Mincon : 2023 Half Year Result

MINCON

CONTENTS

group specialising in the design, manufacture, sale and servicing of rock drilling tools and associated products, announces its half year results for the six months ended 30 June 2023.

MINCON GROUP PLC 2023 HALF YEAR FINANCIAL RESULTS

"H1 2023 has been a challenging period for Mincon with our revenue behind the same period in the prior year, primarily due to a shortfall in our sales to the mining industry and FX headwinds. This performance in the sector is down to several factors but mainly due to reduced exploration activity and certain larger customers taking advantage of improved freight conditions to reduce inventories. We are, however, working on regaining some of this revenue with some positive drilling results from customer testing that we are doing in all our regions, most notably in APAC."

In positive news, it is very pleasing to see that we have consolidated the gains we made last year in the construction sector, and more importantly, the revenue mix includes a higher proportion of smaller projects, which gives a more sustainable spread to the business. It is notable that there continues to be a strong pipeline of large projects that we are looking to land in H2 and beyond. Our sales into the water well/geothermal well drilling market are up, driven by gains in EME and the Americas.

As a result of the lower mining revenues, we have looked closely at our costs and have taken selective, targeted action to reduce costs where appropriate. The results of this cost reduction exercise will be seen in H2, which should help us to recover margins. In July, we announced the appointment of Tom Purcell to the role of COO for the Group. Most recently, Tom has been leading a project to reduce our inventories across the Group and we are pleased to report that we have started to make good progress in this area.

I am pleased to report that our sustainability report for 2022 will be published in conjunction with these results. This will show that we have achieved initial progress on our ambitious goals to reduce scope 1 and 2 emissions. It also indicates that our biggest challenge and opportunity to reduce emissions is around the end-use of our products. This has been well known to us for many years and is what has driven our

ambition and engineering innovations to focus on the drilling effi ciency of our products, whether it be through increased rate of drilling, longer product life or reliability.

These attributes are particularly noticeable with some of the new product development projects that we have been working on, such as our Greenhammer system.

We have engaged with a major rig manufacturer on a collaboration to prove out the system by converting one of their rigs and testing it at a location in the US. This is an attractive location as the largest rig population suitable for conversion to Greenhammer is in this market. Another attractive feature of this collaboration is the service footprint that we both have in this market. We remain heavily focused on getting the system running in Western Australia and expect the system to return to operation in the coming month at the gold mine where we have been carrying out tests in recent months.

Another project which can deliver positive effi ciency gains is our large hammer and bit project that we have been testing in Malaysia. We have had excellent performance

• gures when it has been run and we have been onsite a number of times to see the system in action. We see a great opportunity to push this out to the large diameter drilling market to replace incumbent systems that have much lower productivity with resulting higher emissions.

about the future of our business. To ensure we are adequately positioned to capitalise on these opportunities, we invested a further €4.3 million in property, plant and equipment during the period, which includes a step- change in effi ciency gains with a new heat treatment facility at our Shannon plant. This will be followed up with the commissioning of a new manufacturing building at our Shannon site and installing purpose-built robotic machining cells in the extension to cater for the growth opportunities we see.

CONCLUSION

While the fi rst half of 2023 has been challenging, we are confi dent that our focus on the effi ciency of our production facilities but, more importantly, the effi cient products we have today as well as those in development, will ensure that we can grow and thrive in the longer term.

In the short term we expect to deliver revenue growth in H2, while also realising the benefi ts of our cost reduction program to deliver a much improved margin in H2 2023 over H1 2023. We are also confi dent that we will continue with the progress we are making on inventory reduction in H2 2023. I feel privileged to work with the global Mincon team and look forward to delivering on the platform that we have created.

Our Subsea project has been gathering momentum and at our recent AGM we made a presentation to assembled shareholders and guests in conjunction with our collaboration partners, Subsea Micropiles. We had very positive feedback from this event, and we have commenced the assembly of the subsea rig at our facility in Shannon. We are working hard to have the subsea testing underway within the next six months. There remains an enormous opportunity for Mincon with this exciting project on the successful completion of our collaboration with Subsea Micropiles and our University partners.

These transformational product development projects as well as the continuous improvement initiatives we are engaged in across our product lines give us confi dence

Joseph Purcell

Chief Executive Officer

KEY FINANCIAL COMMENTARY

KEY FINANCIAL COMMENTARY CONTINUED

MARKET INDUSTRIES AND PRODUCT MIX

Revenue in the first half of 2023 contracted by 5%, due to a decrease in our mining industry revenue and currency headwinds. Foreign exchange movements represented 3% of the reduction in reported revenue, most notably due to the South African Rand weakening during Q2 2023.

