Thank you very much, and good morning or good afternoon, everyone. Welcome to our FY23 full year results. I'd like to start by obviously acknowledging the incredible result that the team has produced during the year, despite a very challenging environment, not only through weather, through, through, you know, continued labor challenges and skills challenges. But the overall atmosphere, obviously, in mining services continues to be challenging, but we've delivered an exceptional result. Before I get through to the highlights, we do have a highlights slide there on page 4. I might deal with that in the summary slide. We'll go over and talk about the, the restatements that we had in the prior period.
The restatement of FY22 prior period was due to an error identified in Primero's revenue recognition for 2 projects that completed construction in that financial year. Revenue and margin was overstated by AUD 10.3 million in FY22, and Primero is required to reverse that overstatement and restate its 22 annual financial statements. NRW has had to restate its group 22 results to correct the error in accordance with the requirements of an Australian Accounting Standards, AASB 108. The quantum is not material in terms of NRW's accounts, obviously it's 0.4% of revenue and 3.6% of EBITDA in 22. We are confirming that the error does not extend beyond those 2 projects, of which the final accounting for the 2 projects was closed out in FY23.
Upon the finalization of business as usual contractual claims, there is no further impact beyond FY23, to be clear. We have, we have appointed executive leadership, new executive leadership to Primero, for a number of reasons, but also to ensure that management and reporting of contracts is consistent with this group process or group processes. Additional review processes implemented at group level to ensure that the error will not be repeated across any of the group businesses. The Primero MET division is positioned for strong FY24 performance and beyond and margin recovery. We'll talk about it a bit later, but we do expect those margins to recover to at least 6% in this forthcoming financial year. The results overview. Plenty of records.
In terms of this challenging year that we've had, again, we achieved record revenue of AUD 2.7 billion, a record EBITDA of AUD 288.8 million, a record EBITDA of AUD 166.3 million, and record cash as well, with cash conversion of 99%. Versus what the position we had at the first half of a, a very strong improvement in second half cash conversion and cash flows. We're also at a record order book of AUD 5.9 billion, some of which comes off the back of our Fimiston award as well, which is a recent major award for the Primero side of the business. Again, sort of helps us be confident about the revenue and margin improvement as we go forward because of the structure of that contract.
It has a very different risk profile with a target cost estimate style structure and not lump sum risk. Record secured work for FY24 of AUD 2.7 billion, and we're forecasting in our guidance for AUD 2.8 billion minimum revenue as well. Very, very strong position in terms of our work in hand. Again, a lot of that we'll talk about in the slides and in the summary page, is a very different risk profile for, for the business. In addition, again, I think I talk about it on the summary slide, but it might be worth mentioning here as well. We already have AUD 2.5 billion of revenue secured for the FY25 year.
If you think about where the business is and, and, and its reliance on large civil projects in the Pilbara historically, you know, we've had none of those this year. The business is never positioned better for execution of, of a, a wide, a wide range of services across multiple disciplines in FY24, FY25 and beyond. Incredibly strong position for the business to be in at the moment. We've also had a record dividend payout ratio. On a comparable frank basis, around 60%, but it's at the very upper end of our target ranges that we've had historically. Again, that's due to the sort of business mix changes that we have.
Not, it's not all about investment in capital in the mining business, it's about investment across the business, and those free cash flows will be generated from lower capital intensity parts of our group. Fully franked dividend AUD 18 per share. You'd be aware that the interim dividend was a unfranked dividend. In terms of that, we've realized a significant increase in, in the dividend payout going forward. Net debt, again, gearing is very, very low, which gives us plenty of firepower to grow the business across our capital initiatives. To be clear, diversification strategy that we've set apart in, in prior years is, is absolutely paying off in terms of the order book, and the future for the business in 2024 and beyond. I'll just make a few comments on ESG.
The health and safety side of our business, we had a continued focus on health and safety of our workforce, obviously, and a lot of training and increased support for new hires to make sure that we have the appropriate capability in our business. Psychosocial risk assessments conducted in line with work and health safety regulations. There's some more commentary on that in the appendix slides. We've implemented a group-wide integrated health, safety, and environment management system as well, across each of the businesses in the group. Pleasingly, the TRIFR frequency rate has also decreased across the group. Group headcount did increase from 7,000 to 7,200. Again, those sort of flexes up would come from major projects coming into the business as we see things like Fimiston coming towards us....
now, which we're, we're in the process of being ready for, during this half and obviously beyond, for the next 2.5 years. Also when we see larger civil wins as well, which, you know, the civil business, as I said, earlier on, commented earlier on, hasn't had any of those major projects in the Pilbara. There's a lot of opportunity coming towards us, and again, that'll require us to increase our workforce. The development of our people remains a top priority. We've employed a total of 234 apprentices and trainees, and significant training for our graduates and undergraduates, and over 240 members of staff going through these formal training programs.
