Mitchell Services Limited

us today. My name is Alan Chan from Bridge Street Capital, and today we are here to host Mitchell Services' half-year result for 2025. I have with us today Nathan Mitchell, who is Executive Chair, Andrew Elf, CEO, and Greg Sotala, CFO. If you could please put any questions in the Q&A and I'll address them at the end. But over to you, Andrew and Nathan and Greg to start. Thank you.

Thanks very much, Alan and team, and thanks for the introduction and welcome everyone and appreciate the interest. Obviously, we recently had an update call with our quarterly, so there's certainly the half year is out, but no real surprises from what's already been put out there. So we'll do a quick run through and then open it up for questions and certainly welcome any questions at the end of the presentation. So I'll just move straight to slide four, market profile, and take the disclaimer as being read. Slight movement in holding for Mitchell Group there, obviously, Nathan and his group, just on the basis of a little bit of market buyback in recent times and also some direct purchases on market as well. And as everybody would know, that buyback's on foot. And I think financial year to date, we're probably up around the half a million mark. Just on slide five, As I said, no surprises here in regards to anything we haven't already said. But again, even though the half isn't as good as we would want it to be for various reasons, still some good operating cash flow coming through, gross debt down that Greg will talk to. And obviously, we've invested into the right places in the business. And as I said, that buyback is on foot. And is it about that half a million dollar mark? Importantly too, from a safety perspective, no material safety incidents for the half and our safety performance across the business remains very strong. Just from an overview perspective, you know, following on from the high level of safety, you know, high level of customer service, all of our major contracts that were expiring have been re-won either through a tender process or direct renegotiation. And I think the annual customer survey we complete every year has come in and show some wonderful results. So I think certainly we're We're doing the right things day-to-day for our clients, which is important. From a market perspective, obviously, there's a lot of commentary out there from others such as IMDEX that have already come out and et cetera about the market, but certainly existing producers is stronger than exploration, which remains relatively soft, but we can talk to the market in question time. From a revenue stream perspective, You know, again, no major changes sort of from when we sort of spoke to everybody last time. You know, majority of that revenue coming from the global mining majors, you know, split half-half surface underground, a good exposure to gold of about 40% with gold at record levels and 80% of our revenues generally from production development and resource definition or from work that we conduct on mine sites. Importantly, the balance sheet, I can't stress this enough that the good work that has been done, that certainly held us in good stead through a half like this where we've had to invest in the business. So we can certainly talk to that more as we go through Greg's slides and then again in question time. But that really has given us some good optionality from a business perspective. Operationally, again, we've spoken previously about a reduction in utilisation. And again, the Grove and a Fire event that occurred on the 1st of July We have got those three rigs still stuck underground there. No issues with insurance if it does come to that. So that's a disappointing one, but really out of our control. The mining industry, corporate activity, obviously, Anglo Peabody pending. We'll wait and see what happens there. So, you know, activity levels at Anglo are probably a little bit different to what they have been given the pending transaction. And, of course, the rain events, which occurred sort of in that first half, but, you know, we just sort of had a bit more rain come through in January, start of February as well in the second half. Importantly, down the bottom there, we talk about what we have invested into, and I think this is starting to look pretty good. P&G, the global mining major, those rigs are on site, crews are on site. GM of Peatland Risk is there this week conducting some cultural training sessions. And we're hoping to drill in the next couple of weeks. So that's a really good one for us. Secondly, the surface to inseam organic entry into that market has been completed, which is a bit of a milestone for us. It's the first project we've undertaken in that space since Mitchell Services came into the market back in sort of 2013 or thereabouts. And it's a type of drilling that Nathan invented back in the day. Highly specialist with good margin, but obviously a cost to get going and get into it. And then lastly, the decarbonisation opportunity. Really what we saw there is that developed faster than we anticipated. We incurred the cost to ramp up in the back end of the half and then move into site as we speak to start drilling. So we expected those expenses to be all in H2 along with the revenue, but it's sort of gone a bit quicker there. than what we thought, which is a positive thing. So just moving on to the next slide and updating everybody on that. That loop business, it's obviously a 50-50 JV between Mitchell Services and Talisman, which is a technical services provider. The loop business will provide initial feasibility and engineering work right through to drilling gas drainage and well management, et cetera. Our first customer contract signed, sealed, delivered, and the rig is moving to site as we speak, just delayed a little bit by some wet weather. And our second customer, again, signed up and we're in that initial feasibility stage with a potential to drill towards the end of this calendar year. So I think, you know, if you said to me, where do I think that business is versus where I thought it would be, we're definitely ahead. And there's a lot of customers lining up behind these initial two. And I certainly think that we're operating in a positive way when it gets there and gets going. will be transformational for this Loop business and certainly going to be a big part of our growth story as we move forwards. I won't go through the next two slides just talking about what Loop is in detail, but it's a decarbonisation business managing the fugitive emissions legislation that's been released by the government. where people will be taxed if they don't reduce their emissions. And we're effectively helping surface coal miners, open pit coal miners reduce their emissions. But we're happy to take questions on that at the end of the presentation. I'll hand over to Greg to go through the financial slides.