Our revenue from the mining industry contracted by 15% during the period, with revenues down in three out of our four geographic regions. The largest contraction in our mining revenue was in the Europe & Middle East region, down 72% versus the same period in the prior year. We have received fewer orders from one large customer in this region due to their inventory reduction strategy. Since the beginning of the war in Ukraine, emerging mining opportunities for the Group in Eastern Europe and further East into Asia, have unfortunately been significantly affected, a disappointing result given we had been making positive traction in the mining industry in those areas in recent years.

Our mining revenue in Africa contracted by 11%, however this has mostly been driven by the weakening in the South African Rand during the period. Excluding FX impacts, our Africa region business contracted by 1% in the period due mainly to reduced activity in the exploration sector. Mining in our APAC region also contracted in the period and is behind H1 2022 revenue by 22%.

Our revenue in the construction industry was flat during the

smaller projects as they provide the Group with a steadier income stream and reduced complexity in controlling working capital. Large construction projects will remain an important part in our construction growth however, and there continues to be a healthy pipeline of projects which we will selectively target.

Our Europe & Middle East region had construction revenue growth of 8% during the period, this has been due to our expanded footprint in Northern Europe. Our other regions are continuing to develop the industry for our products.

Our revenue in the waterwell/geothermal industry grew by

10% in the period. We experienced positive growth in North America and Northern Europe where we earn the vast majority of our revenue in this industry.

EARNINGS

Our earnings have been impacted due to lower revenue earned in the period, though our gross margin percentage is consistent with H1 2022. This is due to price increases that were implemented in H2 2022, and measures taken to protect our margins during this reported period.

In line with our inventory reduction ambitions, we have decreased our manufacturing output in H1 2023 versus the same period in the prior year. However, our margins have been temporarily impacted as a result.

Decreased revenue together with our inventory reduction program has had an impact on our gross margin versus the

To mitigate this impact on our margin we have implemented a cost reduction program across our factories and our operations, to maximise efficiency in manufacturing and to rightsize costs in subsidiaries to match their revenue. That program has continued into H2 2023, and we will see the full benefits at the end of this year and into 2024.

We have also reduced our subcontract manufacturing significantly in the period and this has given some relief to our factories, enabling us to increase the volume of Mincon- manufactured product through our manufacturing plants and thus benefiting our gross margin.

Our operating employee costs are flat on H1 2022, though we have reduced our headcount in administration and sales. Total costs associated with employees exiting the business in H1 2023 was €0.7 million and that cost was recorded within our operating employee costs. As a result of these actions, we expect to see a considerable saving in employee costs in H2 2023.

Our finance costs have increased in the period reflecting increased interest costs on our borrowings as a result of the wider change in the interest rate environment as central banks take action to address inflation. The Group has a number of bank loans and lease liabilities with a mixture of variable and fixed interest rates.

BALANCE SHEET AND CASH

We borrowed further in the first half of 2023. This is mostly in relation to our capital equipment program. The borrowings over capital equipment commissioning are in relation to our Subsea project. We plan to borrow further in H2 2023 to see out our large capex projects.

During the period we paid €0.4 million for historical acquisitions. We also paid a final year dividend for 2022 of €2.2 million in June 2023. The Board of Mincon has approved the payment of an interim dividend in the amount of €0.0105 (1.05 cent) per ordinary share, which will be paid to shareholders in December 2023.

For further information, please contact:

(Joint Broker)

Malachy McEntyre

Mark Percy

Daniel Bush

period, however this has been on the back of significant growth in this industry, year on year, since 2019. The Americas region, where we have seen the largest growth in this industry over the last few years, contracted by 2% in this period, due to the absence of any new large construction project and FX headwinds. The focus during H1 2023 has been on winning

first quarter of the year due to less manufactured product in our factories. As a result, our manufacturing plants are not fully utilising their capacity and manufacturing overheads are spread across less factory output, thus impacting our consolidated gross margin.

Our cash generated from operations has increased significantly over the same period from the prior year although the impact from movements in debtor balances and the timing of orders in the first half has resulted in a lower closing cash position at the end of the period. This is due to where we earned our revenues in the first half of the year and we expect this debtor position to unwind in the coming months.

As previously noted in our discussion on new business development initiatives, we have commissioned €4.3 million of property plant and equipment in the period. This is mostly from large capex projects over the past eighteen months, including the new heat treatment facilities in Shannon.

We have implemented a Group-wide inventory reduction program, with the goal of reducing our overall inventory levels in terms of months. Targets have been set for each subsidiary in the Group with timelines attached. We expect to make inroads in our goals on this important project for the Group by the end of this year.