Mitchell Services (ASX:MSV) management highlighted a sharp improvement in first-half performance, stronger cash generation, and a return to a net cash balance during the company’s half-year results call hosted by Bridge Street Capital Partners. CEO Andrew Elf and CFO Greg Switala also pointed to improving demand conditions—particularly in gold and copper—while noting coal drilling remained subdued but showed early signs of recovery.
Operational performance and market backdrop
Elf said the company delivered the half’s result with “business as usual” operations after a prior period that included ramp-up and ramp-down activity tied to changing contract scopes and mobilization into new work. He added that improved weather conditions versus the prior year supported operational execution.
On end markets, Elf said about 80% of revenue comes from global major miners and their respective mine sites. He also noted the company’s work is split roughly evenly between surface and underground drilling, and said gold represents about 60% of revenue. Coal was described as subdued in the first half, though management pointed to “green shoots,” some increased inquiries, and coal price increases as potential catalysts for improvement.
Asked about Anglo and the Grosvenor site (referenced as part of issues experienced last year), Elf said the customer was working toward normalizing operations and that the company remained hopeful it could partner again as operations recover, while noting clients “keep their cards pretty close to their chest.”
Financial results: earnings rebound and strong cash conversion
Switala attributed the improvement in earnings to better operating conditions and “disciplined cost control.” He reported EBITDA of AUD 21.4 million, up from AUD 12.7 million in the prior comparable period, with net profit after tax of AUD 8.1 million compared with a small loss in the prior half.
The CFO said results included a non-cash impairment of approximately AUD 1.4 million related to equipment destroyed in a December bushfire in Western Australia. He said the assets are fully insured, but accounting standards require the insurance recovery to be recognized only when the claim becomes unconditional—an outcome the company expects in early second half.
Switala also noted structural improvements from earlier periods, with depreciation and interest continuing to trend lower due to capital discipline and balance sheet repair. He reported return on invested capital of 27% for the half, compared with a negative return in the prior first half, describing this as a meaningful improvement and indicating ROIC has steadily risen over several years to a level above the company’s cost of capital.
Cash flow was a key focus. Switala said operating cash flow was AUD 20.8 million, almost double the prior period, and represented a 97% cash conversion ratio even after tax payments. Excluding tax payments, he said operating cash exceeded EBITDA due to improved earnings and tighter working capital management.
Balance sheet, leverage, and capital allocation
Switala said Mitchell closed December with net cash of AUD 7.2 million and reduced gross debt further during the half. All interest rates remain fixed at a blended cost of about 6.8%, according to the CFO.
He added that the company has access to a AUD 15 million undrawn working capital facility and “significant headroom” under existing finance facilities, providing flexibility to support working capital needs, growth opportunities, and shareholder returns. Switala also emphasized the company’s capital discipline and said there was “no intention to raise equity.”
Capital expenditure during the half was described as largely limited to essential maintenance, with higher investment in the prior period reflecting mobilization into new contracts during FY2025.
Margins and trading conditions
In Q&A, management was asked about the sustainability of margins after a first-half result described as having a 20% margin. Elf reiterated that a 20% EBITDA outcome is the company’s goal, but noted several factors can shift margins, including wet weather (which can create standby time) and the upfront costs that can come with new contract wins. Still, he said that with projects “up, running, operating,” “there or thereabouts is a reasonable assumption,” while cautioning that conditions can change.
On trading early in the second half, Elf said January and February were “better than usual” and better than last year, citing less wet weather so far. He also referenced the expected insurance claim recognition in the second half. He added the company remains disciplined on pricing and is willing to forego work if pricing is too aggressive, pointing to idle rig capacity as evidence of a “less is more” approach.
Loop decarbonization business and growth priorities
Elf and management also discussed “Loop,” the company’s decarbonization business, which they linked to Australia’s Safeguard Mechanism legislation. Elf said Sumitomo’s investment valued Loop at AUD 24 million. He noted a pilot project was completed successfully last year and that another project is expected to begin in the next couple of months. He also highlighted a contract executed for “full in-field management” of a decarbonization project, describing a turnkey offering spanning modeling, drill planning, drilling, gas draining, gas gathering, and model updates.
When asked about Loop’s pipeline, margins, and timeline to scale, Elf said the business is still a startup and it is “too early” to provide definitive financial targets. However, he characterized Loop as technically complex and specialized work that tends to command higher margins than more commoditized drilling. Management also said it does not expect issues accessing rigs if Loop requires them.
Executive Chair Nathan Mitchell addressed capital management and dividend approach, describing four “pillars” the board considers: dividends, buybacks, growth, and debt reduction. He said the company “pulls on each” depending on conditions, including share price and growth opportunities, and said decisions would be revisited at each half-year point.
On acquisitions, Mitchell said the company continues to assess opportunities but that there were “no acquisitions on the table at the moment,” with a current emphasis on internal growth.
About Mitchell Services (ASX:MSV)
Mitchell Services Limited, together with its subsidiaries, provides exploration and mine site drilling services to the exploration, mining, and energy industries in Australia. The company's drilling services include greenfield exploration, project feasibility, mine site exploration and resource definition, development, and production. It also provides coal exploration, mineral exploration, mine services, underground coal drilling, and drill and blast services. The company was formerly known as Drill Torque Limited and changed its name to Mitchell Services Limited in December 2013.
