Release Date: July 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mitchell Services Ltd (ASX:MSV, Financial) has a strong balance sheet, having reduced net debt from over $40 million to $1.9 million.
- The company has successfully re-won all necessary contracts and secured new wins, with seven rigs set to be mobilized between now and November.
- Operating cash flow has been strong, allowing the company to return significant funds to shareholders through dividends and buybacks.
- Mitchell Services Ltd (ASX:MSV) is exploring growth opportunities in the decarbonization business, which is gaining traction.
- Commodity prices, particularly for copper and gold, remain strong, providing a favorable market environment.
Negative Points
- Quarter-on-quarter comparison between FY23 and FY24 is challenging due to a large amount of specialty work completed in FY23 that was not repeated in FY24.
- The market remains choppy, with rig and shift counts slightly down, reflecting cautious client behavior despite favorable external conditions.
- The company is in a holding pattern with some clients, such as Anglo, due to operational issues like gas problems and fires, which could impact productivity.
- Labor availability and wage increases remain a concern, although the impact is currently minimal.
- The competitive environment is flattening, with some competitors disappearing, but the market remains strong and competitive.
Q & A Highlights
Q: When will the new contract wins be completed such that we should expect utilization to start trending upwards from the current levels?
A: We've flagged in the last couple of quarterlies that rig count and shift count are slightly down. We haven't lost any contracts and have re-won all necessary ones. There are seven rigs expected to go out between now and November, indicating positive movement forward. - Andrew Elf, CEO
Q: What is the impact of the Anglo asset sale process on life and productivity measures to be drilled?
A: If someone buys the assets and operates them on the same basis, we wouldn't expect significant changes. The new owner might even be more aggressive in drilling. We're currently in a holding pattern due to gas issues on-site. - Andrew Elf, CEO and Nathan Mitchell, Executive Chairman
Q: Can you provide an update on contract wins or pipeline status?
A: We've had a couple of good wins, with seven rigs (four surface, three underground) mobilizing between now and October. The pipeline remains strong with multi-year, multi-rig tenders from large clients. - Andrew Elf, CEO
Q: How much CapEx is budgeted for FY25? Is this expected to be all maintenance spend or are there any fleet upgrades?
A: FY25 CapEx should be similar to FY24 levels, around $17 million. This includes potential asset sales of older rigs. Any new tender wins might require some work on existing rigs but not new rigs. - Gregory Switala, CFO
Q: What is the outlook for labor availability and expected wage increases across different employees in the group?
A: Fairwork increased rates by 3.75% from July 1, affecting a small portion of our workforce. The rest of the labor force is driven by market factors, which have been flat. Overall, we expect low to negligible wage increases in FY25. - Gregory Switala, CFO
Q: How do you decide between internal buyback, dividend, and debt repayment?
A: We look at four pillars: growth, debt, dividends, and buybacks. We adjust these based on market conditions and opportunities. Currently, we focus on using existing rigs before buying new ones and balancing dividends and buybacks. - Nathan Mitchell, Executive Chairman
Q: What are the most likely sources of growth next year? Do you expect drilling rates to increase?
A: Growth will come from existing business opportunities and the decarbonization rig. Drilling rates are expected to remain flat as clients are unlikely to accept new prices given stable wage rates and costs. - Andrew Elf, CEO and Nathan Mitchell, Executive Chairman
Q: What is the competitive environment like? How are your competitors doing?
A: The competitive environment is flattening, especially in the West where a lot of capital was spent on new equipment. On the East Coast, competition remains but we focus on not being the lowest cost provider. - Nathan Mitchell, Executive Chairman
Q: What are your thoughts on consolidation in the gold sector?
A: Consolidation, like Newmont and Newcrest, has been positive for us. We have a strong relationship with Newmont and preferred contractor status, which holds us in good stead. - Andrew Elf, CEO
Q: Can you provide any indication of what the D&A will be like in FY25?
A: D&A for FY25 should be similar to FY24, around $26 million. Any changes will depend on new tender wins and associated CapEx. - Gregory Switala, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
