MITCHELL SERVICES LIMITED — Investor Presentation 2021

Aug 24, 2021

FULL YEAR RESULTS PRESENTATION Financial Year 2021

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DISCLAIMER

This investor presentation has been prepared by Mitchell Services Limited (“the Company”). Information in this presentation is of a general nature only and should be read in conjunction with the Company’s other periodic and continuous disclosure announcements to the ASX, which are available at: www.asx.com.au.

This presentation contains statements, opinions, projections, forecasts and other material (“forward-looking statements”) with respect to the financial condition, business operations and competitive landscape of the Company and certain plans for its future management. The words anticipate , believe , expect , project , forecast , estimate , likely , intend , should , could , may , target , plan and other similar expressions are intended to identify forward-looking statements. Such forward-looking statements are not guarantees of future performance and include known and unknown risks, uncertainties, assumptions and other important factors which are beyond the Company’s control and may cause actual results to differ from those expressed or implied in such statements. There can be no assurance that actual outcomes will not differ materially from these statements. Any forward-looking statements contained in this document are qualified by this cautionary statement. The past performance of the Company is not a guarantee of future performance. None of the Company, or its officers, employees, agents or any other person named in this presentation makes any representation, assurance or guarantee as to the accuracy or likelihood of fulfilment of any forward-looking statements or any of the outcomes upon which they are based.

The information contained in this presentation does not take into account the investment objectives, financial situation or particular needs of any recipient and is not financial product advice. Before making an investment decision, investors should consider their own needs and situation and, if necessary, seek independent professional advice.

Mitchell Services Limited’s financial statements comply with International Financial Reporting Standards (IFRS). This presentation may include certain non-IFRS performance measures including EBITDA, EBIT, Gearing ratio, Gross Debt, Net Debt and Return on Invested Capital (ROIC). These measures are used internally by management to assess the performance of the business. Non-IFRS measures have not been subject to audit or review and should not be considered as an alternative to an IFRS measure of profitability, financial performance or liquidity.

To the maximum extent permitted by law, the Company and its directors and advisers of both give no warranty, representation or guarantee as to the accuracy, completeness or reliability of the information contained in this presentation. Further, none of the Company, it officers, agents or employees of accepts, to the extent permitted by law, any liability for any loss, claim, damages, costs or expenses arising from the use of this presentation or its contents or otherwise arising out of, or in connection with it. Any recipient of this presentation should independently satisfy themselves as to the accuracy of all information contained herein.

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MITCHELL SERVICES MARKET PROFILE

ASX Information*

**Major Holders ***

ASX Stock Symbol MSV Shares Issued 199,954,290 Share Price A$0.43 Market Capitalisation A$85.98m Current as at 23/08/2021 Board of Directors*

Mitchell Group 18.4% Dream Challenge Pty Ltd 7.2% Washington H Soul Pattinson 6.0%

Executive Management Team

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Nathan Mitchell Scott Tumbridge Executive Chairman Executive Director

Peter Miller Robert Douglas Non-Executive Non-Executive Director Director

Neal O’Connor Peter Hudson Non-Executive Non-Executive Director Director

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Andrew Elf Chief Executive Officer

Greg Switala CFO & Company Secretary

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PEOPLE, RISK AND SUSTAINABILITY

• Implemented critical risk management program. Infield program designed to verify the presence and effectiveness of critical control measures to prevent life changing injuries and fatalities.

• Covid 19 has continued to present logistical changes but credit to our entire team who have continued to deliver safe and efficient services to our clients.

• Developed and released a Modern Slavery Statement.

• Mitchell Services Foundation has now been registered as a Charity.

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FY21 BUSINESS OVERVIEW

42,633 shifts in FY21 Industry leading safety performance driven by critical 650+ ↑ risk control verification 20% program experienced employees

from FY20

Total revenue of $191m $29.6m gross bank debt Underlying FY21 EBITDA of at 30 June 21 representing ↑ 9% $35.7m a 25% decrease* from 30 June 20 from FY20 driven by utilisation increases

• Underlying excludes items as disclosed on slide 18.

