Mitchell Services (ASX:MSV) FY20 results & outlook

Interviews

by Rachael Jones

Mitchell Services Limited (ASX:MSV) CEO Andrew Elf provides an update on the company's FY20 results, its strategy of becoming Australia’s leading drilling services provider and the robust state of the mining sector. 

Rachael Jones: Hello. I'm Rachael Jones for the Finance News Network. Joining me from Mitchell Services (ASX:MSV) is CEO Andrew Elf. Andrew, welcome back to FNN.

Andrew Elf: Yeah, good morning. And thank you for having me on.

Rachael Jones: Now, Mitchell Services is a leading provider of drill rigs to the mining industry. What can you tell us about that?

Andrew Elf: Mitchell Services now has about a hundred rigs in the fleet, and we have sort of 70+ rigs running. There's over 700 people in the business. We work surface and underground in different types of drilling, in various different commodities. And in FY21 approximately 50 per cent of our revenue will come from the gold sector.

Rachael Jones: Well, now let's talk about your financial year 2020 results. What were the financial highlights?

Andrew Elf: We had another fantastic year, and I think, most importantly, we proved the quality of our business model in the middle of a global pandemic. The pandemic hit in March, but we still achieved our guidance revenue and EBITDA. So, in excess of $175 million revenue and strong EBITDA as well. So, I think continued growth year on year. We completed our earnings acquisition in November 2019, and that traded for seven months of the last financial year, and will trade for a full 12 months this year. And again, I just think a testament to the quality of the business and the team that we achieved those guidance numbers in such tough times.

Rachael Jones: And how are things for you operationally?

Andrew Elf: In FY20, there were 67 rigs, on average, operating through the year, delivering that $175 million in revenue. Our first quarter results that we released for FY21 showed over 70 rigs working. So I think we've delivered strong cash, a good conversion rate of cash to EBITDA, and debt to EBITDA is reducing. It's less than half debt to EBITDA. So, I think, all in all, the business is performing safely, efficiently and really putting out some good cash. And I think we really are in the best place we've ever been as a business.

Rachael Jones: And now, let's talk about strategy. You've spoken previously about being Australia's leading drilling services provider. What does that require?

Andrew Elf: Look, I think the diversity that we have is critically important. We're working in different commodities and different states, different clients, different types of drilling, various types of specialty drilling, whatever that may entail. But I think also the type of customers that we've targeted is critically important and talks to that quality of the business model that I spoke about earlier.

Approximately 90 per cent of our revenue comes from global tier one mining companies that are working on tier one, low in the cost curve assets, and that's where we're working. And they're the sites that operate through the cycle, and they're going to need drilling through the cycle. And again, they're positive cash producing mines and they got good budgets, and we've purposely set the business up to work for those clients and have a good, strong, sustainable business through the mining cycle.

Rachael Jones: And what are the funding requirements?

Andrew Elf: We are in a good place from a funding perspective. We've got great support with NAB, and they've got a facility with headroom in place for capex. And, again, the balance sheet is in very good shape. You know, debt to EBITDA is sort of half. We are covered by Morgans, and they've got us pencilled in for EBITDA, probably just under 40 million this financial year.

So, I think, with good debt to EBITDA, with access to additional funds, I think certainly as a business, we're in a great position to take advantage of either organic growth opportunities, if we want to buy more rigs or potential acquisitions, if they do come along. Or alternatively, we've also paid, fully franked special dividends the last two years. The board will make a decision on that, depending on what happens in the year ahead.

Rachael Jones: And to the last question now, Andrew. What is the outlook for financial year 2021?

Andrew Elf: Look, I think, to be honest, the market's in the best shape I've seen it since 2012. I've just recently got back from the Noosa Mining Investment Conference, and certainly very buoyant up there compared to previous years. Capital raisings are up. That money is going to start going into the grounds next year. Gold, in terms of price and other commodities, especially with the Australian dollar.

So, we've got capital raisings happening, strong commodity prices. You're going to have stimulus coming on in the world with people wanting to get economies moving again and employment increased. And all in all, I think grades are decreasing, reserves are decreasing at the same time. So, I think all of those things together will combine in the time ahead. And I think we've got a really good couple of years ahead of us, at least as an industry.

Rachael Jones: Andrew Elf, thanks so much for the update.

Andrew Elf: Thanks for having me. Thank you.


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