Thanks, Kayleigh. Thanks, everyone, for joining us today, and welcome to the McMahon 2021 results presentation. As Kayleigh just said, I'm Mick Finegan, the CEO and MD of McMahon, and I'm joined here today by our CFO, Peter Pollard our Deputy CFO, Ursula Loomis and our Corporate Development and Investor Relations Manager, Chris Chong. I know it's a busy time of year, so as always, we appreciate your time and the opportunity to run you through today's presentation. At the end of the session, there will be an opportunity for questions.
So if we start with Slide 2, showing the financial highlights, you'll see that McMahon has again delivered a strong set of results. I'm pleased to report that the business has delivered on market guidance with what was another record for the company in terms of underlying earnings and cash flow. I'm very pleased to have achieved this result, notwithstanding the labor shortages, cost pressures and other impacts that emerged as a consequence of COVID-nineteen. To have delivered these results and have enhanced our business really does demonstrate the resilience of our overall group, our team and our strategy. Statutory revenue of $1,350,000,000 was down 2% on the FY 2020 number due to the accounting changes related to our Butteridgeo project, which we discussed in our first half result and which Peter will recap on in his discussion later.
Excluding these adjustments, revenue grew 6%. As you can see, underlying EBITDA and EBITA were up around 5% at $250,000,000 $95,000,000 respectively, with margins continuing to increase towards our stated targets of 8% EBITA and 20% EBITDA. These have remained unchanged for some time. Importantly, operating cash flow was particularly strong at $260,000,000 with a cash conversion of 108%. Our net debt of $130,000,000 reflects the investment in new contract starts in the second half of the year and equates to about 0.5 times EBITDA.
This second half investment is included in our return on average capital employed calculation, which still remains relatively solid at 13.5%. The order book remains strong at $5,000,000,000 with 1 point $3,000,000,000 already secured for FY 2022. And this gives us confidence in providing the FY 2022 revenue and earnings guidance of $1,400,000,000 to $1,500,000,000 of revenue and $95,000,000 to $105,000,000 of EBITDA. Slide 3 provides a little more color around our numbers and activity across our divisions. An important note to add on our financials is our available liquidity of $288,000,000 which includes cash and undrawn financing facilities.
In addition, we executed yesterday a new $145,000,000 syndicated asset finance facility, which adds a further $85,000,000 of funding capacity. Pleasingly, we secured $2,000,000,000 of new projects during the year, which underpins our positive outlook and will support continued margin improvement as these projects commence and ramp up over the coming year. Now by division, looking at our surface business, Anglo American's Dawson project and Qmetco's Fox Lea project have both commenced in the second half of the last financial year. The $650,000,000 combined surface and underground contract for Red 5's King of the Hills project is expected to commence in early calendar year 2022. And finally, we are the preferred contractor for the Worawuna project for Callidus.
We are preparing to be in a position to start there in early 'twenty two also. However, on that job, we are already completing the civil works on-site as we speak. Our underground division has continued to grow strongly and during the year we were awarded a 4 year extension at Silver Lake's Deflector mine and additional work at Pantora's Wagtail and Nicholson's mines. We also started early works at the Bellevue project and are hopeful of extending that relationship. Importantly, we're also awarded our largest underground contract worth $500,000,000 with St.
Barbara's Gualia mine, which commenced in May this year. All of this is culminated in an order book of $5,000,000,000 as at 30 June, and this does not include any short term churn work, Werrawuna or the Telfer and Tropicana extensions we announced yesterday. Tender pipeline also remains robust and we are currently looking at around 25 opportunities totaling over $7,100,000,000 And importantly, about 64% of this is now in the mining support services and underground sector, which is a reflection of progress against our strategy. Turning to Slide 4 on people and safety. It goes without saying that safety remains a core priority for the management team and for the business as it always will.
Sadly, we reported the tragic passing of 2 McMahon employees at site this year, Abdul Hakim at Barahijaya and Mr. Paul Martin at Daisy Milano. It's always a very tough time when these events occur and we remain very focused on making improvements where we can as well as supporting both families and our colleagues as needed. You can also see on the chart that we have a very low LTI frequency rate. However, there has been an increase in our trifa.
