Thank you for standing by, welcome to the Mitchell Services full year results presentation. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw your question, press the star one again. For operator assistance throughout the call, please press star zero. Finally, I would like to advise all participants that this call is being recorded. Thank you. I would now like to welcome Andrew Elf, Chief Executive Officer, to begin the call. Andrew, over to you.
Thanks very much and welcome, everybody. Thank you very much for dialing in. Just to let everybody know, I've got Nathan Mitchell, our chairman, with us today, and Greg Switala, our Chief Financial Officer and Company Secretary. Greg and I will run through the presentation and Nathan may jump in on some, some points as well. Then we'll open up for questions at the end. Please just direct your question to the relevant person, will be appreciated. We'll just start off on page 2, the disclaimer. We'll take that as being read. Move straight on to page 4, the market profile.
As you can see there, obviously, Nathan Mitchell, Chairman, speaks for the Mitchell Holdings, and Scott Tumbridge, the founder of Deepcore, speaks for the Dream Challenge, 7.5% holding. Obviously, Soul Patts at 4.6% have been a long-term and supportive shareholder across their journey. Just from a valuation perspective there, the market capitalization, it certainly looks low versus traditional valuation methodologies. We are covered by Q Value by Morgans, and I'd certainly encourage people to have a look at some of those papers and research and learn a little bit more about the company. Just moving on to page 5, the business summary. A lot of the key metrics there moving in the right direction.
It was a good year for the company. Some challenges along the way, as can happen, it's certainly a very, a very strong finish. Average operating rig cap was, was up, obviously the mix of work, combined with contract rates, drove the increase in revenue for the year. Pleasingly, you know, when, when some of the wet weather and other things were out of the way in that second half, that EBITDA percentage, even though it was at 17% for the year, was up above 20%, which is a bit of an internal target that we have and we've spoken to people about before. Pleasingly, you know, leading to profit after tax, some good cash flow, and, and return on capital, as well.
From a safety performance perspective, very proud of our, of our safety culture and our safety performance. I think, we're industry-leading in that regard. Again, the, the clients we've got, expect that. Just moving on to, to page 6, the overview. Commodity prices have, have still remained strong, and as has the demand for the drilling services, particularly in some of the highly skilled specialist drilling services, such as mine service work that we, that we complete. Inflationary pressures are beginning to ease, and, and certainly labor. Labor remains tight, but that's certainly in a better position than it has been too. The capital investment program in regards to the LF160s is complete. The rigs are mobilized. They're out, they're working, they're generating a return, and that's been a very good investment for the company.
The timing was right. It was a, a big decision to make, but the timing was right. We got the write-off benefit from a tax perspective. We bought the rigs before prices went up. They were fixed, fixed interest rates we'd now on equipment finance, and we beat the supply chain crunch. We've been able to reduce crew, crew numbers on those rigs from 3 to 2 because of the technology on the rigs. It's certainly enabled us to, with the automation and, and less manual handling, increase our female participation on those rigs as well. The revenue streams of the business are, are very high quality, and, and certainly positions us very well in the year ahead. It's looking like another very busy year ahead, and, and earnings should only increase.
We're working with the global mining majors that represent 90% of our revenue. We're working on long life, low-cost mines that are, that are busy through the cycle. Those majors budgets are, are flat to up, and they're certainly very busy on their existing mine sites, which we work at, and, and brownfields work. The revenue, 50/50 surface underground. Gold's about 40% of the, of the revenue mix, and 80% plus of our work is, is from that particular part of the mine life cycle, which is, which is, which is linked to those operating mine sites. On seven, the operational update, that first point we've already covered with the, with the LF and the, and the second point, but certainly we're... You know, Nate and I have been out to the field.
We've seen those rigs operating. We're very happy with how they're going. You know, the other points I made, it's been great to get out on the ground and see them working, and really validate our decision. Obviously, we had the rainfall throughout the year. It's looking like it's certainly gonna be a dry period ahead. Probably fair to say, moving from, you know, one weather, one weather type to another. Certainly some contract variations from clients that were predominantly driven by change in strategy as to how they were gonna drill deposits out and things like that. What I would say is the team is very, very strong. We've got a fantastic team, and I think managing the things that we can control, we've done a wonderful job.
