MITCHELL SERVICES LIMITED — Investor Presentation 2021

Feb 25, 2021

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HALF YEAR RESULTS PRESENTATION December 2020

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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, Underlying EBITDA, EBIT, Underlying EBIT, Underlying NPBT, Underlying NPAT, Gross Debt and Net Debt. 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	ASX Information
ASX Stock Symbol MSV
Shares Issued	199,238,740
Share Price(at 23/02/2021)	A$0.415
Market Capitalisation A$82.68m
Board of Directors

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Scott Tumbridge Executive Director

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

Major Shareholders	Major Shareholders
Mitchell Group 17.9%
Scott Tumbridge	7.2%
Other Directors & Management	3.4%
Institutions	21.0%
Other Shareholders 50.5%
Executive Management Team
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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1H2021 BUSINESS OVERVIEW

Revenue of $100m Underlying EBITDA of $19.8m Net Debt of $23.4m ↑ ↑ 37% 40% 39% from 1H2020 from 1H2020 reduction from Dec 19

Underlying EBITDA guidance FY2021 Revenue guidance FY2021 $38m-$42m $190m-$200m Statutory EBITDA guidance $29m-$33m

Significant improvement in key operating metrics

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OPERATIONAL HIGHLIGHTS

• Strong underlying performance excluding impairment loss on trade receivables. Solid operating base to move forward on in a strong market.

• • Rig utilisation was marginally impacted by COVID-19 but utilisation is now increasing again.

• Revenue diversity continues to improve by commodity, geography and drilling type.

• Approximately 80% of revenue is derived from Tier 1 clients at the mine site resource definition, development and production stage which is a critical service in the mining lifecycle.

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IMPACT OF INCREASED UTILISATION ON REVENUE

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•
Revenue guidance
$175.56m FY2021 $190m-$200m
•
Average operating
2nd Half revenue per rig continued
to increase due to
$120.21m
2nd Half improved productivity,
pricing and drilling mix
•
2nd Half Mitchell Services
$72.69m anticipates further
increases in operating rig
count in FY2021
2nd Half
1st Half
$40.30m
1st Half • Operating rig count
2nd Half 1st Half
subject to change due to
1st Half seasonality or other
1st Half
factors
FY2017 FY2018 FY2019 FY2020 FY2021
•
99 rigs in fleet
21.6 37.1 48.2 67.7 75 (1H2021)
Average Operating Rig Count
7 www.mitchellservices.com.au
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REVENUE DIVERSITY

Diversity in revenue streams sets Mitchell Services apart from competitors

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Revenue by Commodity Revenue by Drilling Type
1H2021 31.9% 48.6% 11.8% 4.3% 1H2021 44.2% 55.7%
1H2020 50.0% 26.5% 14.7% 4.2% 1H2020 50.5% 48.5%
1H2019 63.5% 11.2% 14.7% 5.0% 1H2019 60.8% 38.0%
Coking Coal Gold Copper Lead/Zinc/Silver Other Surface Underground Other
•
Coal is circa 30% of group revenue with zero exposure to thermal
Revenue by Geography
coal. It is not our intention to drill in the thermal coal market
sector in the future.
1H2021 49.1% 13.2% 8.9% 25.8%
•
Base metals now represents circa 70% of group revenues and
1H2020 65.6% 12.5% 6.3% 10.1% 5.5% we are positioned strongly to capitalise on the strength in this
market sector, particularly in Victoria.
1H2019 80.1% 13.0% 5.9% • The Victorian revenue and underground revenue increases are
driven by the Deepcore acquisition.
QLD SA NSW WA VIC NT
•
Management remain mindful of diversity in revenue streams.
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HIGH QUALITY REVENUE STREAMS

• Revenue by Client Type • Tier 1 Clients are large / multinational mining & energy companies.

• • A majority of Mitchell Services revenue comes from Tier 1 Clients operating on long life, low cost mine sites. Approximately 80% of revenue is at the mine site resource definition, development and

• 80.4% production stage which is a critical service in the mining lifecycle.

• 86.9%

• 91.3% • The strength of the base metals sector and attractive returns has driven the revenue increase from other clients and we expect this percentage to remain fairly similar in the second half.

• • We maintain our focus on production related services but have

• 19.6%

• 8.7% 13.1% exited the drill and blast sector. We may choose to re-enter this market sector in the future should an appropriate opportunity arise.