The management team is taking this very seriously and targeting improvement in FY 2022 with emphasis placed on improving behaviors and situational awareness to ensure a safe workplace. We are already seeing good progress in this area this financial year. Our physical and mental health programs, Strong Minds, Strong Minds remains an important initiative that McMahon is a leader on. And in times like this, the mental health of our people is even more important. We are proud that this is now being offered to the wider mining industry.
Our training and development initiatives remain an area that sets our business apart And it is all the more important given the current tight industry conditions for skilled labor. Our Grow Our Own strategy has been very successful in training over 426 people across the business during the year. This includes graduates, apprentices and trainees. We also continue to invest in our leadership program and leaders. Turning to Slide 5, we know skilled labor is a challenge for our sector in Australia, having started 5 new projects over the past year.
This required an additional 6 70 people. We are fortunate the new projects were spread geographically and through different activities, which did assist as we were not drawing from the same talent pool. We feel we have refined our processes, increased our investment in training, developing and retaining people and importantly work with our clients to create deliverable ramp up schedules and in the current environment that is vital. As a result, we have high confidence the 2 remaining projects will be mobilized in an effective way with project kickoff teams already in place. At Werrawuna, early preparation works will commence in November with mining activities to ramp up from March.
We do have over 60 people on-site completing establishment works as we speak. So as you can appreciate, ramping up is much easier when you already have a presence on-site. At King of the Hills, we expect a steady 4 to 5 month ramp up commencing from December. Regarding managing the cost pressures evident in the current market, we're in a relatively fortunate position given the nature of the contracts we have. We have a number of alliance style contracts and with the remaining schedule of rights contracts, there are rising fall provisions.
Also, all new contracts are priced in today's dollars. Now turning to Slide 6. This shows a quick overview of our key projects. And I won't go through each project in detail, but note our major contracts are long term alliance and or life of mine contracts, which does underpin the long term sustainability of our business. It is also pleasing to see the introduction of a number of new clients over the last year, which serves to diversify our client base and extend the visibility of our order book.
While all of our projects are important, I'd like to provide you with an update on 3 recent developments. Firstly, at Qualia, we are very pleased to have secured a 5 year contract here. This contract is an important milestone in our strategy to expand our underground business and it is a clear demonstration of the benefits we're now realizing from the GBF acquisition. We're in the final stages of the ramp up at Gwalior and to date we have achieved good progress in many areas. There is work being done to finalize this ramp up, but once complete, we are optimistic about the joint opportunities that exist for the project and for the relationship between St.
Barbara and McMahon. Secondly, at Tropicana, we are very pleased to have secured the 4 year extension of the surface work, which is expected to generate additional revenue of approximately $470,000,000 and extend the company's open pit mining work from 2023 to 2027. This is on top of the Boston Shaker underground project, which has been performing well for the last 2 years and has been building momentum in recent months. Thirdly, I'd like to talk about Badahijia on Slide 7. We're very fortunate to be mining at the Badahijia copper gold mine in Indonesia, where we have a life of mine alliance contract that provides us with exposure to high quality long term sustainable earnings.
To recap, it's the 2nd largest copper gold mine in Indonesia behind Grasberg. It is a world class asset and in the 1st quartile of the global copper cost curve with a reserve of over £7,000,000,000 of copper and £9,000,000 ounces of gold. And interestingly, if you add the Eelang deposit, the resource is over 5 times the numbers I just mentioned. We commenced mining here in 2017 and we are successfully executing the Phase 7 cutback now. And as flagged previously, we're happy to report that our alliance partner AMNT will be undertaking another significant cutback at the Barahijio pit called Phase 8.
The Phase 8 scope is expected to extend our in pit mining activities at the current run rate for another 6 years to 20 28. Slide 8 highlights our position on ESG. This year, we published a standalone sustainability report reflecting the increasing importance of ESG considerations for our business and the mining industry in general. Our ESG priorities have been guided by a materiality assessment we climate change and corporate governance rated highly on both the climate change and corporate governance rated highly on both the impact on McMahon and the influence on our stakeholders. Please refer to our sustainability report, which we've released today for further detail.
It sets out some of the key initiatives we have and will undertake in our sustainability journey. I'd now like to hand over to Peter, who will run through the financials in more detail.
