Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue growth of nearly 10% compared to the first half of last year.
- Strong EBITDA margin of 25%, despite a slight year-on-year decrease.
- Continued strong ROCE returns at 17.4%.
- Declared a dividend of $0.013 per share, consistent with the previous year.
- Expansion into lower-risk geographies like the US and Canada, diversifying the business.
Negative Points
- EBITDA slightly down year-on-year for the first half at $42.9 million.
- Delays in significant contracts in Nevada, impacting expected timelines.
- High AP balance into the half, reflecting elevated levels of accounts payable.
- Challenges in labor recruitment and retention, particularly in the US.
- Increased CapEx to $44.3 million for the half, slightly ahead of the midpoint for the year.
Q & A Highlights
Highlights of Capital Ltd (LSE:CAPD, Financial) Earnings Call
Q: Can you discuss the challenges faced in ramping up operations in Nevada, particularly from a labor perspective?
A: Peter Stokes, CEO: Labor in the US, especially Nevada, has been challenging. While attracting people hasn't been an issue, aligning with local labor nuances and instilling our operational processes took time. We've stabilized our labor force and are now ramping up recruitment, aiming for over 200 employees across labs and drilling.
Q: What is the anticipated workforce size in the US, and how far along are you in building it?
A: Peter Stokes, CEO: We expect to have over 200 people across labs and drilling. Currently, we are about halfway through this buildup, with around 100 people already onboarded. The labs team will be fully staffed by early October when the lab goes live.
Q: Can you explain the significant increase in drilling and mining equipment spend over the last 18 months?
A: Rick Robson, CFO: Much of the expansion occurred in 2023, primarily related to new contracts in Gabon and the US. The revenue from these contracts hasn't fully materialized yet, but we expect it to ramp up soon.
Q: What are the normalized cash balance levels relative to debt, and how do you manage this?
A: Rick Robson, CFO: The normalized cash balance is typically in the mid-$20 million range. We had a favorable working capital position at the half-year mark, which boosted our cash balance. We aim to maintain disciplined cash management and reduce debt levels.
Q: How should we think about the value of the Sukari fleet that you plan to sell?
A: Rick Robson, CFO: We are in the early stages of marketing the Sukari fleet and are currently assessing its value. We estimate the proceeds to be in the range of $20 million to $30 million.
Q: What level of demand are you seeing in the market, particularly for long-term mine site contracts?
A: Peter Stokes, CEO: We focus on mine-related or brownfields drilling, which provides more stability. Our contracts typically range from two to five years, and we target large projects with long-term commitments. This approach ensures consistent utilization and minimizes volatility.
Q: Can you discuss the profitability profile of MSA Labs and when you expect to achieve the 15% to 20% EBITDA margin target?
A: Peter Stokes, CEO: We aim to reach the 15% to 20% EBITDA margin target by next year. Some of our labs are already delivering high-teens margins. The key is building a base volume of larger customers in commercial labs to achieve profitability.
Q: What ESG and environmental pressures are you seeing from customers or countries you operate in?
A: Peter Stokes, CEO: There is a significant push for new technologies and higher environmental standards, especially in the US and Europe. We are focused on introducing battery electric drills, automating processes, and engaging local employees to meet these demands.
Q: How do you plan to manage shareholder returns, including potential buybacks, given the current balance sheet?
A: Rick Robson, CFO: Our primary focus is on debt reduction, especially with the proceeds from the Predictive sale. Once the balance sheet stabilizes and interest costs are reduced, we will consider shareholder returns, including buybacks or increased dividends.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