You know, we can't control the weather, and we can't control some client strategic decision making. We certainly had a good run in that second half, less disruptions, and it certainly shows what the business can do, you know, when it hits the straps. Year-over-year, COVID, hopefully a thing of the past, and inflation certainly easing. At the same time, as we mentioned there at the bottom, we've, we've had the opportunity to reset contract rates, as renewals have come up. As we sit at the moment, there's really only probably 1, 1 contract left to reset, and that will be done at the end of this calendar year. The balance of our contracts have rates under 18 months old, and that's, and that's certainly made a difference to, to our performance as well.
Looking at the profit and loss on slide 8, as Andrew mentioned in his operational update, the business delivered breakout operational and financial performance in the second half of the year. The performance was driven by a variety of factors, again, as Andrew mentioned earlier, most notably the absence of adverse weather conditions, easing inflationary pressures, and material price increases across most of the contract book. A couple of interesting points to note on slide 9, first being that the second half increase in earnings before tax was greater than the increase in EBITDA over the same period, demonstrating the fact that incremental EBITDA is dropping to the bottom line, but also highlighting the ongoing reductions in depreciation, amortization, and interest as capital expenditure and debt continue to fall.
The second point to note is almost all of the AUD 7.6 million full-year profit was generated in the second half, which talks to the full-year earnings potential of the business when market and weather conditions are favorable. Looking at slide 9, increased the interest in tax earnings, together with a reducing PP&E base, represents very favorable conditions for significant Return on Invested Capital. We've certainly seen that in FY23, with Return on Invested Capital 12.5% for the year, up exponentially versus the 1% in FY22. We expect this trend in ROIC to continue as the business continues to allocate CapEx sensibly in accordance with capital management policy objectives that Andrew and possibly Nathan will outline later in the presentation. Slide 10, looking at the balance sheet.
The impressive second half performance, from a profit perspective, has led to a much stronger balance sheet, with overall net assets increasing by nearly 10% and net parent assets increasing by 25% compared to the June 2022 position. Even more significantly, from a balance sheet perspective, is in relation to the improvement in Net Debt, which I'll highlight a little later in the presentation. From a cash flow perspective on slide 11, cash flows from operating activities were AUD 35.6 million for the year, up 60% versus FY22. The significantly improved cash flow performance was driven by the improved EBITDA, obviously, but also from the significantly improved Cash Conversion Ratio as temporary working capital requirements began to normalize. Two items here worth highlighting.
The three-year earn-outs arrangement in relation to the Deepcore acquisition is now complete, so FY24 cash flows will be free of any such payment, noting that FY23 cash flows included an earn-out payment of approximately AUD 2 million. The other point to highlight is that the business doesn't expect to pay income tax until at least FY25, having benefited from the recent ATO Instant Asset Write-Off program, which from a timing perspective, from a timing perspective, coincided with MSV's previous organic growth and capital investment strategy. Looking at slide 12, I touched earlier on the fundamental balance sheet improvement in relation to debt reduction, and that's certainly highlighted on this slide. Net debt is essentially halved in 12 months, from AUD 39 million in FY22 to AUD 17.6 million currently.
On a Gross Debt to Trailing EBITDA base, leverage has now dropped to well under 1x, and the business remains on track to reach its Net Debt target of AUD 15 million by the 30th of June 2024. Worth noting as well, that almost all of the debt is traditional equipment finance at pricing that was fixed prior to the recent rate rises, and that's highlighted in the Blended Cost of Funds figure being 5.4%. Looking at capital expenditure on slide 13, the recent investment program, together with material levels of CapEx spent in previous years, have meant that the business is now able to reduce its ongoing CapEx without compromising on machine availability or safety. This is highlighted on the chart that shows a significantly reduced FY23 CapEx compared to spend in FY22.
Again, as mentioned previously, the timing of the larger CapEx spent in FY22 has allowed the business to take advantage of the significant cash tax benefit, that we'll obviously receive from the ATO.
Moving on to slide 14, the capital management update. I won't cover those points that, that Greg's already touched on, but I think it's fair to say that, you know, the board's got an interest, and Nathan could talk to this, about continuing returns to shareholders, by dividends, from, from, from NPAT that's generated. We can do that up to 75% of NPAT. If we do sell any more assets, there is the ability to continue buybacks.
