentioned you're sort of in a startup phase with a lot of the contracts. I'm just curious on timing. I mean, the back half has been articulated, but how should we think about these long-term targets into 2023? You know, do you think this is something where that's achievable into 2023 or what's the timing on that?
Yeah. No, no. Appreciate the question, Alexander, 'cause we did go. You, you're right and we have put information out in the market about exactly that. EBIT, EBITA of 8%, EBITDA of 15% and return on capital of 15%. One of the things we've said in the past, and it still stands, is that over FY 2021, 2022, we've spent AUD 300 million of growth CapEx. Now we've said at the end of the financial year just gone, that we would expect to see the increased earnings from that come through in FY 2023. We would expect to see early indications of that in the last quarter of this financial year, which is what would represent the heavier second half.
The other things that we've indicated in the past is that of those three metrics, we expected two of them to be achieved in FY 2023 and then obviously be in a position in FY 2024 where you'd typically see a sustainable achievement of all three, barring any material impacts like things like COVID, of course. That's what we're setting the business up for, and that's what that diversification model is all about. I know it sounds very simplistic, but the benefits of getting that right are just material for a business such as ours.
Yeah. Okay. Just my last question. Just on the balance sheet, you know, if you look across the sector, a lot of mining contractors and contracting businesses have actually had quite a big hit to their balance sheets. They've all invested in growth CapEx and most are reporting gearing at or near target levels. Can you just give us a feel or some color on how tendering looks across the market? Are you seeing any change in the level of competition given, you know, most of your competitors have gone through a CapEx cycle now, and there's probably limited capacity to increase balance sheets further?
Look, there's a couple of aspects to that, Alexander, and you're dead right. I mean, everyone you know, I don't feel that we are losing tenders at the moment because of price. It's typically because there's an existing relationship or a unique offering or an aspect of an offering that can provide a specific benefit to a specific issue on a specific job. Everyone is being very selective in what they're pricing, and it just seems like a really sensible market.
While you know, I've looked at everyone's results, and I think I could say as a collective sector, we're trying to navigate through the current uncertainty, so we come out the other end, we're not repairing issues, and that we're set up to make the most of a high commodity price environment that we think will be for a while. The other thing I know ourselves and our peers are doing is there's a lot more DD around assets we work on and their viability. There's a lot more DD around our partners and the contract structures we use, so they can be flexible through the cycle.
To give you a bit of an idea, I think we've got about AUD 630 million of PP&E on our balance sheet, and we're consistently looking at things like how much of that, at its current written down value, is on a project that comes to term in the next three years, just so that we can provide that insulation and protection and understand where we put gear, where do we reinvest, and what's the upcoming risks. I think the companies in our sector at the moment are a lot more sophisticated probably than what we were 20, 30 years ago, and it's because of bad experiences. We're insulating and managing against that, and we're very, very careful.
Yeah. Okay. Thanks, Gus.
There are no further questions.
All right. Emily, I think that's it. There's no more questions. I won't put everyone through another wrap up, but I just appreciate everyone's support. For those of you we're meeting in the next couple of days and beyond, we're looking forward to saying hello, albeit over Zoom.