Onto climate-related disclosure, we've got a carbon reduction commitment set at 25%, a reduction in Scope 1 and Scope 2 greenhouse gas emissions from 2020 levels by 2030. Be achieved by a number of initiatives, things like implementation of renewable energy, transitioning to hybrid or electric vehicles where practical, to reduce our fuel consumption, and investing in modernized and hybrid road transport options to minimize those diesel consumptions within our transport activities. They're just some of the things that we're working on. Obviously, it's a, it's a much larger initiative than that, and again, more detail can be found in the Appendix slides. What I'll do now is I'll just hand over to Richard to go through the financial overview, and then I'll, I'll talk again about the business and the strategy. Thank you.
Thanks, Jules. Good morning, everyone. As Jules noted, we had very strong revenue outcome in the year. Our revenue was at came in at AUD 2.7 billion, which is an 11.4% increase from last year. That was across the contributions from all three of our operating segments that all delivered growth in revenue as the activity levels across their various major contracts and projects all picked up. That's a really positive outcome for us to see as all of the businesses are continuing to increase their activity levels post the COVID impacts of two years ago.
We also saw growth in EBIT of 13.3% to AUD 166.3 million, and the key driver behind this was the strong margin improvement year-on-year in the mining business. That occurred over the second half, and the mining business made a huge amount of ground up from the results in the first half, and particularly the weather impacts that cast such a big shadow across across our East Coast operations. The margin performance across each of our component businesses varied, as each of them really responded to significant and varying challenges in their respective markets.
I think what that really underpins and the real strength of NRW is the diversification of its business model, where segments can cover for other segments if something happens in a particular area. Overall, margin improvement was broadly consistent with FY22, and our final margin was 6.2% from 6.1 last year. As we highlighted in the first half, we had to overcome the weather impacts from La Niña across our East Coast operations, the continued delayed award of new projects, and the extra costs that we had to carry through longer and more repetitive tendering cycles. We also were investing in building our capacity in Primero's North American operations, and we're beginning to see some of the benefit of that coming through.
During the second half, we saw improvements in, in pretty much all of those conditions, particularly weather. Pleasingly, the flow of awards has commenced again, and we expect that to, to continue through into FY24. The other key factor, I guess, in our margin performance over the course of 2023, has been our strong commitment to disciplined and responsible pricing. We've said many times, and we will continue to say, that we will not chase margins down to win contracts, and therefore, we'll either choose not to bid and walk away, or we'll let those opportunities go to competitors who are, who are willing to sacrifice margins. That's a really strong discipline, which just underpins everything that we do in the business.
You'll see that we had the impact of some non-recurring transactions, and as you would all be aware from the first half, Gascoyne Resources was really the principal cause of that. And in, and in the final result, we've also taken the provision against the receivable we had on Nathan River Resources as well. Interest costs over the course of the year increased by about 30%. That really reflected rate rises on the funding of new capital expenditure over the course of this year. We undertook about, around about AUD 104 million of growth expenditure, growth CapEx, and that was really to support the expansion of the mining portfolio. Our effective tax rate for the year is approximately 31.4%.
What that reflects is the impact of some non-deductible expenses and non-recoverable international withholding taxes through our expanding portfolio of international work. We maintained a good level of tax losses that will help us to mitigate our cash tax expense over the course of the year. I'll touch on that in a moment. From a balance sheet perspective, as Jules noted, we had a very strong closing cash position of AUD 227.6 million, up from AUD 154.8 million at the half. With 99% cash conversion. A really strong result, and one that we are very proud of.
As we did say at the half, we expected this to recover as the large construction projects that were underway, Strandline and Covalent in particular, complete. In addition, we had new large mining contracts, particularly Karara and Baralaba, that were still working towards achieving their full operational cadence, and we can now see the benefit of that flowing through. From a net debt perspective, that improved markedly from the half, where we were at AUD 172 million, and we closed out at AUD 84.3 million. Significantly better than we'd forecast, and of course, with the stronger closing cash position, resulted in a big reduction in gearing from 28.5% at the half, to 13.8% at year-end. If you exclude the leases, 5.4%.
As Jules noted, we have substantial capacity in the balance sheet to continue to support growth in the business. Our PPE balance over the year increased as a result of new CapEx that we undertook at AUD 183 million. That was lower than we expended last year. Last year, we expended AUD 206 million. And that, I guess, is in large part a reflection of the disciplined approach to capital allocation that we've talked about before. Of the CapEx that we did spend, about AUD 105 million of it was related to growth, and that was mainly the balance of the Karara equipment coming through, and Golding.
Our sustaining CapEx was AUD 78 million, which as many of you would, would know, is really a normal level of expenditure for the business. With respect to our tax balances on the balance sheet, they're carried as net tax liabilities, and included within that are, are carried forward tax losses. The main movement that we had here between the period was the AUD 39 million of temporary full expensing benefit, which related to CapEx that occurred over the course of the year. Now, that's lower than we'd expected at the first half, and that really reflects lower CapEx spend. As I said, resulting from our continued disciplined approach to tendering, and also in part due to supply chain delays at the OEMs.