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MSV’S DEMONSTRATED ABILITY TO DELIVER GROWTH

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Annual Average Operating Rig Count vs Revenue
$200-$220m
$191.4m
$175.56m
$120.21m
Average
Operating Rig
Count
Average
71.6
Operating Rig
$72.69m Count
Average 67.7
Operating Rig
Count
$40.30m 48.9
$32.97m Average Operating
Rig Count
$25.17m
Average Operating 37.4
$15.02m Average Operating Average Operating Rig Count
Rig Count
Average Operating Rig Count Rig Count 17.8 21.6
7.8 13.0
FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22F
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*Assumes anticipated levels of work from existing customers and that all existing customers renew their drilling contracts to the extent that such current contracts expire during this period. Assumes a 20% EBITDA margin and that there is no material changes in market conditions or operating environments, including no material deterioration in COVID-19 restrictions and regulations.

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REVENUE QUALITY AND DIVERSITY

FY21 Revenue by State and Commodity

Revenue by Drilling and Client Type

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◼ Surface Drilling
30.0% ◼ Underground Drilling
50%
46.3% 44%
45%
5.4% 55%
16.8% 63% 55% 56% 50%
1.6%
65% 45%
75%
92% 93% 34% 37%
QLD SA NSW WA VIC FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 F
◼ Tier 1 Clients
3.6% [3.4%]
◼ Other Clients
9.7%
91%
82%
86%
52.8%
30.7% 92%
90%
66% 88% 93%
37%
Gold Coking Coal Copper Lead/Zinc/Silver Other FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 F
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ORGANIC GROWTH STRATEGY

• Mitchell Services is embarking on an organic growth strategy including a material capital investment program to deliver anticipated FY22 EBITDA of between $40m and $44m.

• This investment includes the purchase of 9 LF160 drill rigs that are expected to be delivered by 31 December 2021 and includes an option for an additional 3 rigs.

• The proposed timing allows Mitchell Services to take advantage of the cash flow benefit associated with the ATO’s instant asset write off program (in place until June 2022 with a proposed extension to June 2023).

• It was previously Mitchell Services’ intention to sell nominated rigs to provide partial funding for this capital investment program.

• However, given the strength of the current market and the lead times to procure additional drill rigs, Mitchell Services have opted to retain these rigs as the value to the business will be greater than the net sale proceeds.

• Based on the anticipated size of the fleet post implementation of the growth strategy, the business would have the capacity to potentially generate $50m-$60m EBITDA and to deliver material EPS growth.

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OPPORTUNITY TO LEVERAGE THE CYCLE

• Significant increase in demand in the gold and base metals sectors with a positive long-term industry outlook.

• Global government stimulus and subsequent investment into infrastructure and other projects will drive demand for copper and other base metals.

• In a world where reserves and grades of some commodities are reducing, Australia is seen as a high quality, low risk jurisdiction in which to operate.

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• Increase in new projects and exploration programs due to significantly increased level of capital raising and investment by miners during 2020 and 2021.

• With approximately 70% of FY21 revenue derived from the gold and base metal sectors, the Company is well placed to take advantage of any further uplift in these markets.

• “We believe that the last supercycle peaked in 2008 (after 12 years of expansion), bottomed in 2020 (after a 12-year

• contraction) and that we likely entered an upswing phase of a new commodity supercycle”

JP Morgan macro and quantitative strategist Marko Kolanovic

The outlook for drilling services demand is the strongest that we have seen since 2008

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SIGNIFICANT BARRIERS TO ENTRY

• Access to funding for new mining services providers is challenging given limited lender appetite to the mining services sector.

• Complex and highly regulated industry.

• Increasing lead time in relation to the supply of rigs, ancillary equipment and consumables.

• Significant level of industry consolidation.

• Tightening labour market and ability to attract and retain a highly skilled labour force.

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Suppliers are currently experiencing a surge in global demand for drill rod while continuing to manage supply constraints as a result of Covid-19

Mitchell Services has circa 20,000 pieces of drill rod currently ordered which represents 32% of a major supplier’s total Asia Pacific drill rod availability over the next 6 months

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PROFIT AND LOSS

Strong underlying EBITDA performance

Underlying Profit & Loss

Underlying Profit & Loss	Underlying Profit & Loss
FY21 FY20 Change
$000's $000's % Revenue 191,466 175,555 9%
EBITDA 35,685 34,951 2%
EBIT (before Amortisation) 12,929 18,011 (28%) NPBT (before Amortisation) 10,152 15,868 (36%)
NPAT	(before Amortisation) 7,097 10,987 (35%)
$5m $10m $15m $20m $25m $30m $35m $40m	Underlying EBITDA
	$357
	.m $35.0m
	FY2021 FY2020

• At an underlying level, revenue and EBITDA have continued to grow and underlying EBITDA margins remain strong.