Thanks, Mick. Good morning everybody and thank you again for taking the time to join us today. Let's start with a quick overview of the company's financial performance on Slide 10. You can see that while reported revenue for FY 2021 was essentially flat on last year, we delivered growth in earnings. I'll talk a bit more to the revenue when I discuss the P and L.
The key point I'd like to highlight here is the sustained improvement in margins over the last 5 years across both EBITDA and EBITDA supported by a threefold increase in revenue. Turning to Slide 11 highlights our track record of performance against our market guidance. This is now the 4th consecutive year we have met or exceeded our guidance and this is particularly pleasing given the uncertain market conditions in FY 2020 FY 2021 due to the impact of COVID. We have provided guidance for FY 2022 and as you can see, we believe the business is well positioned for sustainable growth. Another area I'd like to highlight is our capital management focus, which is outlined on Slide 12.
The business generates high levels of operating cash with a consistently high cash conversion rate of EBITDA. Looking to returns on average capital employed, you can see that the business has consistently generated returns of around 13% to 14%. Roachy in FY 2021 was impacted by some large new contract wins and the associated CapEx in the second half of the year. However, over coming years, we anticipate Roachy to reach our stated target of 15% or better. Turning to our profit and loss statement on Slide 13, I'd like to talk to some of the key factors behind our performance.
Firstly, statutory revenue was down 2% due to the exclusion of certain client provided consumable items at Batuhija that we were deemed to not have control of due to COVID-nineteen. Excluding this change, revenue grew by approximately 6%. As you can see, earnings growth across the business was consistent with revenue growth at around 5%, which translate to improved EBITDA and EBITA margins of 18.5% and 7% respectively. The tax benefit you can see in the figures was attributable to recognition of a deferred tax asset of $17,300,000 due to a change in Australian tax legislation, which allows us a tax deduction for new Australian CapEx through to FY 2022. Over this period, the effective tax rate is expected to be 30%, but effective cash tax rate is expected to be around 15%.
Reported NPAT and earnings per share increased by around 19% and this along with the strong cash generation allowed the Board to increase the full year dividend by 8% to $0.65 per share. This represents a payout ratio of 18%, which is in line with our dividend policy payout ratio of 10% to 25% of our underlying earnings per share. You may have seen Slide 14 in previous presentations and I think it is important to highlight the continued improvement in our business mix. Over the past few years, we have significantly increased the diversity of our clients and our underground business. You can also see nearly 80% of our work is related to gold and copper and 3 quarters of our revenue was generated here in Australia.
The net debt cash flow waterfall on Slide 15 provides an overview of the major cash movements during the year that have contributed to the closing net debt position at the June 30, 2021. Strong EBITDA was the main driver of cash inflows followed by a $19,000,000 improvement in our working capital position driven by a strong cash collections and the receipt of a large VAT receivable during the period. Overall, underlying operating cash flow was $269,000,000 reflecting a cash conversion rate of around 108%. CapEx of $296,000,000 was due to a number of sizable new contract wins we announced in the second half, which I'll explain further on Slide 16. We thought it would help to break down the CapEx numbers in more detail.
Of the $296,000,000 total CapEx, around $143,000,000 related to sustaining CapEx, which includes extensions such as Deflector, Mount Munger, Telfer and Tropicana. Overall, this is in line with our half year guidance. The balance of $153,000,000 relates to growth CapEx on the back of our significant contract awards during FY 2021, including Foxley, Gualia and Dawson. Looking forward to FY22, we expect broadly similar levels of CapEx to fund these new long term contract wins and project extensions. We expect this investment will support us in achieving our stated objective of a return on average capital employed of 15% or better within the next 2 years.
Our balance sheet is summarized on Slide 17. I'd like to call out our strong liquidity balance sheet capacity to fund our growth. Gearing is 19.3%, net debt to EBITDA is 0.5 times and cash and available banking facilities totaled $288,000,000 In addition to this, we have finalized and announced a new $145,000,000 syndicated asset finance facility that further increases our available funding capacity by $85,000,000 I'd now like to hand back over to Mick to discuss our strategy and outlook before opening to questions.
