Specialist resources services provider Babylon Pump & Power Limited (ASX: BPP) has turned in another positive quarterly update and quarterly cash flow report for the period ended 30th June 2023.

The company reported cash receipts of $34.9 million and positive operating cashflow of $2.3 million for FY23 which represents a 1,316% increase over FY22. Babylon has now recorded positive operating cashflow in five of the last six reporting periods.

Positive operating cashflow has been driven by improved earnings across both rental and maintenance business segments. The company had $5.9M of receivables from mostly blue- chip clients and $3.4M of cash and undrawn debt facilities at the end of June to support growth initiatives.

This financial year has been significant in the company’s growth and maturity. Strategic initiatives to grow our specialty rental business, restructure our maintenance business and focus on improving margins are delivering results. We have achieved significant improvement in operational cash flow and continued EBITDA growth whilst integrating two acquisitions, consolidating operations into a new facility, and streamlining our maintenance activities,” Managing Director, Michael Shelby, said.

“Our leadership team is delivering on its strategy and I’m proud of the entire workforce as they have helped transition the business and accelerate earnings.”

Operations Update

Specialty Rental

Improving asset utilisation and the addition of new assets to the fleet have improved specialty rental returns in the quarter. The two acquisitions made during the year have contributed to earnings growth.

Test pumping activity associated with the RWG acquisition has remained consistent with new works for both existing and new clients mobilising in the first quarter of FY24. Activity associated with the RBH acquisition has exceeded initial expectations as the company is experiencing higher than forecast rental fleet utilisation with blue chip mining clients.

New pumping and power rental assets entering the fleet in the upcoming quarter are expected to drive continued growth.

In addition, the company is expanding its rental fleet with specialised hybrid power systems, with the expectation that the first project will mobilise in the first half of FY24. Replacing diesel generators traditionally found across mine sites with small scale portable renewable power incorporating battery storage, supports a growing need to reduce emissions for our clients and is a key part of the company’s strategy of delivering a differentiated rental fleet to the resources sector.

Utilisation of industrial services fleet has increased during the year and activity levels are expected remain high in the new financial year.

Maintenance Services

Simplifying and consolidating the maintenance segment during the year has resulted in reduced overheads and improved margins.

Consolidation into a single Perth facility in late FY23 has delivered considerable operating efficiencies and broad-based business improvements in Western Australia, but the standout performance has been the turnaround in profitability in the Queensland maintenance operations located in Mackay. Consistent flow of work and a rightsized workforce has powered Primepower Queensland to record earnings.

Summary and Outlook

“The company’s Board said it is pleased with the improved business performance and initiatives delivered during FY23,” Mr Shelby said.

“A clear strategy is in place to achieve ongoing growth in current service offerings, with a focus on growing the more profitable specialty services and rental revenue streams whilst driving further opportunities to improve operational efficiencies and profitability in maintenance services.

“In addition, the company remains alert for potential acquisitions to build scale in the mining services sector.”