The flow-on effect of that is that we will be paying some cash tax in FY24, which is earlier than we had expected at the half. It does allow us to return to repaying. I'm sorry, paying fully franked dividends. Finally, the movement in intangibles and goodwill, small movement relates to the OFI acquisition that we undertook earlier this year. In terms of cash flow, I've probably touched on all of the key points so far. As I say, we are very proud of that cash conversion. That, of course, will ebb and flow over the course of the year as projects progress, but it's obviously something we keep a very close eye on. Over the course of the year, we undertook some minor acquisitions of listed investments.
Again, ones you will all be familiar with, GT1 and Grid Metals. We also had a payment related to the acquisition of the OFI business. In terms of proceeds and borrowings, that really relates to the growth CapEx, and we had our ordinary course debt repayments. Finally, as Jules said, a solid dividend, solid dividend result for the final dividend. Over the course of FY23, we paid AUD 69.8 million in dividends, which is the largest value of dividend payments that we've made since the company listed. Thanks. I'll hand back to Jules.
Thank you, Richard. as Richard's mentioned, I mean, I know we've, we've crossed over a few things, together in terms of some of these key highlights, but I think the next page, in terms of our growth strategy, really highlights, you know, what we've done to the sustainability of this business model. Despite the fact that, you know, we haven't had, haven't had those major civil projects, the rest of the business continues to perform very well. you know, a recap on that. The Golding acquisition obviously was a part, part of geographical acquisition, as well as improving our mining and civil capability on the East Coast. RCR was the first pillar of our METS division, which is now doing sort of circa AUD 750 million per annum, and is a, a very important part of our future.
We've added scale through Diab and obviously the BGC Contracting business. Primero gives us that end-to-end capability in terms of our delivery across the resource model and mining services. Recent acquisition of OFI, which I think we talked about at the half-year, very small, but it's in the electrical space. You know, there is a major decarbonization strategy or future in front of us. Again, this is a very small step in terms of the opportunity that sits there and also supplements our construction business across Primero and RCR. A very, very important acquisition. When we look at the next page, it kind of gives you a sense of... We haven't shown this to you before, just what we can do across that entire mining and resources lifecycle.
It's really from concept to completion, and all of our different business units play a part in that. The sale to the clients can be a whole of mine sale. We get in very early through some of the feed studies and things we do in the Primero business, which we can supplement with mining development services, mining, drill and blast, construction of rail, construction of road infrastructure, construction of plant, build and operate crushing plants. There's really nothing that we can do to service the sector, and we're, and we're truly without peer in terms of our delivery capability, even, even into the renewables space as well. One of the, one of the things on the next slide, I mean, the lithium story's obviously been a very positive one. It continues to be a very positive one.
Primero's at the forefront of that, and that was really the primary driver for myself to look at that business. You know, it was very well positioned very early on, with clients like Covalent, you know, where NRW was a JV partner with Primero at the time. The future for that business, obviously, there's been some challenges in terms of performance of, you know, legacy, legacy projects that were bid in during COVID, and those are now behind us. With the change of management as well, we've got a very clear focus on the future of that business and its capability. In North America, we've had an office, I think, for nearly five years in Montreal.
We just added another office in Toronto and Houston, and we're pretty much working with every single lithium or downstream client, of which those diagrams can show you. We, we talk about the lithium mining clients in the North America, Canada space, but also down in the US, we're engaged on multiple projects for various studies on the auto manufacturers down there. A very big future in front of us. At the moment, they're, they're generally study design engineering work, supported by the Australian business at very good margins. But there's also the opportunity for us to look at construction in the future under very low risk, joint venture models with construction partners there.
Those are things that we're developing, not committing to, but this kind of gives you the sense of the, of the opportunity, particularly to, to satisfy the, the US demand for battery-grade lithium. If you talk to some of the business performances and the segment capability, you've seen before on Page 15, which just sort of talks about the services that we can do with those various pillars. We'll move on to civil. Civil's revenue improved by around 13%, based on a bunch of projects around the country. Golding's order book, as we look forward, looks very strong. The opportunity is really for that WA side of the business to, to win and secure some contracts in the Pilbara to continue to grow that business as we go forward.
From a margin perspective, it's been pretty flat. We talked about at the half, we have an overhead and a capability in that business that we continue to be very disciplined about the projects that we bid. We're not being... You know, we're not driving down margin on the basis of winning bids at any cost. We're being very selective, and the opportunities that are in front of us at the moment in the civil cycle are very, very good. A large improvement in sustaining CapEx cycle, and the pipeline of new mine developments and upgrades is expected to start significantly in FY25, which is across the iron ore space.
In the meantime, we continue to bid a lot of civil infrastructure projects for main roads and, and again, in Golding's case, for the East Coast. Golding actually won a floods remedy project recently, again, on a very low risk, kind of, costs and, and materials type cost plus style project. We do expect the margin to improve and also the run rate of that business to improve as we look forward. Onto the mining side. As Richard touched in his financial update, very strong improvement in the second half. A lot of that was driven by those weather impacts that we had, and those, and those mining contracts really starting to fire across Jellinbah and Karara in that in that second half. Some good wins during the year.