Thanks, Peter. The strategy outlined on Slide 19 will be familiar if you have followed our progress over the last few years. It remains unchanged from last year with the same strategic priorities despite some uncertain market conditions in recent times. This strategy is building on the foundation we have created over the last 5 years and is designed to deliver improved financial performance through modernizing and diversifying our business. We remain focused on margin enhancement and optimization of our current projects and we expect our margins to continue to improve given many things by calling out the commencement of our new contract awards at target returns, the Stage 5 Telfer extension at correct rates as flagged yesterday and scale benefits of the larger underground business.
We continue to look to diversify and expand our service offering across the mining value chain with a specific focus on lower capital services such as civil construction, engineering and underground mining. An end to end suite of services strengthens the solutions we can offer our clients, increases returns and scalability of our business and creates new business opportunities for us. The King of the Hills project is a good example of this as it is a $650,000,000 combined surface and underground contract. And we think being able to offer both services and the synergies that provided gave us a competitive advantage and value for the client. We're also focused on modernizing our offering and constantly finding new areas of differentiation, including smart investments in technology.
This will play an increasing part in our future as the mining industry moves towards greater automation, alternate energy sources and digitization. Slide 20 shows how we've diversified and expanded our business since FY 2018 when nearly 90% of our revenue came from surface mining. As Peter touched on earlier, our FY 2021 underground business has grown to near a quarter of our revenue. This is assisted in improving margins and returns on capital. EBITDA and EBITDA margins have increased from 16.8% and 5.8% to 18.5% 7% respectively over this period.
Our longer term target is to continue to diversify the business mix with underground surface and mining support businesses representing a more even mix. This will create a more scalable business and support us in potentially exceeding our stated financial targets of EBITDA of 20%, EBITDA of 8% and return on average capital employed of 15%. Before I talk about the outlook for FY 2022, I want to talk you through our order book and tender pipeline as it's these that give us confidence when we talk about our positive outlook and guidance. Slide 21 shows our order book by year. The total secured order book at June 30 is around $5,000,000,000 and this excludes short term churn work.
In addition to this, Werrawuna and the recently announced Telfer and Tropicana extensions will add a further $820,000,000 to the order book, which is a very strong position for us to be in. Importantly, you can see from the chart that $1,300,000,000 of this is secured for FY 'twenty two, providing a very solid foundation for our FY 'twenty two guidance, especially when you consider we have historically achieved between $100,000,000 to $150,000,000 per annum from civil and underground services work, which is not in the order book shown. If you look beyond that in FY2023 2024, at this early stage, both years are also in a healthy position from a secured earnings standpoint. Even after our recent project awards and extensions, there remains a very solid pipeline of credible opportunities totaling over $7,100,000,000 The majority of these opportunities are in Australia and predominantly gold and copper projects. Importantly, in line with our strategy, our pipeline is evolving to create a more diversified scalable business with more opportunities in underground and mining support services.
Underground opportunities now represent 45 percent of the pipeline or $3,200,000,000 of this work, whilst mining support services represents 19% of the pipeline or $1,400,000,000 of the potential work. And when you combine our significant order book and tender pipeline, we're in a good position to deliver continued growth in the right areas over the coming years. So that brings me to our priorities and outlook for FY 2022 on Slide 22. At the macro level, the outlook remains optimistic. Demand for commodities remains strong and there's a very healthy pipeline of opportunities and projects.
And for those who can navigate through this period of heightened risk and execute well, there will be significant opportunity. As a business, we have secured a high level of earnings over the next few years, started a large proportion of those projects and we have a solid balance sheet to fund our continued growth. I talked about our long term priorities for the group in the body of the presentation, but specifically outlined here are the focus areas for the remainder of this financial year. And these include a laser light focus on the safety and well-being of our workforce, finalizing the Barahijia Phase 8 extension, continuing to progress our operational technology solutions, which are gaining traction quickly and further evolving our strategy to expand and diversify our earnings. I did outline our guidance for FY 2022 at the beginning of the presentation.
