Qoria Ltd

Good morning, everyone, and thank you for joining us this morning. My name is Alan Chan from Ridge Street Capital Partners, and today I'm here to host Mitchell Services for their four-year results for FY25. The webinar has been recorded, and we'll have time at the end of the presentation for Q&A, so we'll put the questions in there and I guess at the end. Today we have CEO Andrew Elf and CFO Rex Tyler to present their results. Andrew, over you, thank you.

Thanks very much for the introduction, Alan, and thanks very much everyone for joining us. I'll take the disclaimer as being read and just move straight to the market profile slide. Sadly, Nathan can't be with us today. He's just travelling. So it's just Greg and I, but certainly happy to obviously take questions as Alan said at the end of the presentation. And Nathan, our major holder there, 19.9% Mitchell Group and Scott Tunbridge, the founder of Deepcore that was acquired in 2019 at 7.6%. And then obviously still a good percentage of instos and then obviously retail investors after that. On the summary page for 25, obviously a tougher year financially for many reasons that we'll discuss as we go through the presentation. But importantly, I think the business is doing a very good job controlling what it can control. And certainly, you know, our focus moving into the current year is improving that net profit after tax number. So in overview, look, it was a transitional year. We had a quarterly call in recent times. So there's not a huge amount of surprises in what's been released today. But it was a transitional year as we replaced, you know, utilisation with projects that we want. And importantly, you know, we re-won all the major contracts that were expiring in FY25. certainly talks to the good job that the teams are doing. And 26, pleasingly, we enter the year in 26 with mobilisations and ramp up and a lot of that investment and spending behind us and those jobs that we have won are starting to deliver some returns to the business. Importantly, there is significant leverage that exists within the business when utilisation normalises and we'll talk to that more as we go through this presentation. But again, just the quality of the business and who we work for, you know, majority of that revenue from the global mining majors. Our revenue is split 50-50 surface underground. You know, gold is sort of 45% of revenue and looking positive given its price in the year ahead. And a majority of our revenue is generated from mine sites, you know, near mine type work. And importantly, the very good work that's been done over the last few years to strengthen our balance sheet certainly gives us optionality and held us in good stead throughout the last year. Operationally, the utilisation that was down was due to a number of factors, some of which are very much out of the business's control, including some client incidents and mining corporate activity, predominantly mining. Anglo Peabody and Newmont Newcrest. The rain has been quite amazing over the last year or so. And again, some challenges in that coal sector just with lower prices and corporate activity. But the new projects are a real positive and I think the team has done a wonderful job to win them and then to execute on them accordingly. The P&G work is going really well and the client is extremely happy that project is performing really well. As we would expect, the Loop business, which I'll talk about in a minute, has completed its first project and proven the concept. And we've got a second client underway now, which is fantastic. And then a couple of multi-rig, multi-year contracts, underground surface with large miners as well that have been mobilised and are performing well. We've put a slide in here just talking to operational history, obviously the leverage, the upside that does exist in this business when utilisation normalises. We really did demonstrate that in 23, 24, and you can see the number of shifts there. Obviously with some of those mines having challenges and rain and other things, that shift count dropped, as did the earnings in the current year. But obviously, if we can increase that shift count, get more rigs out, we've shown we can do it. And certainly the business does generate some very good cash when that utilisation and that leverage plays out. You know, that net debt has decreased significantly over recent years. We have returned significant funds to shareholders. And again, the fleet's in great shape. We've got a good team, good clients. And, you know, gold is strong. The coal price is bouncing back a little bit, you know, and the Peabody have said they're not going to progress with Anglo. So, again, the balance sheet gives us optionality. We've done it before, you know, and this is an important slide to show that, you know, we're focused and we're going to do everything we can to try and improve those earnings in the current year ahead of us. So just touching on the Luke business a little bit more, as it says there, it's a 50-50 JV between Mitchell and Talisman. And it was established in 2004. And that business offers end-to-end decarbonisation solutions to companies in a variety of sectors. And really it's about decarbonisation strategy, emission reduction pathways, including financial and carbon modelling. So a lot of that front end type work, a lot of operational readiness and engineering work, health and safety work, systems and program approvals. So there's a lot more to this business than just drilling. Obviously there's a lot of liaising with government bodies for funding, assisting people with regulatory submissions and peer review of other EOS submissions that the companies have put together that Luke would review too. Certainly, it's got quite a lot of things it does. Obviously, since it started, its primary focus has been on mining operations and predominantly linked to the reducing fugitive greenhouse gas emissions under the federal government's safeguard mechanism legislation. And really the focus has been on the coal sector in that regard. So a lot of gas reservoir characterisation and gas production modelling, in-field gas operations, including but not limited to gas and gas drainage and gathering and other sort of proprietary technical solutions that we've proven on the first project. and potentially in the longer term, beneficial use and offtake opportunities for gas on some of those client sites with business partners that may be specialists in some of those areas. So it's obviously completed a successful trial program with its first client. The second client has been secured and we're going through some of those front end phases with them at the moment. and hopefully out in the field towards the end of this calendar year or early next year. So this business does represent a very strong growth opportunity for the business. It's ahead of where we thought it would be. We're excited about it. The first project went really well, but it is a new sector. It will take time and it's not going to happen overnight. So, you know, we've got to keep chipping away and then hopefully over time, you start playing out more for the company. So I'll hand over to Greg to sort of run through some of the financials and then we'll get on to some of the other slides at the back end.