Jellinbah East, the Talison Lithium contract for ADB, and more recently, the Mt Cattlin project as well, which was pretty much uses up most of the available fleet that we have. We still have some fleet that we're bidding in the projects in the west here at the moment. A very strong performance from that mining business this year. We continue to have, again, a disciplined approach to capital allocation as well, and minimum investment returns, which again, has cost us some projects that we bid. They required significant capital investment, and the returns for us just weren't good enough for us to want to participate in them.
When we go on to METS, as I mentioned at the outset, when we talked about the restatement, we're very confident with the change in management and the focus that we have now on this business, particularly with some of these projects rolling off, that impacted performance in the second half, that that margin will recover strongly. RCR also saw some delays in terms of projects that we thought that were going to be delivered in the second half, move into the first half of FY25. We're kind of confident that delay sort of cycle is not in front of us at the moment. With the winner, Fimiston, as well, under that cost target estimate style structure, we can be very confident that margin's going to bounce back very strongly.
Again, as I said, you know, it's a very important part of our business. We've talked it up in the, in the last few years. It's been disappointing, the result this year. However, our focus and the opportunities that are in front of us in terms of the order book strength and the types of projects that we're working on, we're gonna see a much improved performance from this business in FY24 and beyond, just given the opportunities that we have. Very positive. Right. Down to the summary. The new tender, tender pipeline is still very strong at around AUD 17 billion. We have AUD 1.6 billion of projects tendered and are awaiting award or decisions on, the group order book's a record AUD 5.9 billion.
Again, as I said at the outset, we have AUD 2.7 billion secured already for FY24. We're saying our guidance at this stage is AUD 2.8 billion of a full year revenue, so we're very well positioned in terms of meeting that revenue guidance. We've also got AUD 2.5 billion of work already secured for FY25. So we can be selective, and we can be targeting specific projects where we can get superior returns, which is what our focus is based on. Our guidance on EBITDA for FY24 is expected to be between AUD 175 million-AUD 185 million. Our cash and gearing level is expected to remain in those long-term set of averages.
As I said, you know, the, the outlook that we now have is probably better than I've ever seen in the business, to have multi-year outlook of the strength of pipeline we have now. I don't think we've ever been in this position, and particularly with a business that is so diversified, and have so many opportunities in front of it. Very positive position that we're in now. I think that's really it, so happy to go to questions now. Thank you.
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're on speakerphone, please pick up the handset to ask your question. Your first question comes from William Park, from Citi. Please go ahead.
Hi, Jules and Richard. Thanks for taking my question. Could we perhaps start with the overstatement that that you pointed out? Can you step through additional review processes that you alluded to, and which projects and that that you're referring to, please?
Well, thanks for your question. I'll, I'll answer that. We're not really at liberty to talk about the results of specific projects. I think, as everyone's aware, you know, that's not something that we've done historically, and indeed, the confidentiality requirements of, of that our clients impose on us prevent us from talking about the results of specific projects. What we have done is, at a group level, we have implemented a number of review controls right across, right across all of the businesses that allow us to, independently of the businesses, go back and effectively prove the margin up, from each of the reported results.
We maintain a very close review process with the business leadership, and on a monthly basis, they present the results of their business to us, and we step through every project. What we-- and that's a really important control for us and something that also, you know, our auditors verify as being an important control. What I'm talking about now is something completely independent of that, which we undertake through the corporate team, and that's to go back to the source data and really perform a series of checks to make sure that the estimates that have been made in terms of percentage complete, the forecast cost to complete, et cetera, can be supported through independent, an independent data, independent data review and analysis of that data.
We are also making a number of system changes across the business. These have been ongoing for a little while, but they continue. That's a group-wide ERP system, which is in the process of being implemented. RCR has been the first business to come onto that. Primero is currently going through the scoping and will be on that system by the end of the calendar year, and we'll be bringing the rest of the businesses onto that as we go forward over the course of the next 12 to 18 months. It's effectively a series of different things that we've undertaken. We're not reliant upon any one particular measure or any one particular check. We have a series of crosschecks in place that now gives us the confidence going forward.
Thank you. It's very clear. Just in terms of, I guess, the near-term project award opportunities that you're seeing, please, can you just step through some of the major ones that that's worthwhile sort of pointing out? Whether if you're seeing any changes from competitive dynamics perspective, I mean, about, you know, at the interim results, you talked about tender losses due to competition taking a more, I guess, less disciplined approach in comparison to NRW. Just wondering whether you've seen any changes in the last six months or so?
Not really, Will. I think the jobs that others might have won in civil earthworks sense, we wanted to lose, we didn't want to win. We've been pretty clear on our approach to that and obviously improving margins across our civil business particularly. We've been very diligent around that. The level of competitors aren't there. I think, in the East Coast, Golding's got a very full order book, continuing to bid work, but they're really full for sort of 2024 and into 2025. Primero is very, obviously very busy with the result of the Fimiston award. We're busy at Pilbara Minerals and other projects as well. We've got a pretty full order book.