I'd like to recap it again here if I could. We expect revenue in the range of $1,400,000,000 to $1,500,000,000 and EBITDA in the range of $95,000,000 to $105,000,000 This is based on an AUD USD exchange rate of $0.75 Our guidance is supported by a strong order book of $5,000,000,000 and in particular $1,300,000,000 of work already secured in FY 2022. I'm excited by the business outlook that our amazing team of over 7,000 people have worked incredibly hard to create. We have demonstrated the resilience of our team and business by maintaining our earnings growth in a challenging market. But more importantly, it positions us well to continue this performance going forward and sharing some of the rewards of what I think will be a healthy period for those in the mining industry.
McMahon is becoming a more diverse business, which will create a less capital intensive business with greater scale that can service clients through the life cycle of their mining operations. We are well positioned to continue this into FY 'twenty two and beyond with a strong order book and tender pipeline. And with that, I'd like to hand back to Kaleigh to open for questions.
Thank Your first question comes from James Wilson with Jarden Australia.
Hey, guys. Congratulations on the results and thanks for taking my question. Just one for me today. Do you see any potential upside on the guidance range that you've provided us with given the business update and the new contracts that you came out with last night?
Yes. Thanks for the question, James, and the congratulations. I mean, if you look at the second half of last year, double it, I suppose it finishes just below the midpoint of guidance. Obviously, we've taken a position on the risks as a result of COVID and some small projects fell away, particularly the one in Mogalakwena. However, like you said, if we start these projects well, maybe win some more work, get some more churn and perform better than expected, there's an opportunity to hit the top end of guidance.
So that's how we've picked the guidance and the range.
Great. Thanks guys.
Your next question comes from Tony Greco, who is a private investor.
Good day, Mick. Congratulations as well from me on a solid, although probably not spectacular result with a reasonably steady profit and dividend. And I guess 6 months ago at this presentation, we thought, gee, your CapEx almost surprised on the upside. And I guess today, you've kind of answered that question that, yes, your CapEx did go up for the second half. The profit hasn't reflected that yet.
But I guess what you're saying is that, that will come through in this next in 2022. Would that be correct?
Tony, that's the way we look at it. If you look at the growth CapEx over 2021, 2022, it's about $300,000,000 We've made it public to sort of numbers we'd expect in revenue and then subsequent earnings from that CapEx, and we'd expect to see a full year of that in FY 2023.
Okay, that's good. Yes, because as I said, I was a little bit surprised last year or 6 months ago. I think, gee, the CapEx is rising pretty much without a corresponding increase in profit. So I guess we just have to wait a little bit. Just another question then, What have you got in place?
Because I mean, unfortunately, things seem to be going quite well, but mining companies tend to get a bit excited. And sometimes, the good times in the mining industry turn around and maybe the iron oil price drops, gold price drops, etcetera. So what have you got in place just in case that happens and we find that maybe some of the jobs are cut short, etcetera?
Yes. I mean, we start the mitigation for that very early, Tony, before we even tender for projects because we see where they sit on the cost curve and the type of contract style that would allow us to work with our clients through the cycle. And we've got a lot of alliances that will allow us to dial back cost, dial up cost depending on what the client needs, but it's never at the expense of margin, which is important. Added to that, I think the lives on the projects we're on are quite long term. But we also do have in quite a number of our contracts.
If a contract was to be cut short, that there's an obligation on the client side to buy the gear. So as an example, at Balwyn and Butteridgeeow, that's the case. So there's a number of other protection measures there, but they're the main ones.
Okay. That's good. Yes. So yes, the machinery is not entering the used truck market and being sold in discount. All right.
And the new facility that you just talked about yesterday or that you announced yesterday, the $145,000,000 without telling us too much that you can't tell, is that looking at future CapEx perhaps with potential new job wins, is that what you're looking at? That's just
Sorry, Tony.
Yes. No, Peter. Yes. Okay. Thank you.
It's Peter here. Look, in terms I mean clearly as we've outlined, we have a CapEx program this year. But apart from that, I mean if you look at the program, it covers OEM equipment, major equipment, trucks, excavators, it also covers ancillary equipment and it covers new and old or secondhand equipment. Essentially putting that facility in place gives us a range of options as to how we funded the program out this year. So just really it's just providing us greater flexibility while maintaining a good level of liquidity as well.
Okay.
Yes, and I mean you're generating some reasonable cash then you're holding back some cash.
