IMDEX LIMITED — Annual Report 2010

Aug 15, 2010

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16 August 2010

IMDEX STRONGLY POSITIONED FOR FUTURE GROWTH

Imdex Limited (ASX: IMD) today announced its results for the full year ended 30 June 2010 that demonstrated the Company’s resilience and strong positioning for future growth.

Summary financial results:

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•
Revenue from continuing operations (excluding interest revenue) for FY10 of $134.3
million (FY09 – $137.0 million), with a strong recovery in 2H10 revenue of $75.9
million (2H09: $56.7m, 1H10: $58.4m);
•
EBITA from continuing operations excluding non-operational items of $20.7 million
(FY09 – $24.5 million), with a strong recovery in 2H10 demonstrated continued
recovery on the previous two halves with EBITA of $13.2 million (2H09 $4.5 million,
1H10: $7.5 million);
• Normalised net profit after tax from continuing operations (excluding non-operational
items and impairment charges) of $9.8 million (FY09 – $11.3 million);
• Reported loss after tax (including non-operational items and impairment charges) of
$21.5 million (FY09 - $12.1 million profit);
•
Net assets of $94.5 million (30 June 2009 – $105.6 million) reflecting impairment
losses of $34 million relating to the mark-to-market valuation of the investment in
Sino Gas and Energy Holdings and write off of goodwill and intangible assets in the
first half of FY10;
•
Cash flow from operations of $5.7 million (FY09 – $16.2 million) reflecting
investments in working capital in FY10 in response to strengthened trading
conditions (compared to FY09 destocking in anticipation of challenging operating
conditions);
•
Continued investment in research and product development – $3.3 million capitalised
for FY10; and
• Maintained conservative gearing (net debt / capital) at 19.6% (FY09 – 16.0%) with
absolute debt decreasing by $2 million over the financial year.
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Imdex’s Managing Director, Mr. Bernie Ridgeway, said “We are very pleased with the recovery of the business in the second half of the year. We achieved record revenue levels

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in the month of June and record tool rental numbers which augers well for the outlook for the industry and for our business.”

“The 2010 financial year was a tale of two halves. The prolonged trading decline in Canada, Africa and Latin America impacting the first half, improved significantly by the second half, and continued that improvement throughout the fourth quarter allowing Imdex’s revenue levels to return to those experienced prior to the global financial crisis” Mr. Ridgeway said.

He also noted the increase in revenue was not only a result of improved trading conditions in the second half of the year, but also due to increased market share for both Imdex’s Drilling Fluids and Chemicals Division and Down Hole Instrumentation Division.

“Imdex’s commitment to its strategy and expenditure on research and product development throughout the downturn has seen the Company emerge in a stronger position with an enhanced global structure, additional expertise, and a superior suite of technologies to capitalise on opportunities.” Mr. Ridgeway said.

Drilling Fluids and Chemicals (DFC) Division

Financial performance

In FY10 Imdex’s DFC Division generated $89.6 million in revenue (FY09 $91.7 million) which represented 67% of Imdex’s revenue for the full year. While the Division’s full year revenue was marginally lower than the previous year, this was largely attributable to the record result in 1H09. Revenue in the second half of FY10 increased to $48.6 million, up from $41.0 million in the first half of the year and $41.2 million in 2H09.

Key operational highlights and achievements

• AMC maintaining market leadership within the coal bed methane sector. Activity within this sector in Australia continues to build and is forecast to provide Imdex with significant revenue generating opportunities going forward;

• Further development of Imdex’s surface and underground Solids Control Units;

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• In collaboration with drilling company AJ Lucas, the winning of a tender to supply drilling fluids for the pipe landings on Barrow Island for the Gorgon project;

• Completion of the drilling fluids research laboratory at Imdex’s premises in Osborne Park, Western Australia. The laboratory has specialised analytical equipment to test and develop fluids used in the oilfield, mining, water well and specialised drilling sectors. The ability to offer these services gives Imdex a significant competitive advantage within the drilling fluids market;

• The decision to rationalise Imdex’s DFC brands from six individual brands to one global AMC brand for both Mining and Oil and Gas; and

• Implementing a regional reporting and operational structure to maximise cross selling opportunities between Imdex’s two Divisions.

Down Hole Instrumentation (DHI) Division

Financial performance

The DHI Division yielded revenue of $44.7 million for the full year, a marginally lower result than the previous year (FY09 $45.3 million), representing 33% of Imdex’s revenue. The second half performance of $27.3 million represents a significant improvement on 1H10 of $17.4 million and 2H09 of $15.5 million. The result reinforces the strength of the Division’s business model and range of down hole instrumentation.

