Good day, ladies and gentlemen, and welcome to Capital Limited H1 2025 Results. At this time, all participants are in a listen-only mode. Later, we will conduct a question- and- answer session. If you wish to ask a question, we ask that you please submit your questions through the webcast page using the ask a question button. I would like to remind all participants that this call is being recorded. Questions will follow after the presentation. I will now hand over to Jamie Boyton, Executive Chair, and Rick Robson, CFO, to start their presentation. Please go ahead, Jamie.
Thank you very much, and welcome, and thank you to everyone that has dialed in today to our first half results presentation. If you could please move to the first slide and I'll kick off with the presentation. I'll obviously cover the introduction. I'll hand over to Rick Robson, who's in London today, to turn through the results, and I'll make some concluding statements, including the outlook statement. Obviously, a challenging first half for Capital, albeit it is a bit belied by quite a significant turnaround in our activities and our fortunes in the second quarter against the first quarter.
To take it a little further back, obviously, and as previously flagged in announcements and releases to the capital markets, we had a convergence of events in the fourth quarter of last year that saw us performing below our expectations in both the fourth quarter and the first quarter of 2025. We've made a number of substantive management changes as a result of that performance. We are actually very pleased to say, despite today's first half results still not being at the standards we would like, we've certainly seen an inflection and a significant improvement in the performance of our business in the second quarter of 2025. What's particularly pleasing is that we have increased our rigor around our capital discipline and our work in capital management. I think one of the highlights of the first half was the improvement despite the softer revenue, which was down 6%.
We previously discussed the conclusion of our activities on two of our mining contracts. However, we did have an improvement in our cash from operations of 6.8%, a reduction in our net debt to $55.4 million. That improvement has led to us maintaining our dividend, with a first half declaration of $0.013 per share. If I could move to the next slide, please. Given the changes that we have implemented in the first half, we've been quite frequent in our communication with the capital markets. Therefore, I'll be quite brief in today's briefing. A few things we'd like to highlight. After the conclusion of our two concurrent mining contracts in the fourth quarter of last year, we commenced our mining contract in Pakistan at the Reko Diq project in the second quarter of this year.
Pleased to report that that has performed thus far ahead of expectations, with the first tranche of fleet active on site. The second tranche of fleet is undergoing reconstruction and commissioning imminently. The third tranche of fleet is due for transportation to Pakistan in the third quarter. It's all gone very smoothly, slightly ahead of schedule, and incident-free, which is always very pleasing. One of our businesses that has seen a substantial improvement has been MSALABS . That business has inflected to profitability in the first half of this year and, again, significantly improved Q2 on Q1. We're optimistic of that continuing over the course of the year. We had a substantive gain in our investment portfolio of $19.2 million in the first half of the year, with the portfolio value at June 30th just a tad under $50 million.
As I flagged, reduction in our net debt, adjusted net debt, which allows for the investment portfolio of $6 million, and an exemplary safety performance once again, industry-leading safety performance. With that in mind, again, just some context, you can furthermore see the reduction in our margins in the second half of last year and the first half of this year. Again, we are seeing an improving trend Q2 and an improving trend into the second half of this year. I think those on the call today will be quite familiar with our business. It's an integrated service offering across drilling, mining, and laboratories in terms of our operating businesses. The drilling business is Africa, Middle East, North America. The mining activities are currently limited to our operations in Pakistan. The laboratory business, Africa, Middle East, and North America.
Investment portfolio, that I mentioned earlier, and we continue to have a leading role in bringing new technology into the mining industry. Briefly on each of the divisions, drilling business has actually been very robust. A number of contract wins, which we announced over the first half of the year, predominantly contract extensions, grade control extension at Allied Gold, grade control extension at the Lumwana operations for Barrick, a new three-year borehole drilling services, which is a new revenue stream for Capital at the Reko Diq project in Pakistan. What's been particularly pleasing has been the resurgence in recent months of exploration spend. Intuitively, one would expect so with the commodity prices and particularly gold prices being so strong. That is an element that really hasn't been overly prevalent in the market. Again, Capital is very much a mine site focused, production-focused drilling company.