Importantly, that last point there, and I think the team should be very proud of this, that we've returned approximately AUD 8.5 million to shareholders, based on the final dividend that's been announced today, and also the share buyback as well, and split roughly, you know, AUD 4 million buyback and AUD 4.5 million on the dividend. Moving on to page 15. Again, some of these points already covered. Net Debt down materially. Obviously, it's gonna be a straight line to AUD 15 million at 30 June 2024. You know, it's gonna go up when dividends are paid and then down as the business produces cash accordingly. CapEx allocation will remain sensible, we'll take opportunities where it makes sense to do so.
Dividends announced today, fantastic, and the buybacks at AUD 4 million, representing a 4% reduction of the shares in the register, which is, again, another, another fantastic result. On 16, why, why invest in Mitchell? I think, number 1, our people, and the brand, and our culture. You know, the brand, the Mitchell brand itself has been around for over 50 years. We've got a fantastic culture. It's a great place to, to be and work. Our safety performance is second to none. The fleet is excellent. We've done a lot of hard work in that regard. The clients, they're the global leading mining majors, and, and they're excellent to work for. The capital management strategy is now delivering, and again, buybacks, dividends, and Net Debt reduction.
As I mentioned at the start of the opening, that the price versus traditional valuation metrics are, are still quite low, so it does represent an opportunity. I'd certainly encourage people to have a read of the Q Value Research and Morgans' research. That concludes the presentation, and we can open it up for questions. Please, moderator.
At this time, I'd like to remind everyone, in order to ask a question, press Star, then the 1 on your telephone keypad. We'll pause for just a moment to compile any questions. Again, if you'd like to ask a question, please press Star one on your telephone keypad now. We do have a question from the line of Daniel Sweeney from Q Value Research. Please go ahead.
Hey, guys, can you hear me?
Yes. Yes. How you going, Daniel?
Good, thanks. Yeah, great to see the business performing well. I just wanted to clarify a couple of things if I could. Firstly, how should we think about the dividend policy in terms of first half, second half split going forwards?
Sorry, Daniel. Daniel?
Beg your pardon?
Just explain that again, sorry.
How should we think about the dividend policy, in terms of being applied to the first half, second half going forwards? Will it does it just apply smoothly across the year, or do you expect it to be more second half weighted?
Look, the, the board's got the ability, Daniel, to pay up to 75% of the NPAT that the business generates. I think, you know, when, when we get to the half year, the business would have generated X, and it'll be up to Nathan and the board to decide.
You're talking about the next year?
Yeah, the year ahead.
Yeah, exactly. Yeah.
Yeah, I think we just take it as we're going. It really, a lot of it all depends upon, you know, around the January, February, wet weather, seasonal issues, and just depends on how well we're going. I think, you've seen this year, it's always usually a soft start because of that wet weather. You know, obviously, you know, the climate is changing all the time, but traditionally it's been always a slower start and a, and a, a better finish. I think we just got to go with, with how the business is, is performing, and then just make the decision at that point. I think it really comes back to this time of the year, how we do it.
Okay, thank you. In FY24, what's the utilization rate looking like on the new 12 large diameter rigs?
Oh, sorry, just to clarify, the, the 12 rigs are the LF160s, not...
Yeah, exactly.
Large diameter rigs, sorry. They're, they'll, they'll be booked out all year, those rigs.
Okay, thank you. Also, just, finally on CapEx, what should we be expecting for CapEx in the year ahead?
I think, Daniel, from my perspective, yeah, CapEx in FY23 was sort of AUD 12.5 million. I think AUD 15 million is probably a reasonable number to assume from a maintenance CapEx perspective. As we sort of pointed out in the capital management policy, you know, growth CapEx will be limited where it makes sense to do so and only really undertaken if there's a, you know, significant revenue-earning opportunity on the other side. AUD 15 million or thereabouts is probably an appropriate number.
Great. Okay. Thanks, guys.
Thank you.
There are no further questions at this time. I would like to thank our speakers for today's presentation and thank you for joining us. This now concludes today's call. You may now disconnect.