If you think about major awards, in the hundreds and hundreds of millions, you're not really gonna see much, I wouldn't have thought, until the second half, because we're so full in terms of our order book at the moment. We do have a pipeline, sorry, of, of bids that have been submitted of AUD 1.6. And we're being very disciplined across the mining business as well, making sure that we're not, you know, going in there at the kind of margins that we bid them in the last three years and expect a different outcome when the cost of capital has gone up, cost of interest, you know, interest rates have gone up....
We, we're being very disciplined, and, and fortunately, you know, we are in a good position because we have a lot of work on the book, and it's a lot of work under different style contract structures. I sort of said on that summary page, it's a very different profile and a much better risk profile for us.
Thank you. Just one last one. When I'm sort of thinking about your revenue guidance for FY24, given the, the level of visibility that you have over the next 12-24 months, and, and, and your commentary around AUD 2.8 billion being minimum revenue, I, I understand the tight labor market is probably one of the key constraining factor in, in getting that AUD 2.8 billion to, say, AUD 2.9 billion or AUD 3 billion and so forth. Just in terms of your headcount, I, I guess given that you, you, you were able to sort of increase headcount, quite a bit from first-half levels, would you say there's, there's a, you know, I guess it really depends on your ability to continue to add, add to your headcount as you secure these projects.
I'm just trying to, trying to get a sense of whether there's a, you know, whether if it's reasonable to assume sort of a meaningful upside to that AUD 2.8 billion as, as, as we stand here today.
Well, I mean, I think if you think and look at guidance we've given in the past and the level of order book that's, that was locked in at that time, it's probably better than it's ever been. You could assume that, you know, if we're saying it's, you know, we're at AUD 2.7 billion and our revenue focus is AUD 2.8 billion, I think previously we've had kind of 300 to book and do or something in, in prior years. You comment on labor. Yes, while we had some challenges on certain projects, during a particular point in time, and some of that was kind of COVID-related, people returning east, it wasn't so much getting them from here, it was other, other sort of things.
A lot of those issues are somewhat abated. If we have the work, we do get the people. You know, whilst we're training more greenies to go into the mining business, et cetera, the professionals that work in those larger construction projects, whether it's in the civil business or in Primero, do come, and they follow the company because of the loyalty to the company. You'll start to see the people numbers grow at the detriment of other contractors, is what I would see, you know, in terms of that labor market.
You look at anything across, you know, whether it's the Albemarle projects or whatever else, the contract styles have changed markedly, and I think that's another important thing for, for the market to understand in terms of our risk profile going forward and why we're so confident that the business bouncing back strongly.
Thank you very much. That's all from me.
Thanks, Will.
Thank you. The next question comes from Jake Cakarnis from Jarden. Please go ahead.
Hi, Jules. Hi, Richard. I'll try asking Will's question a different way. The coverage that you've got from the work in hand on your revenue guidance is 96% this year. It's the highest that it's ever been. What's keeping you conservative on the upside for the revenue guidance for 2024? What things do we need to be thinking about? Obviously, weather was impactful in the first half of 2023. If we move to a more stable environment, is there anything else operationally that we need to be considering, when we have a look at the revenue versus historical patterns of the coverage versus what you've landed on revenue?
Look, I hope so. We're not weather forecasters, but I mean, we didn't necessarily, necessarily see what we were gonna see this year. You know, I mean, I think it's the first time we've put a slide in on the weather in the half year presentation because of its, its level of impact. If you kind of cross your fingers and hope everything's gonna be all right in a weather sense, yes, there is clearly potential to do more. However, you know, being, being conservative for now is, is probably appropriate. You know, the scheduling of some projects, ramp up of some projects is, is also not always out of our control, but that can be a, a risk in terms of delivering more.
I, and I think probably just to add to that point, that Jules has just made, you know, one of those factors that is outside of our control and has, and has been a real, you know, pain for us over the course of this year, has just been the, the delays in, in clients being able to obtain the regulatory approvals that they need around environment, around heritage. That has been completely unpredictable for clients and, of course, for us. So that's something that I, I guess also is, is a factor that we are conscious of in, in putting that guidance together.
Understood. Similarly, just for the earnings guidance, a narrow difference between the top end and the low end, obviously AUD 10 million delta. What, what's the difference there, that, that kind of holds true? What, what's the assumption that drives that AUD 10 million delta in the guidance that you provided, please?
It, it's really the same sort of things, Jake. You know, if, if, if we have if we have another run of wet months, you know, we've got, we've got people and equipment sitting around unable, unable, excuse me, to be deployed. It, it, it's things of that nature. So it's really the same sorts of factors. And again, if, you know, for whatever reason, and, and we saw this on projects that we were tendering this year, where, you know, clients were just pushing back start dates each month by a couple of months as they couldn't secure the regulatory approvals. I think there's just such a volume of, of projects, projects going through the, the government, approval cycle across each state, that, you know, the timelines for these things is, to some degree, quite, quite unpredictable.