However, that demand that is coming into the exploration market obviously takes through some of the excess capacity utilization in the industry and is always a good precursor to rates within the industry. We had utilization in the first half of 2024 of 74%. That was up from 69% in the first half of 2024. I just realized I said 2025 on 2024, pardon me. That is 74%. That is trending in line with our target utilization of 75%. If you could move the slide, please. I won't touch too much on this because I obviously did in the earlier introduction. The only thing I would flag, it is a ramp-up schedule under this contract. First fleet, as I mentioned, first tranche is now fully operational with tranches two and three coming on stream over the second half of calendar year 2025.
On MSA, or the, sorry, excuse me, the drilling and mining footprint, I think most people are familiar with this map, so I might just flick over this if I could, please, moderator. Laboratories, we recently raised our revenue guidance as we did for the group. This has probably been the standout story for Capital in the first half of the year. We had a sustained period of about 18 months of losses as we were rolling out the platform and footprint of our laboratory business. Q2, we saw the fruits of that labor coming through. We saw an increase in utilization at our commercial labs. We saw the commissioning of new laboratories in Alaska, Saudi Arabia, and the commissioning of a third photon assay unit in Elko, Nevada.
We also saw a ramp-up of activity at the Nevada Gold Mines, all of which have contributed to the business now inflecting to profitability with a vastly improved outlook into the second half of this year and particularly into 2026, at which stage we will have the Nevada Gold Mines laboratory fully ramped up. On the next slide is the laboratory footprint, which I covered in the last point that we've spent the last few years building that footprint out. Now very well- established in some major gold regions in the world, the Abitibi Gold Belt in Canada, the Carlin Trend in Nevada, the Birimian Gold Belt in West Africa, and Lake Victoria Goldfields in East Africa gives us an exceptional footprint, and we're beginning to see the benefits of that investment.
The investment portfolio, we often get asked about this, so we've again tried to be transparent with our investment portfolio in the bottom right. Major holdings at the balance date are there in the table. We often get asked about how they can be tracked. I should point out that in the case of the first two holdings, which is 84% of the portfolio, we are beyond what is deemed substantial on the ASX, which is where they are listed, which is more than 5% of the company. We make public filings on the ASX for those investments. The investment portfolio, which was initiated in 2019, has proven to be a highly successful strategy for the company, generated a lot of contract revenue, and has now returned all of the capital to head office, with a substantive investment portfolio remaining within the books.
Recent innovation initiatives include our investment in eco-detection. We obviously took an impairment, however, made some substantive management changes around the close of the first half results. We have recently installed a new CEO and CFO into the group, and working on revised business plans with respect to the channel to market. We continue to believe and are very confident in the technology platform. Our Well Force business with rig site t echnologies, a directional drilling geophysical surveys, continues to grow its footprint and its client base. Our training center in Tanzania, which again is not only looking after Capital's training, but training external customers. All of these are offering embryonic opportunities to provide new revenue streams to the group. Over to Rick for the financials, please.
Yeah, thanks, Jamie. Good morning, everybody. Already touched on a few of these points, but half on half, a 6% decrease in our revenue really does reflect that transition from Sukari m ining, which was firmly in the numbers H1 2024, transitioning over, obviously redeploying the fleet over to Reko Diq, with the ramp-up ongoing at that site. That was partially offset by a particularly pleasing performance from MSA , which Jamie has alluded to, and particularly in the second quarter. From a margins perspective, our margins do remain suppressed in the half, but both Reko mining and MSA are going to be strong contributors in H2, as well as sort of seeing a generally strong performance across the drilling business. Over to cash flow. For cash from operations, up half on half by 8% there. As Jamie alluded to, very much a favorable working cap movement, offset by our lower margins.