• Mitchell Services expects to generate FY22 EBITDA of $40m-$44m which, at an underlying level would represent annual growth of approximately 18% when compared to FY21.

Figures in this slide are underlying and exclude significant non-regular items and acquisition related amortisation as disclosed on slide 18.

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BALANCE SHEET

Strong balance sheet provides flexibility

		30-Jun-21	30-Jun-20	Change
		$000’s	$000’s	%	•	Mitchell Services is well funded to take
	Balance Sheet Summary					advantage of significant growth opportunities as
	Current assets	47,429	58,553	(19%)		it embarks on an organic growth strategy
	Non-current assets	79,324	83,491	(5%)		including a material investment program with the
	Total assets Current liabilities	126,753 50,179	142,044 49,459	(11%) (1%)		following sources of funds available:
	Non-current liabilities	24,963	35,124	29%
	Total liabilities	75,142	84,583	11%		o	$30m revolving equipment finance facility
	Net assets	51,611	57,461	(10%)			($11.2m drawn at 30 June 2021)
	Working Capital Summary					o	access to $10m (currently undrawn)
	Trade and other receivables	31,534	33,076	(5%)			working capital facility
	Prepayments & other assets	1,559	1,811	(14%)		o	$10m equity raising as recently
	Inventories Trade & other payables	5,272 (24,400)	4,094 (21,699)	29% (12%)			announced.
	Premium funding	(787)	(1,214)	35%		o	Strong anticipated operating cash flow
	Net Working Capital	13,178	16,068	(18%)

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CASH FLOW

Strong operating cash flows and Cash Conversion Ratio

Operating Cash Flow Summary

FY21 FY20 Change $000's $000's % Receipts from customers 186,372 173,205 8% Payments to suppliers / employees (152,772) (140,136) (9%) Cash generated from operations 33,600 33,069 2% Interest & other financing costs (1,966) (1,919) (2%) Net income tax paid (1,577) - (100%) Cash flow from operating activities 30,057 31,150 (4%) Underlying EBITDA 35,685 34,951 2% Cash Conversion Ratio 84% 89% (6%) $0m $5m $10m $15m $20m $25m $30m $35m
	2nd Half 2nd Half
	1st Half 1st Half
	FY21 FY20

Despite the $6.6m impairment, operating cash flows have remained strong

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DEBT PROFILE OVERVIEW

Seek to maintain leverage at below 1 x EBITDA

Facility	30 June 21	30 June 20	Movement
	$000’s	$000’s	$000’s
Revolving equipment finance	11,248	9,882	(1,366)
Other equipment finance	7,429	15,440	8,011
Corporate/Acquisition loan	10,932	14,169	3,237
$10m overdraft/working capital	-	-	-
Gross Bank Debt	29,609	39,491	9,882
Cash on hand	4,236	11,906	(7,670)
Net Bank Debt	25,373	27,585	2,212

Post completion of the equity raise, the revolving equipment finance facility limit (currently $15m) will be increased to $30m, providing capacity to fund capital expenditure pursuant to the growth strategy

The proposed organic growth strategy will be funded by a combination of the Offer proceeds, operating cash flow and the equipment finance facility

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CAPITAL EXPENDITURE

Organic growth strategy and capital investment program underway

Growth Capex

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$18m
$16m
$14m 2 [nd] Half
$12m
$10m
$8m 2 [nd] Half
$6m 1 [st] Half
$4m
$2m 1 [st] Half
$0m
FY2021 FY2020
Maintenance Capex
$16m
$14m
$12m
$10m 2 [nd] Half
$8m 2 [nd] Half
$6m
$4m
1 [st] Half
$2m 1 [st] Half
$0m
FY2021 FY2020
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• FY21 maintenance capex represents approximately 60% of FY21 depreciation.

• Growth Capex relates to new rigs and ancillary equipment to service new or extended contracts as well as capital expenditure incurred in the early stages of Mitchell Services’ material capital investment program pursuant to its organic growth strategy.