Thanks, Andrew, and good morning, everybody. I think from a profit and loss perspective, there's not a lot that hasn't already been extensively covered by Andrew in his commentary, but really just to summarize, temporary reduction in utilization levels driven by those key factors, namely Grosvenor, wet weather. and corporate activity at a client level have driven a temporary reduction in utilization combined with accelerated levels of ramp up positively in relation to new contracts and new service offerings, most notably P&G services. and the decarbs. So those really are the main drivers for the period on period reduction in EBITDA and earnings. And then that's very much a similar story from a return on invested capital perspective, just the lower EBIT numbers driving the lower return on invested capital numbers. Probably worth noting, though, just in terms of the the denominator in that calculation, you know, the capital base, the PPE, reducing from 73 million to 67 million. That's a positive in terms of the return on invested capital. And to the extent that EBITDA and EBIT does increase in the second half of 25, as well as 26, that lower capital base is favorable from a return on invested capital perspective. And we'd hope to see a corresponding increase there. From a balance sheet perspective, just worth noting that the overall net asset position, that reduction of circa $7 million, really a result of the final FY24 dividend that was paid in the period, as well as payments in relation to the ongoing share buyback. From a net working capital perspective, no real increase or change in position in terms of that overall net working capital number. You can sort of see their receivables and payables decreasing really as a result of the lower utilization and revenue. And then offset to an extent by the increase in inventories of approximately $4 million. And that increase is really, you know, purchases for inventories in anticipation of that new work starting. So new work in P&G, the decarbon and other new service offerings as well. As we've said many times before, no intention to raise equity for any reason. And as Andrew mentioned earlier, the significantly improved balance sheet, a strong balance sheet, provides optionality, whether that be to take advantage of potential future opportunities or even just to navigate these lower levels of utilization currently very comfortably. Just looking at the cash flow performance over the last six months, obviously the lower earnings, as we spoke to earlier, the main driver for the lower cash generated from operations. Worth noting that the EBITDA to cash conversion ratio is still relatively strong at 85%. And then important to note there, the cash interest has essentially halved from 700 grand to 300 grand period versus period. And that's really a function of the significant debt reduction over the same period. As we've said before, still no obligation over the last six months to pay any level of cash income tax. And that's really a function of having benefited from the instant asset write-off program that was in place sort of post COVID. and the associated tax losses from that program. Worth noting that those tax losses have now, based on the final FY24 tax return, essentially been fully utilized. And so, as we said before, sort of, you know, back end of 25 will be the point that that turns around and the business does become cash tax payable again. Looking at slide 16, just a summary of the debt profile and the debt position, very much in line with expectations. Net debt has increased slightly from circa 2 million in June to 6 million in December. And that's really, again, just a function of the final dividend payment as well as the ongoing share buyback payments. Very importantly, gross debt is now at the lowest level since June 2019, having decreased from 18 million to 12 million June to December. That gross debt is entirely equipment finance facilities in relation to finance leases over equipment. all taken out at fixed interest rates. And that blended at cost of interest in terms of that fixed interest currently sort of six and a half percent. The last two points there really just elaborate on our earlier comments around the strong balance sheet and the optionality it provides. The business has got access to a further $15 million worth of working capital currently undrawn. as well as an additional circa $20 million headroom in that equipment finance facility. So, you know, combined with the drawn level of $12 million, there's circa $50 million capacity there to take advantage of some of these opportunities that may arise. And finally, from my perspective, just having a look at the capital expenditure, capital expenditure for the first half was circa $10 million, very much in line with first half 24 and largely a result of the continued capital management strategy to continue to apply sensible limits to capital expenditure where it makes sense. I think to the extent that CapEx in the second half is limited to maintenance CapEx, we can expect to see full year 25 CapEx largely in line with 24. But the caveat to that statement, I suppose, would be to the extent that some of these growth opportunities continue to increase. To have success, pointing to probably DCARB would be the obvious one there. So to the extent that there is growth capex required for some of those opportunities, that may cause that to change. But again, to the extent that it's maintenance capex, it should very much be in line with what we've seen in the past. I'll hand back to Andrew now.