I think overall, a strong cash flow conversion in the half, which we're very pleased about, and has positioned us really well for the second half. I'll come in to touch on some of the detail. Next slide, please, Conor. So net debt waterfall has opened the year, $76 million as reported. To remind people, gross debt $116 million, cash of about $40 million. Working through the waterfall, just to touch on a couple of points, there's the working cap inflow, the $23 million, so a favorable position for us, driven collections at the half, but pretty strong into the end of June. Also with Reko's ramp-up, we've got various mobilization payments and advances, and a little movement in the payables there as we just have enhanced activity on that site.
CapEx, I'll come in to touch on that separately, but lower than, I'd say, our traditional CapEx figures, driving that net debt at the period end there of $55 million, comprising gross debt $113 million, cash of $58 million. I'll touch on the leverage as well. That 12-month trailing leverage net debt to EBITDA 0.8x, so pleasing to see that coming down. We were 0.95x at the last two reporting points, so, yeah, a pleasing position. On the CapEx, CapEx for the half, $20 million, which positions us well within the guidance, if not towards the lower end of guidance for the year. CapEx will be H2 weighted, as spend comes through from contracts, particularly such as Reko Diq. As I say, hopeful of being at the lower end of the guidance range. Interim dividend, Jamie's touched on already.
We are committed to that strong balance sheet, but we also wanted to demonstrate, you know, our confidence in the outlook. We maintained the dividend at $0.013 per share, and with a payment date, just to cover the details there, payment date out in October as per normal. Jamie, should I hand back to you for outlook comments?
Yeah, sure. Needless to say, these are very good times for service providers to the mining industry and particularly to the gold industry. I think there's been a noticeable shift in demand, particularly in the last quarter. As I said earlier, we've seen an increase in demand already coming in from the exploration market, and we have announced a number of small, shorter-term exploration contracts. The volume of those opportunities is growing strongly. The other thing that we have seen, I think, even as recently in the last couple of months, is discussions around existing mine sites adding capacity, and increased budgets coming into the mine sites. Intuitively, one would expect that. The industry, I think, still has some inherent conservatism in its approach to capital spending and exploration expenditure.
We haven't included in this deck the longer-term, say, 15-year, profile of both capital spending and exploration spending, but at current levels, we're still roughly 50% below previous cycle peaks. That's obviously against a backdrop of gold at a historic peak. The backdrop under which we're operating is extremely positive. At the most recent release, i.e., the Q2 trading update, we were pleased that we could increase our revenue guidance, and we increased from a range of $300 million- $320 million, and we moved it up to $320 million- $340 million, MSALABS up to $55 million- $65 million. That momentum is coming in across all of our business units.
I think what is particularly exciting about the outlook is, obviously, if you look at our first half revenue numbers and you look at our guidance, it's telling us that as we move out of 2025, which has been somewhat of a rebuilding and restructuring year for Capital, as we move into next year, we're going to be heading into next year at the highest revenue in the company's run rate of revenue in the company's history with an extremely supportive market backdrop. Pleased to say that things are well and truly on track. Looking forward to having more positive news to share as the year unfolds. On that, I'll hand over to Q&A. Thank you.
Thank you, Jamie. We will now start the Q&A. If you wish to ask a question, please submit questions through the webcast page using the ask a question button. I will now hand over to Conor Rowley, Commercial and Corporate Development, to address the written questions. Please go ahead.
Thanks, operator . I think we'll start with the drilling one. You've talked about the high demand coming from exploration. The question is, does this mean we can see our target utilization increase from 75%? If not, is this exploration the sort of target area for any increased rate cap?
I wouldn't expect us to change our target utilization from 75%. However, the way I could answer that question more appropriately is that in the time that Capital has been a public company and had a scale of operations, we had peak utilization of 83%. That is a number that could conceivably be achieved, quite readily achieved with this demand backdrop. Needless to say, when you operate across multiple jurisdictions with multiple rig types, from aircore to blast holder, grade control, etc., it depends on the demand profile coming through, how well you can utilize those assets. Furthermore, you're always rebuilding, refurbishing, commissioning, mobilizing assets. That'll always, you can never have 100%. I hope it answers the question somewhat to say, you know, previous 83% is a number that we've achieved before.
