Mitchell Services boosts cash flow, pays down debt
Mitchell Services has recorded another ‘financially transformational’ quarter, increasing cash flow levels by more than 150%.
Drilling solutions provider Mitchell Services (ASX: MSV) has recorded a big jump in operating cash flow for the December 2018 quarter as a result of increased work levels, while revenue figures improved marginally.
The company generated $10.9 million in operating cash flow for the three months to the end of December 2018, up 159% from the $4.2 million generated in the September 2018 quarter.
The December period marked the second successive quarter in which the company recorded revenues of more than $30 million at earning before interest, tax, depreciation and amortisation (EBITDA) and EBIT percentages of over 22% and 13% respectively.
As previously disclosed, EBITDA in FY18 was impacted by material levels of ramp up associated with major project wins.
The company attributed the significant improvement in EBITDA from the first-half of 2018 to a far lower impact of this type of ramp up in 1H2019 in addition to increased utilisation, productivity and pricing.
Revenue for the period tipped in at $32.2 million, up from $31 million recorded in the previous quarter.
Commenting on the performance, Mitchell Services chief executive officer Andre Elf said the past two quarters had been “financially transformational” for the company.
“The company’s Q2 financial performance was in line with that of Q1 due to increased activity levels in October and November,” he said.
“After net cash capex payments of $2 million, the company generated positive free cash of $8.9 million which it has used to reduce net debt from $11.5 million at 30 September 2018 to $2.6 million at 31 December 2018.”
As of the end of December, the company held $3.9 million cash on hand.
Positive outlook
Mitchell Services’ vision is to be Australia’s leading provider of drilling services to the global exploration, mining and energy industries.
Looking ahead, the company provided an upbeat assessment of its future with the board currently considering various capital management initiatives, including dividends and/or share buy-backs.
Mitchell Services’ near-term focus is to continuing generating strong operational cash flows, consider various capital management options and assess potential acquisition or growth opportunities.
“The outlook remains positive,” Elf added.
Mitchell Services has a diverse revenue stream across different drilling types and commodities, with its tender pipeline providing opportunity to further increase rig utilisation.
The company’s shares jumped 20% to $0.048.