If we're having to keep people... If we find ourselves in a position again, where we were during the, during the year, where we're having to keep people and equipment on standby, that is costly. As I said, as, as we've said before, we can see that position's improving markedly, and we don't see why it should return to that. It, it is a risk, and it's a risk outside of, outside of everyone's control.
Understood. Just final one, just a broad commentary on the inflationary trends and labor availability that you're seeing across the industry. I think Jules mentioned that there's a fair bit to go into training for some of the labor mix that you're getting. How are we looking relative to the past 2 years? I guess then, if we go back to pre-COVID, are things normalizing from a cost and availability perspective back towards those pre-COVID trends?
I wouldn't say from an availability perspective, but we're obviously being able to pass the costs on. That's the big difference, is that, you know, obviously, any inflationary pressures or risks that we would have had in contracts kind of pre-COVID are not there anymore. You know, you're pricing in that inflationary risk through the contract structures, you know, the commercial structures that we're negotiating now. You know, in mining, obviously, you've got rise and fall. You might have a bit of a disconnect between the timing of those rise and fall agreements coming in. You know, generally, mining turnover is a lot lower, particularly in WA. Queensland is a little more elevated, just purely because of the activity across the country in terms of turnover levels.
You're not really seeing anything in the labor pool, but the labor pool is not growing dramatically either. There's obviously a lot of project activity across civil infrastructure and in the public works space, plus mining and the lithium stuff, everything else. There's a, there's a lot of work, but generally, as I said before, we find that people follow us once we pick up those larger projects, they come back and work for us. We're not concerned about attracting that labor or being able to train it up as well in terms of the lower skilled labor required on, you know, driving mining trucks, as an example.
Thanks, guys.
Thank you. Your next question comes from Nicholas Rawlinson from Jefferies. Please go ahead.
Hi, Jules and Richard. Thanks for taking my questions. On mining, you had a very strong second half with AUD 77 million EBIT at 11% EBIT margins, which is something we haven't seen for a long time. Any factors that should stop us from just annualizing that second half and perhaps even adding a bit of growth, given the, the Mt Cattlin win?
Look, Nick, I think you're right. It was a very strong second half out of the mining group, and, you know, those guys, guys and girls really pulled out all stops to try and recover from what was a very difficult first half. Look, I think, you know, that's probably something that, you know, is a standout. I don't know that we have all of the mechanisms in place to really bank that as being, you know, the new norm going forward. There were a number of factors that worked in our favor to allow us to get to that outcome in the second half.
I, I don't know that we'd, yeah, so look, I, I don't know that we would want to bake that in as being the new norm. Yeah, our mining group, you know, East Coast and West Coast, has had a very strong strong track record of performance and delivery. You know, I think we, we would want to continue to, to really plan for, for margins, from that group being more like the long-term norms that, that you're probably used to.
Yeah. Is that sort of an 8%-9% EBIT margin more, probably more appropriate for next year rather than in the double digits?
Look, I mean, if we, you know, if we're blessed with the right weather and the right level of volumes, as I said, the people's probably less of the issue. The weather really knocks us around, and except for the second half. We've got things like [inaudible] coming on in drill and blast.
Yeah.
That sort of... It's building up. So it's just kind of how you see it in a half-on-half basis. I mean, ideally, yes, we would like to be, and the whole point of not being successful on some bids is making sure that our, you know, that we're focusing on margin improvement across our mining business, not just spending, you know, AUD 250 million and, and, and sticking with the market, after spending AUD 250 million on CapEx. So we are trying to work on improving them, and, you know, historically, there's been various factors that have had the margins much higher. So that, that, that's all I can tell you is the focus, but as Richard said...
Yeah.
Can you bake it in right now? Maybe we want to be more conservative at this point.
Yeah. Okay. That, that's helpful. Thanks, guys. Just on that, can we talk through the margin structure in the Fimiston. contract a bit more, maybe in vague terms? Like, if you reach the target cost, which means it's effectively cost plus, is it sort of a mid-single-digit EBIT margin, or is it even higher? Then in general terms, like how, how low and how high can it go depending on productivity?
Very good question.
Not sure that we can go into a great amount of detail on, on, on that, Nick. But, but, as, as you know, and hopefully everyone understands, you know, it is, it is an incentivized target cost contract. To be really clear, we do not have fixed price exposure on this contract in a way that, that you've seen in the, in the Primero book, historically. The way that this contract works is that there's a target cost that we and Northern Star have worked together to define over the, over the course of the past, effectively 2 years, as we've worked through, the, the detailed FEED, study for the project.
The margin, the margin % has the potential to increase through the gain-sharing mechanism if we're able to bring the project in at or below the target cost. I think you could refer to Northern Star's own announcements around that. Of course, if we jointly deliver the project at a cost which exceeds the target, then there is some margin deterioration. Now, the base level of margin that's baked into the contract is, let's call it high single digits. If we overperform and deliver the project at a cost below the target, then we can add probably up to sort of 2% to that outcome.