• 1H2019 1H2020 1H2021 Other Clients Tier 1 Clients Revenue by Stage in the Mine Lifecycle

• Greenfield Mine Site Exploration &

• Exploration & Development Production Resource Definition

• Feasibility

• circa 20% circa 80% 9 www.mitchellservices.com.au

SMS UPDATE

• Whilst entities controlled by the Mitchell family (collectively the Mitchell Group) have a shareholding in the company that owns the Kirkalocka Gold Project of approximately 18%, it has no shareholding in SMS nor any liabilities to SMS.

• Failure to recover amounts invoiced during 1H2021 was considered objective evidence of an impairment event under the requirements of AASB 9.

• The company will continue to vigorously pursue the outstanding debt.

• Application received to set aside the statutory demand in the Melbourne Supreme Court on 10 March 2021.

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PROFIT AND LOSS

Strong underlying EBITDA performance

Underlying Profit & Loss

	1H2020 $000's	1H2021 $000's	Change %
Revenue EBITDA	72,983 14,140	100,035 19,794	37% 40%
EBIT (before Amortisation)	7,887	8,754	11%
NPBT (before Amortisation)	7,195	7,387	3%
NPAT (before Amortisation)	4,867	5,104	5%

• At an underlying level, revenue and EBITDA have continued to grow due to improved utilisation, productivity, pricing and drilling mix.

• Underlying EBITDA margins remain strong (1H2021 margin of 19.8% up slightly on 1H2020).

Underlying EBITDA

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$20m
$15m
$10m 1st Half
1st Half
$5m
$0m
1H2020 1H2021
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• At an underlying level, Mitchell Services expects that FY2021 EBITDA will represent growth of approximately 25% when compared to FY2020 levels.

Figures in this slide are underlying and exclude significant one-off items and acquisition related amortisation as disclosed on slide 21.

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BALANCE SHEET

Strong balance sheet provides flexibility

		31-Dec-20	30-Jun-20	Change
		$000’s	$000’s	%	•	The $7.3m impairment of trade debtors has seen
						the current ratio reduce from 1.18 to 1.05 and
	Balance Sheet Summary Current assets	42,765	58,553	(27%)		Net Working Capital reduce by 44%.
	Non-current assets	81,209	83,491	(3%)
	Total assets Current liabilities	123,974 40,774	142,044 49,459	(13%) (18%)	•	MSV remains well funded to take advantage of
	Non-current liabilities	28,693	35,124	(18%)		potential growth opportunities with access to a
	Total liabilities	69,467	84,583	(18%)		$15m revolving equipment finance facility ($10m
	Net assets	54,507	57,461	(5%)		drawn at 31 December 2020).
	Working Capital Summary
	Trade and other receivables	22,020	33,076	(33%)	•	Strong liquidity coverage
	Prepayments & other assets	1,590	1,811	(12%)		o cash of $9.6m at 31 December 2020
	Inventories Trade & other payables	4,193 (18,043)	4,094 (21,699)	2% (17%)		o access to further $10m (currently undrawn
	Premium funding	(816)	(1,214)	(33%)		working capital facility).
	Net Working Capital	8,944	16,068	(44%)

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CASH FLOW

Strong operating cash flows and Cash Conversion Ratio

Operating Cash Flow Summary

1H2019 1H2020 1H2021 $000's $000's $000's Receipts from customers 63,807 74,502 104,196 Payments to suppliers / employees (47,342) (59,624) (85,333) Cash generated from operations 16,465 14,878 18,863 Interest & other financing costs (671) (867) (916) Income tax paid (484) - (2,201) Cash flow from operating activities 15,310 14,011 15,746 EBITDA 14,229 14,140 12,465 Cash Conversion Ratio 108% 99% 126% -$5m $0m $5m $10m $15m $20m $25m $30m $35m
	2nd Half
	1st Half 1st Half ~~1st Half~~
	2nd Half
	FY2019 FY2020 FY2021

Despite the $7.3m impairment, operating cash flow was up on pcp

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NET DEBT

Net debt to EBITDA approximately 0.7 times

Net Debt Summary

	31-Dec-20 $000's	30-Jun-20 $000's
Equipment finance	20,422	25,323
Acquisition loan	12,556	14,169
Gross debt	32,978	39,491
Cash on hand	9,599	11,906
Net debt	23,379	27,585

Amortisation Profile of Debt Facilities at 31 Dec 2020

• Despite provision for impairment, Net Debt reduced by 15% from 30 June 2020 and 39% from 31 December 2019.

