Annual Report 2019 Corporate Glossary Directory of Terms DIRECTORS EBIT Earnings before net interest E Skira (Non-Executive Chair) expense and tax expense V Vella (Non-Executive Director) A Ramlie (Non-Executive Director) EBITDA Earnings before net interest expense, tax A Sidarto (Non-Executive Director) expense, depreciation and amortisation COMPANY SECRETARIES EV Enterprise value, being market G Gettingby capitalisation plus net debt K Nadebaum Gearing Net debt or (Net cash) / Equity PRINCIPAL REGISTERED OFFICE 15 Hudswell Road LTIFR Lost time injury frequency rate Perth Airport Western Australia 6105 TRIFR Total recordable injury frequency rate Phone: +61 (08) 9232 1000 NPAT Net profit after tax Fax: +61 (08) 9232 1001 NTA Net tangible assets LOCATION OF SHARE REGISTRY Computershare Investor Services ROC Return on capital – EBIT/Average Capital Pty Ltd employed, where capital employed is total Level 11, 172 St Georges Terrace tangible assets less payables less bank overdraft Perth Western Australia 6000 ROE Return on equity – NPAT/Average net assets SECURITIES EXCHANGE ROA Return on assets – NPAT/Average assets Macmahon is listed on the Australia Securities Exchange with an ASX Note: Refer to Summary of Consolidated Reports (page 118) for code of “MAH”. reconciliation to underlying results. AUDITOR KPMG 235 St Georges Terrace Perth Western Australia 6000 OTHER INFORMATION Macmahon Holdings Limited ACN 007 634 406, incorporated and domiciled in Australia, is a publicly listed company limited by shares. MACMAHON ANNUAL REPORT 2019 Contents 2 About Macmahon 4 Macmahon Capabilities 6 Letter from the Chair 8 CEO’s Report 10 Operational and Financial Review 36 Directors’ Report 44 Auditor’s Independence Declaration 46 Remuneration Report 58 Financial Statements 111 Directors’ Declaration 112 Independent Auditor’s Report 118 Summary of Consolidated Reports 120 ASX Additional Information 1 MACMAHON ANNUAL REPORT 2019 About Macmahon Macmahon is an ASX We seek to develop strong listed company that relationships with our clients has been offering in which both parties can work mining and construction together in an open, flexible services to clients for and transparent way. more than 50 years. Our approach to doing business, together with our capabilities in surface and underground mining, civil design and construction, performance enhancement, mine site maintenance and rehabilitation services, has established Macmahon as a trusted partner on resources projects throughout Australia and internationally. 2 MACMAHON ANNUAL REPORT 2019 About Capabilites 12 13 11 Chair the Letter from 14 Report CEO’s 3 26 9 Financial Review and Operational 8 Report Directors’ Zimbabwe 37 23 Botswana 10 Mozambique 24 16 5 31 32 28 29 7 Declaration Independence Auditor’s 27 • 30 Johannesburg 22 2 South Africa 15 21 35 17 33 19 21 • Durban 4 1 34 36 6 Report Remuneration 20 18 Our Statements Financial Operations Declaration Director’s Offices Surface Mining Underground TMM Group 1 Perth 8 Argyle Mining 27 Norwich Park Auditor’s Report Auditor’s Independent 2 Brisbane 9 Batu Hijau 18 Ballarat 28 Peak Downs 3 Jakarta 10 Byerwen 19 Boston Shaker 29 Poitrel 4 Kalgoorlie 11 Kanthan 20 Fosterville 30 Rolleston 12 Langkawi 21 Granny Smith 31 Saraji Workshops 13 Lhoknga 22 Leinster 1 Perth GBF Underground 14 Martabe 23 Mt Wright 5 Coppabella 32 Bartons 15 Mt Morgans 24 Nifty of Reports Summary 6 Lonsdale 33 Comet Vale 16 Telfer 25 Olympic Dam 34 Daisy Milano Performance 17 Tropicana 26 Tujuh Bukit 35 Deflector Enhancement 36 Maxwells 7 Mogalakwena Information ASX 37 Nicolsons 3 MACMAHON ANNUAL REPORT 2019 Macmahon Capabilities Macmahon has more than 50 years’ experience in surface mining, more than 20 years’ experience in underground mining and has the ability to offer a broad suite of mining services. SURFACE MINING EQUIPMENT MAINTENANCE Our surface mining division operates & MANAGEMENT in Australia and overseas, offering a Macmahon offers a complete broad suite of services including: equipment maintenance and management support service for • Mine planning and analysis a wide range of modern mining • Drill and blast equipment. Our facilities in Perth, • Bulk and selective mining Adelaide, and the Bowen Basin • Crushing and screening provide Macmahon with the ability to: • Fixed plant maintenance • Water management • Service and maintain equipment, • Equipment operation and rebuild components, and maintenance complete repairs in-house and on demand UNDERGROUND MINING • Rapidly and efficiently deploy Macmahon has a growing and highly supplies to customer locations experienced underground division • Train and employ a range of which specialises in high quality experienced tradespeople for underground mining and engineering rapid deployment to remote sites