Thanks, Andrew. And morning, everyone. From a profit and loss perspective, there's not much that hasn't already been covered by Andrew, to be honest, with that decrease in profitability attributable to the lower utilization, as well as those investments into replacement projects. Importantly, all ramp up and mobilization associated with those projects is complete and the business enters FY26 with clear air and on a ex-mobilizations basis. From a return on invested capital perspective, obviously that lower number is driven by the lower EBIT. But it is worth noting there just the lower asset base as well, FY25 compared to FY24, which then should translate into stronger return on capital numbers upon normalization of earnings. Looking at slide 14, the balance sheet, the overall net assets number decreased. You can see there largely a result of the modest FY25 impact number, as well as the $4.3 million dividend payment, which related to final dividend for FY24. Also as flagged in the most recent quarterly update, working capital has increased mainly as a result of increased inventories. to service new projects, but that now should begin to normalize as those projects commence and with mobilizations behind them. There's a later slide in the pack that outlines the company's debt position, which I'll run through in more detail. But fair to say the balance sheet is in good shape with optionality to capitalize on opportunities as they present. And we make the point there that there's no intention to raise equity for any reason. From a cash flow perspective, the lower earnings and increased working capital requirements obviously drove the lower operating cash flows and conversion rates for the year. Noting the earlier comments around the normalization of that working capital, we do expect conversion rates to improve. into FY26. The significant reduction in interest payments there was a result of the decrease in gross debt and there were no income tax payments just given the legacy tax loss position largely as a result of the instant asset write-off. Worth noting, however, that those legacy tax losses have now been fully utilised and the company will commence income tax payments in FY26. So slide 16 really talks to the earlier comments around the balance sheet being an excellent position. That gross debt now is the lowest level that it has been since June 2015 and comprises entirely of equipment finance facilities with a blended average cost of debt of sub 7%. And importantly, and these sort of comments just tie into what we say earlier about the flexibility and the balance sheet to provide optionality, we've got access to $15 million worth of working capital facility, as well as an additional $20 million in headroom in the equipment finance lines there as well. Finally, from a capital perspective, the business remains committed to applying sensible limits on growth capex where it makes sense to do so. And you can see there that the majority of the FY25 capex really related to the maintenance capex. which is required to support the high level of equipment availability. We make the point there as well, we'll continue to monitor the size and composition of the fleet. And if and when it makes sense to do so, have a look at opportunistic asset sales, which has served the business well in previous years.