• The proposed timing allows Mitchell Services to take advantage of the cash flow benefit associated with the ATO’s instant asset write off program (in place until June 2022 with a proposed extension to June 2023).

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SUMMARY

• Mitchell Services vision is to be Australia’s leading provider of drilling services to the global exploration, mining and energy industries.

• Mitchell Services is embarking on an organic growth strategy including a material capital investment program to deliver anticipated FY22 EBITDA of between $40m and $44m .

• Based on the anticipated size of the fleet post implementation of the growth strategy, the business would have the capacity to potentially generate $50m-$60m EBITDA and to deliver material EPS growth.

• Mitchell Services has an experienced board and management team who have proven success in business development and growth.

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APPENDIX A - FY21 EBITDA RECONCILIATION

• $0.2m $3.0m • FY21 reported EBITDA includes a $6.6m trade receivable impairment

• $6.6m in relation to SMS Innovative Mining Pty Ltd. The $6.6m reflects the gross receivable at 30 June 2021 of $9.6m less $3m being the

• $35.7m first tranche received pursuant to a $5m settlement as announced on

• $25.9m 13 July 2021.

• • FY21 reported EBITDA also includes a $3m increase in fair

• ~~-~~ value to the contingent consideration liability in relation to the Deepcore Drilling acquisition. Based on Deepcore Drilling’s strong EBITDA performance to date and expected EBITDA over the remainder of the 3-year earn out period, the contingent consideration liability has been remeasured to $6.3m at 30 June 2021.

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APPENDIX B

FY21 and FY20 reconciliation of statutory to underlying results

	FY21	EBITDA	EBIT	NPBT	NPAT
		$000's	$000's	$000's	$000's
	Statutory Results	25,875	(4,357)	(7,134)	(5,899)
	Impairment of trade receivables1	6,625	6,625	6,625	6,625
	Legal expenses related to impairment of receivables1	210	210	210	210
	FV increase to contingent consideration liability2	2,985	2,985	2,985	2,985
	Acquisition related amortisation of customer contracts3	-	7,466	7,466	7,466
	Net tax effect4	-	-	-	(4,290)
	Underlying Results	35,695	12,929	10,152	7,097
	FY20	EBITDA	EBIT	NPBT	NPAT
		$000's	$000's	$000's	$000's
	Statutory Results	34,951	12,606	10,463	7,203
	Acquisition related amortisation of customer contracts3	-	5,405	5,405	5,405
	Net tax effect4	-	-	-	(1,621)
	Underlying Results	34,951	18,011	15,868	10,987

1. Impairment loss in relation to the SMS trade receivable owing and legal expenses incurred in relation to pursuing its recovery.

2. Fair value increase to contingent consideration payable to Deepcore vendors, based on Deepcore EBITDA historical performance and forecast growth.

3. Amortisation of separate customer contracts measured at fair value per the acquisition of Deepcore Drilling in November 2019.

4. Adjustment to derive underlying tax expense related to pre-tax underlying adjustments.

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APPENDIX C

Definitions

Capex	Capital expenditure
Cash Conversion Ratio	The ratio of A to B; where A is the reported cash flows from operating activities (excluding interest and income tax paid) and B is the reported EBITDA
EBITDA	Earnings before interest, tax, depreciation and amortisation; calculated as NPAT plus income tax expense plus finance charges plus depreciation expense plus amortisation of intangibles
EBITDA Margin	EBITDA divided by reported revenue expressed as a percentage
EBIT	Earnings before interest and tax; calculated as NPAT plus income tax expense plus finance charges
EBIT Margin	EBIT divided by reported revenue expressed as a percentage
Gross Debt	Total principle balances outstanding on all bank loans, equipment finance facilities, hire purchase agreements, working capital facilities and overdrafts
Net Debt	Gross Debt less cash and cash equivalents on hand
NPAT	Net profit after tax; calculated as statutory reported profit before income tax less income tax expense
NPBT	Net profit before tax; calculated as NPAT plus income tax expense
pcp	Previous corresponding period
SMS	SMS Innovative Mining Pty Ltd
Underlying	Measurement of performance metric (e.g. EBITDA) adjusted for the impact of significant non-regular items

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