Yes. But yes, that's Yes, we always maintain a reasonable level. We have an agreed level of liquidity that we want to hold within the organization. So that gives us quite a flexibility. I think the other point to highlight is that we've been able to put this in a very competitive rate, all in around 3%.
Very good. Excellent. Thanks for that, Peter. Thanks, Mick.
Thanks, Tony.
Your next question comes from Cameron Bell with Canaccord Genuity.
Good morning, guys.
Hi, Cameron.
Just on the COVID side of things, I was wondering if you could give us some clarity around how much COVID actually added to your cost base Or whether still if you have an idea of how much the cost base and the productivity impacted your EBITDA?
Yes. Look, I mean, it's a difficult one. It has increased costs a little bit, Cam, obviously, but it's a lot of it's been offset with costs that we haven't been spending in terms of travel accommodation, various things. And so look, I'd say the result would have probably been $2,000,000 $3,000,000 more, but that's a stab. I can find that out for you in more detail, Cameron, but that's what my gut says.
We might have been closer to the top end of guidance without it. But obviously, the guys did an amazing job managing what they had to get through the year where we're at. And I suppose importantly, we're understanding it better too. And Barahijia, for example, the whole workforce there has had their 1st shot of the vaccination. The Metabe workforce has all had their 2nd shot of the vaccination.
So we're understanding it better as well. So I expect that coupled with the fact that all the new work has been priced in today's dollars and we've got rise and fall mechanisms, probably the biggest hopefully the biggest impact is behind us.
Yes, okay. And just the other one for me, do you expect your cost of debt to come down at all over the next 12 months?
Well, I think as we've just with this facility going in place, I mean, we have been throughout last year, we did retire some old more expensive facilities. So, it will come down marginally. But as I said, if you look at say the Costa's new facility, it's around 3%. We did put a syndicate facility in place last year, which is similar around 3%. I mean, we are then dealing with financing options through our OEMs, which are slightly higher, but still quite competitive.
So we've got to see
some decrease in the overall cost of financing this year, yes.
Right. Thanks guys.
Thanks Cameron.
Your next question comes from Alex Speer with Coasey Superfund.
Hi, Mick. Congratulations on the result. Looks really good. My question is around Butter Hitch and the Phase 8 and just timing around that extension. Could you give us a bit of clarity on what your expectation is around timing and also impact on EBIT guidance for F 'twenty two, if at all, and also impact on CapEx guidance?
Thanks.
Yes, definitely. No worries, Alex. Good question because we have been talking about this for some time, But it will be good to be able to give people a bit of comfort about it. Firstly, in terms of timing, if you have a look at the order book, you can see 2022 not really impacted because of secured work you can see there already. You can see it just start to creep in FY 2023 when Phase 7 came off.
So in terms of urgency to get it over the line to maintain earnings, there isn't much there. The priority for the people at Batahigio and IMNT has been about protecting the people and just protecting against COVID obviously. So we wanted to make sure that was the priority for us all to focus on. And once we get that addressed, we can come back to concluding Phase 8. And it's given us an opportunity to run a whole lot more scenarios, which we can work together on and pick the optimal one in for both organizations and taking into account many criteria including the impact on our balance sheet.
But for us the relationship is still very sound. I'm still very confident in progressing the to get Phase 8. I mean, we've got a loss of mine contract there. And the other piece Chris just pointed out to me, that's why I pause there is, it is a related party transaction. So there's a little bit of rigor that we'll go through and make sure that all investors can get a little bit more detail on that deal just to keep them comfortable because or you comfortable because we've had a history of good returns from Barahiga and what we put forward when we do that I expect to be the same.
Okay. Yes, that makes sense. Great result, guys. Thanks.
Thanks, Alex.
There are no further questions at this time. I'll now hand back to Mr. Finnegan for closing remarks.
Yes. Look, we thank everyone for taking time out today. I know there's a lot of results being released today. So, we appreciate your time. And I know we can only see a few of you face to face over the next week and a half.
But to those we do see face to face, we look forward to it and the others, we look forward to seeing you virtually. We really appreciate your time this morning and no doubt we'll speak to most of you over the coming week or 2. Thanks very much.