services. These services include: PERFORMANCE ENHANCEMENT • Mine development Macmahon offers an advisory and • Mine production operational improvement service • Raise drilling which can provide mine owners • Cablebolting with the benefit of our contracting • Shotcreting skills and experience at owner-miner • Remote shaft lining operations. This service can include: • Production drilling • Shaft sinking • Operator coaching and training; • Cultural change programs for CIVIL & REHABILITATION employees; and Macmahon, via its wholly-owned • Advice and assistance with subsidiary TMM Group, offers a wide mine planning, maintenance and range of design, civil earthworks, employee engagement. mine rehabilitation and closure services to mine owners including: • Topsoil and overburden stripping • Bulk earthworks • Road design and construction • Train loading facilities • Water infrastructure - dams, creek diversions, flood levies, and drainage structures • Revegetation • Rehabilitation monitoring and maintenance 4 Letter from CEO’s Operational and Directors’ Auditor’s Independence Remuneration Financial Director’s Independent Summary ASX About Capabilites the Chair Report Financial Review Report Declaration Report Statements Declaration Auditor’s Report of Reports Information 5 MACMAHON ANNUAL REPORT 2019 REPORT ANNUAL MACMAHON MACMAHON ANNUAL REPORT 2019 Letter from the Chair Dear Shareholders, Financial year 2019 represented another positive year of progress for Macmahon, with the Company growing revenue and underlying earnings as we delivered on our pipeline of work and enhanced our service offering. Our financial results were in line with We are in the process of recruiting As we are now in a solid financial guidance, with revenue of $1.1 billion, new Independent Directors as a key position with good medium term up 55% on FY18, and underlying priority. To assist us in this process I’m revenue visibility, the Board has EBIT of $75.1 million, up 81% on FY18. pleased to acknowledge the recent adopted a new capital allocation reappointment of Mr Vyril Vella as policy. This policy is designed to As always, our safety performance an Independent Non-Executive balance the priorities of retaining continues to be a critical focus area Director. Mr Vella has a long history balance sheet strength, having the for the Board and management with Macmahon and brings a wealth flexibility to fund new and existing team. It was therefore deeply of knowledge and experience to projects, and returning cash to upsetting that one of our employees the Company’s Board. We intend to shareholders. Accordingly, I am in Indonesia was fatally injured in an make further appointments and will pleased to report the Board has incident at the Batu Hijau project announce them in due course. elected to reinstate dividends to in March. Our thoughts are with shareholders by approving the the family, friends and colleagues Subsequent to year end we payment of a final dividend of 0.5 impacted by this tragedy. completed our acquisition of the cents per share for FY19. GBF Group, which has an enviable The past year has seen significant track record in Western Australia Finally, on behalf of the Board and change in the Macmahon Board. as a leading underground mining senior management, I would like In June this year, Non-Executive company. I would like to welcome to extend our appreciation to all Chairman, Mr Jim Walker, and GBF Group founders Michael Foulds employees, shareholders, clients and Non-Executive Director, Mr Kim and Ross Graham and their broader suppliers for their ongoing support. Horne, unexpectedly resigned from team to Macmahon, and we look the Macmahon Board. I would like forward to realising value through to take this opportunity to thank enhanced scale and capability in both Mr Walker and Mr Horne for underground mining. their contributions to the Company. Macmahon’s underlying business remains strong and our strategy, EVA SKIRA which has delivered strong growth Independent Non-Executive Chair in recent years, remains the same. As a result Macmahon is well positioned for growth heading into FY20. 6 Letter from CEO’s Operational and Directors’ Auditor’s Independence Remuneration Financial Director’s Independent Summary ASX About Capabilites the Chair Report Financial Review Report Declaration Report Statements Declaration Auditor’s Report of Reports Information 7 MACMAHON ANNUAL REPORT 2019 REPORT ANNUAL MACMAHON I would like to extend extend to like I would all to appreciation our shareholders, employees, for and suppliers clients their ongoing support. MACMAHON ANNUAL REPORT 2019 CEO’s Report 2019 was a successful year for Macmahon. We delivered another outstanding financial result, with underlying earnings within guidance due to the ongoing delivery