It's a, it's a fantastic structure for us, and a really, I guess, you know, hats off to Northern Star. You know, they've, they've adopted a very mature approach to this in terms of wanting to ensure that their project can be delivered within a timeframe, as opposed to just trying to shift all the risk to the contractor and guaranteeing that they end up in a fight rather than a completed project. This structure really does provide the maximum incentive possible for both parties to deliver what is a very, very significant project, within the, you know, within the target, 3-year timeframe.
That's very helpful. Thanks, Richard. Just, just on that contract, am I right that construction doesn't start until the second half? Should we expect a bit of a 2H skew for revenue and margins, or is it sort of pretty consistent throughout FY23?
No, it'll be a bit more of a second half wait.
Yeah.
The other thing that just, just to finish off on Richard's commentary, there's also escalation built in. I think that might be a little inconsistent, potentially, with a statement made by the client, but it does have an escalation model built in. Again, we need to... You know, it's a long-term contract. We need to make sure that we're, we're not at risk, or we're not taking that risk, on our, on our project for that. Again, very, very positive and, and well-structured contract for us absolutely.
Nick, construction won't start until FY25. Over the course of, of, of this year, what we're really doing is building the engineering team, who will be doing, working through all of the detailed engineering as the construction drawings, working out the, the procurement, and, and pricing up all, all, all of that to go out to the market. It's really an engineering-led and procurement-led focus, for the first 12 months.
Yeah
... ahead of us start mobilizing to site en masse in FY25.
Yeah. Okay, got it. Just the last one from me. Can you sort of elaborate on what your plans are in the US? My understanding was that, or, or North America generally, rather, my understanding was that you'd, you'd sort of be adopting an EPCM model, but sounds like you might be considering doing some boots-on-the-ground construction.
Look, the EPCM style model or the, or the study work and of an engineering work we're doing at the moment is, is great business, you know, high margin, great business. We do have the opportunity to do more than that. Again, we would be very conscious of, of that in terms of our involvement, in the, in the IP and the intelligent part of it.
Mm-hmm.
And also being, you know, aware of, of risks. Contract structure, not, not dissimilar to a Northern Star style structure, if we ever were to enter into it. The potential clearly is there to be a construction partner. Again, if you think, you know, of what's being built in Western Australia, other than Mineral doing their own stuff, I think, you know, there's no one else that's built anything, certainly been involved in the industry as, as much as Primero has. Those are the things that we, we are considering. We're not committing to them at this point, but we certainly have those opportunities in front of us to do more than just that EPCM style model.
Awesome. That's it from me. Thanks very much, guys.
Thank you.
Thanks.
Thank you. Your next question comes from Evan Karatzas from UBS. Please go ahead.
Okay, great. Thanks. Hi, hi, guys. Clearly, you've, you've made a, you know, step change in the, in the mining margin. You know, civil sort of at, at its lows. It sort of leaves us with the, the, the METS business. Appreciate the comment in how you expect to return to that, that 6% EBIT, EBITDA margin there. Can we just go into a bit more detail, what's driving the confidence you have in returning that division to a, you know, 6%+ type EBITDA margin? You know, just given it's a, it's obviously a, a big swing or swing factor, I guess, into, into earnings.
Yeah
... for, for 2024.
Well, historic- obviously, the contract structure that we've just spoken about at length in terms of the new business that we're writing will contribute to that. RCR had some kind of one-off delays in that second, well, in that second half, which impacted obviously, margins as well. DIAB the prior year, had a lower, had a lower reporting period, but this year actually performed very well. You know, if, if you think about when we first sort of started this business, I think we were targeting with the combination of Primero and, you know, RCR DIAB, that we should have margins in excess of 7%.
Because we have a manufacturing part, which is higher margin, you know, some of the parts and, and products that we produce have a higher margin, and it was going to be diluted somewhat by the lower margin Primero style business. The contracts that have obviously impacted us are behind us in terms of that margin drag. Again, that gives us the confidence that the business, you know, has new management, has a, a completely different focus. Absolutely, we're confident of turning that business around very quickly.
Yeah. Okay. I guess the most important thing here is that the, the changes you've made in contract structure, personnel, et cetera, et cetera, means on a, you know, 2, 3 years, this work starts to ramp up. There's no reason, there's no structural reason why margins should return to that, you know, 7% top level or whatever, as, as you were saying.
No, absolutely. I, I mean, I think, you know, the contract structures we're entering in protect us. As I say, it's against escalation, you know, labor escalation, material escalation, and that we have cost target estimates. You know, we have then put people on the ground and, and, and work on our productivities. A lot of those things have been factored to, you know, what we've achieved recently. We understand the labor market, you know, we're protected in that sense. We're very focused on, you know, some of the contracts that we have that contributed, you know, poorly, as I said, are, are now out of that mix.