• All debt facilities are structured to include minimum principle repayments and have relatively short amortisation profiles.

$50m $40m $30m $20m $10m $0m Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21 Dec 21 Principle Balance Outstanding

• On a rolling 12-month historical basis, 31 December 2020 Net Debt to EBITDA (Operating Leverage Ratio) approximately 0.7 times.

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CAPITAL EXPENDITURE

Accelerated innovation program maximises tax benefit

$0m $2m $4m $6m $8m $10m $12m $14m $16m $18m $0m $2m $4m $6m $8m $10m $12m

• Maintenance Capex typically trends in line with P&L depreciation multiplied by utilisation rates. • 1H2021 maintenance capex represents approximately 45% of 1H2021 depreciation implying expected increase in 2H2021 maintenance capex. • Growth Capex relates to new rigs to service new or extended contracts. • Growth Capex in 1H2021 includes the commissioning of a next generation large diameter surface rig as part of a broader upgrade and innovation program. • Will receive the benefit of the Federal Government Instant Asset Write-Off Scheme on approximately all Capex through to 30 June 2022. 1st Half ~~1st Half~~ 1st Half ~~2nd Half~~ ~~2nd Half~~ FY2019 FY2020 FY2021 Growth Capex 1st Half ~~1st Half~~ 1st Half ~~2nd Half~~ 2nd Half FY2019 FY2020 FY2021 Maintenance Capex

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INDUSTRY OVERVIEW

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

• 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 during 2020 and 2021.

• With approximately 70% of 1H2021 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

Market conditions are the strongest we have seen since 2008

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OUTLOOK

• Pipeline of identified opportunities remains strong as does the demand for drilling services particularly from Tier 1 clients.

• Demand for drilling services in gold is very strong and gold as a percentage of revenue has increased in FY2021.

• Based on current market conditions, commodity prices, current contracts, and strong opportunity pipeline, Mitchell Services expects opportunities to exceed available rigs.

• Mitchell Services expects to generate full year FY2021 revenue and underlying EBITDA of $190m-$200m and $38-$42m respectively.

• These guided revenue and underlying EBITDA levels consider expected utilisation levels from existing contracts subject to normal operating conditions.

• Mitchell Services is covered by Morgans.

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CAPITAL MANAGEMENT

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• The $7.3m impairment of trade receivables has created uncertainty in regard to the capital management strategy.

• A final decision on potential dividends and share buy backs in the short term will be made once this uncertainty is resolved.

• Debt reduction will continue to be a focus however we will take advantage of a strong drilling market, increase in demand and accelerated asset innovation program.

• It is the intention of members of board and management to purchase shares in MSV in the short term.

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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 has a diversified revenue stream by different drilling types and commodities.

• Mitchell Services has a high quality client base with a majority of work related to mine site resource definition, development and production.

• Underlying EBITDA guidance FY2021 of $38m-$42m.

• Maintain a strong balance sheet to provide flexibility to take advantage of strategic opportunities in a strong market.

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APPENDIX A

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 once-off and/or non-recurring adjustments

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APPENDIX B

1H2020 and 1H2021 reconciliation of statutory to underlying results

1H2020	EBITDA	EBIT	NPBT	NPAT
	$000's	$000's	$000's	$000's
Statutory Results	14,140	7,063	6,371	4,290
Impairment of trade receivables1	-	-	-	-
Acquisition related amortisation of customer contracts2	-	824	824	824
Net tax effect3	-	-	-	(247)
Underlying Results	14,140	7,887	7,195	4,867
1H2021	EBITDA	EBIT	NPBT	NPAT
	$000's	$000's	$000's	$000's
Statutory Results	12,465	(3,011)	(4,378)	(3,131)
Impairment of trade receivables1	7,329	7,329	7,329	7,329
Acquisition related amortisation of customer contracts2	-	4,436	4,436	4,436
Net tax effect3	-	-	-	(3,530)
Underlying Results	19,794	8,754	7,387	5,104

1. Impairment loss in relation to the SMS trade receivable owing.

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

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

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