Thanks, Jamie. Quite a few questions on Reko Diq. I mean, I guess it might be easier to give some color on, you know, we've obviously announced we had drilling and then the mining contracts and now the borehole drilling. What is the activity like on site? The question is based on, you know, how likely do we think there's a possibility of an extension past this end of 2028 contract?
Very early to say. There are two bodies of work on the mining side that are taking place, specifically civils and tailings. Civils, by the very nature of the activity, has got a more finite opportunity in front of it unless the customer decided to increase plant capacity. Reko has been quite public about phase I, phase II, which are 45 million ton each in their production profile. The civils has got less likelihood. However, the tailings, this is an ultra-long life, ultra-low-cost asset. I think subject to Capital performing, which I'm very confident that we will, there is a very decent probability that there will be an extension on the tailings part of the work.
Thanks. There is also a question just on the revenue outlook for the mining business. I'm just going to go back to the mining slide to make it easy. It's talking about, I guess, we've been impacted significantly by the end of mining contracts in 2024. Could you talk to the ramp-up profile of the new mining contract and what revenues look like this year and next year and into 2027?
I think the chart in the top right talks to it really.
It's easy.
Yeah.
Make it easy for you.
Yeah, thank you. Obviously, once it hits full run rate, which will happen over the course of 2026, that'll be a number replicated into 2027, and it runs through to the end of 2028. It's just a question of are there expansion opportunities beyond that, which again, we'd be somewhat optimistic that there would be. Typically, with a project of this scale in the early stages, there tends to be more opportunities than not. What you're looking at there numbers-wise is pretty much the ramp-up profile, which will run through to 2028.
Thanks. I guess one specific one for Rick. The ERP project, could you talk to that and why we consider it exceptional? Is this not a normal part of resource planning of the business?
Yeah, sure. We're in the process of implementing a new ERP system. We're moving from our old one to a new Microsoft Dynamics product. That's a large project, one-off in nature in terms of the cost of implementing it. We've chosen to separate out those costs, treat them as exceptional to not affect effectively the underlying margin of the business. There is a cost associated with obviously running resource planning in the background, running the systems. That cost is already embedded because we're already running a system. The cost you're seeing is the explicit cost of implementing the new system, which will be worked on this year into next, and then it will drop away as we start running the new system.
Okay, thanks. I guess maybe a question for both of you. We talked about an inflection in Q2 and a recovery in margins. How do we look at that margin recovery profile as Reko comes on and MSA comes through into profitability? What do we think in terms of the phasing of margins into H2 and into 2026?
Rick, are you going to field that?
Happy to field that. Obviously, we previously talked about our margins being in that sort of 25% EBITDA position, adjusted EBITDA position. I think given the trajectory of the business into 2026, we feel that we'd certainly be firmly heading back in that direction. You've seen H1 2025 is at a 20% level. Obviously, we've got the positive momentum and the ramp-up of Reko coming through, especially with MSA showing positive signs. Yes, that's sort of heading back towards that 25% adjusted EBITDA margin. I think it's where we feel comfortable we'll get there into next year.
I'll ask what's the final one for you, Rick. We announced the write-off of some receivables in the year as uncollectible. Could you give some more details on this?
Yeah, I don't think it was a significant event. I think it was a collection of smaller stuff that just got written off in the half. Nothing of particular note, I don't think. Some of it was provided for, some of it wasn't. As I say, it was a collection of stuff, the smaller instances.
Okay, perfect. That's the end of the Q&A unless anyone wants to submit any very last-minute questions. Other than that, I'll hand back to Jamie for any closing comments.
Thank you. I think we've covered the outlook. We certainly, in a positive frame of mind, are going to be incrementally delivering some good news flow over the balance of this year and into next year. I'd just like to thank everyone for taking the time to dial in today. Thank you and see you again. Thank you.