RCR's got a very solid book in front of it, and the things that we're seeing across, you know, not just lithium, but iron ore and, and other areas as well, in terms of, you know, tier one client engagement, make us, again, very optimistic about, about that. You know, that's where the margins of the business should be with that mix of businesses.
Yeah. Yeah, brilliant. Okay, great. Thanks for your time.
Thanks. Thanks, Evan.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. The next question comes from Matthew Chen from Moelis . Please go ahead.
Morning all. Just wanted to get your expectations for CapEx in the coming year and potentially even the year after, given, you've got some visibility in your order book. Thanks.
Thanks, Matt. Look, we don't expect to have a CapEx expenditure this year beyond sort of historical norms. You know, we're expecting FY24 CapEx, sorry, FY24 CapEx.
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Thank you. Thank you, Darcy. Apologies, not, not sure what happened there. Matt's question was around CapEx expectations for FY 2024. Basically, Matt, whilst I was talking to myself, I was explaining to all assembled on this side that we're expecting an outcome pretty similar to what we what we incurred in FY 2023. There was no major, no major new mining projects in our plan. The, the, the plan, the projects that we do have in our plan are, are, you know, smaller by size and can be managed through existing fleet. Should be pretty similar to FY 2023.
Sorry, just to clarify, it's, it's the maintenance portion that'll be similar, and no, and no requirement for the- that growth part?
A normal, a normal sort of requirement for growth part. We
Okay.
Look to improve margin where we swap out, say, hired plant for our own equipment. In terms of the, you know, the, the, the sort of maintenance CapEx, yeah, we, we tend to operate around about the AUD 80 million mark, AUD 80 million per annum mark, and we expect that to be the same in FY24.
Great, thanks. Just also interested in your comments on submitted tenders, active tenders, noting that movement from the last print. Just interested in your comments there. Thanks.
Well, I think again, as Jules said, you know, right across the business, we have a very, very full order book. So the reduction in tenders from the half to June really does in fact reflect, you know, some of the awards that we've managed to secure in the second half. You know, if you, if you look at the list from over the years, there's a significant number right across right across each of the segments. So as Jules said, there's AUD 1.6 billion of tenders still pending award. That they are really going to be, you know, contributors into FY25 and beyond. At the moment, at the moment, they're continuing to, you know, to wind their way through.
There's not, there's not very much additional coverage that we need to secure the guidance that we're providing into, into, FY24.
Similar commentary, I take it, with, pipeline, noting the kind of similar movements too?
Yeah, very, very much so. I guess probably the only other factor I would add there is that, you know, we are very, very discriminating about what we put-- what, what, what opportunities we devote our tender dollars to. There are some things in the pipeline that, you know, we've, we've, we've looked at and discarded because we know we're just not gonna bother tendering them because we don't, we don't feel we will get the returns that we're seeking. That's really, I guess, a, a reflection of the fact that, you know, we are, we are full, we are busy, we don't want to overtrade, and we're not gonna waste money tendering, tendering things just, just for the hell of it.
Great, thanks. A last one. I just wanted to clarify that there's no more fixed price contract exposure across the rest of the business now, or was that just a comment that applied to the Primero contracts in the METS business? Thanks.
Look, I think particularly, in, in the civil business, you know, we've got a track record of successfully delivering very good margins out of fixed price projects, and, and particularly around the smaller end of things, you know, AUD 20 million to AUD 100 million scopes. That's something that we've done a lot of historically, and something that, you know, particularly in the civil segment, we're, we're very accustomed to. Those are not, you know, how to put it, big, big rolls of the dice. That will continue to be a feature of, of, of that part of the business, and that really is just business as usual for us.
What we're not gonna do is we're not gonna take, you know, the, the, the, the challenging, complex risks, building a process plant, you know, particularly like a, a Primero style, you know, chemical processing plant on a fixed price basis. That, that just is not going to occur. We, we will continue to take fixed price risk where it's normal for us, where we've done it historically, and where we've got very experienced personnel continuing to deliver that portfolio. We are not gonna do it where, where it involves us stepping out, you know, beyond what has been our, our long-term historical comfort zone.
Great. Thank you. That's helpful. Just final one, in terms of, thoughts around capital management framework. Any potential changes given the strong cash upper end of record payouts? Thanks.
Look, I think we always like to, always like to, give ourselves a bit of flexibility. If you look at, you know, the performance of the business over, over the past five or six years, you know, we, we have been very acquisitive. We continue to, to look at opportunities regularly, where they make sense for us to, you know, to step out and expand our capacity and continue our diversification. So I think, you know, we, we always wanna be in a position where we have the capacity to act and act quickly if we see the right opportunity. I think we will always have an approach where, where we've got, enough, enough wiggle room to move, and, and that's what our current balance sheet certainly gives us.
Thanks. I appreciate your time and comment. Thanks, Matt.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Pemberton for closing remarks.
Okay, thanks very much for listening, everybody, have a great day, and we look forward to seeing you all soon. Cheers. Bye.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.