Key operational highlights and achievements

• Completion of the relocation of manufacturing facilities from the U.K. to Australia. The relocation commenced in the second half of FY09 and was completed with a minimum of disruption to operations and is working well. The newly renovated facility at Imdex’s premises in Osborne Park, Western Australia, has been designed to maximise production efficiencies and cater for forecast tool requirements;

• Further marketing of Reflex’s products, the Reflex Gyro, ACT II and Reflex EZ-Com II. These new products were launched to the mineral exploration / mining market in early FY10, and are being well received by customers globally. The introduction of the new gyro technology broadens Reflex’s product suite to include a full range of magnetic, gyroscopic and optical survey instruments;

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• Successful results with the Flexit HTGS MEMS gyro system in onshore oil and gas operations as part of an exclusive agreement with a significant U.S. customer. Marketing of the Flexit HTGS will be expanded to other customers and geographical regions in FY11;

• Improvements in the production, capabilities and reliability of Flexit’s Target INS north seeking mechanical gyro system. The Flexit Target INS system is being successfully utilised in diverse regions and countries around the world including the United Arab Emirates, Malaysia, Egypt, Nigeria, the Caspian Sea, and Canada. Imdex continues to refine the instrument’s capabilities to ensure that it becomes the benchmark of superior down hole survey technology;

• Further progress with the development of a north seeking MEMS gyro for down hole survey applications for the mineral exploration / mining, oil and gas industries. Flexit is developing this pioneering survey instrument with Sensonor, a Norwegian company which has specialised in MEMS technology for the past 25 years; and

• Continued investment in engineering and product development to maintain Imdex’s position as a leader and innovator in advanced down hole survey technology.

Mr. Ridgeway noted that the increased market share for both Imdex’s DFC and DHI Divisions validated the Company’s decision to implement a regional operating structure.

Impairment

Imdex incurred non-cash impairment write downs totalling $34.0 million, $28.4 million in 1H10 and $5.6 million in 2H10.

Impairments incurred in 1H10 were outlined in the half-year results presentation materials. The additional $5.6 million charge incurred in 2H10 arose on the mark-to-market valuation of Imdex’s shareholding in Sino Gas & Energy Holdings Limited to its 30 June 2010 ASX share price of 2.7 cents per share.

These write downs are all non-cash in nature and have no impact on operating capability or funding arrangements.

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Dividends

The Directors consider it prudent not to pay a full year dividend for FY10 at this time. The Board will continue to consider future dividends reflecting the earnings profile of the Company while balancing the capital needs of the business.

Positive outlook for FY11

Mr. Ridgeway said that the outlook for Imdex in FY11 is positive. Metals prices have recovered significantly from their 2009 lows and many are trading above their long term averages. The gold price remains strong and traditionally accounts for some 50% of worldwide non-ferrous mineral exploration expenditure. In addition, economic growth in China and India continues to be fuelled by their investment in infrastructure and urbanisation.

“The underlying market fundamentals are likely to maintain demand for commodities and stimulate exploration expenditure which is very encouraging for the continued growth of Imdex.” Mr. Ridgeway said.

Respected worldwide minerals information and consulting company, Metals Economics Group, has estimated that exploration expenditure will increase by 35%-40% in calendar year 2010 over 2009. Similar industry data is showing levels of exploration and production expenditure within the oil and gas sector in calendar year 2010 exceeding 2009.

Mr. Ridgeway also commented that drilling contractors are reporting stronger demand from both the major and intermediate mining companies and rig utilisation rates are well up.

There are very positive signs of recovery in the markets in which Imdex operates. Imdex’s investment through the cycle and strong presence in key markets, positions the business well for the upturn and the Company anticipates a significantly improved performance in FY11. While there are strong signs of recovery, the pace and sustainability of the recovery largely depends on continued robust commodity prices and stable financial global markets.

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Focus for FY11

During FY11 Imdex’s management team remains committed to the Company’s focused strategy of:

• providing exceptional customer support and out servicing competitors in order to maintain and grow existing markets;

• further penetrating the oil and gas and coal bed methane markets with both drilling fluids and down hole instrumentation;

• increasing Imdex’s exposure to the underpenetrated geographical markets of Canada, Africa and Latin America;

• controlling costs and growing the down hole instrumentation rental business; and

• continuing its investment in research and development to provide an expanded and diversified product range ensuring Imdex’s technology leadership is maintained and enhanced.

Ross Kelly

Imdex Limited, Chairman

For further information , please contact:

Bernie Ridgeway, Managing Director Ross Kelly, Chairman

Paul Evans, Chief Financial Officer and Company Secretary Ph: +61 8 9481 5777 Email: imdex@imdexlimited.com

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Imdex Limited Summary Financial Highlights for the Year Ended 30 June 2009

(Audited Results)

	Consolidated	Consolidated	Consolidated	Consolidated
	2008 $’000	2009 $’000	2010 $’000	09-10 Var %
Revenue from continuing operations (excluding interest income)	142,009 136,968 134,253 (2%)
Operating Profit before Interest, Tax, Depreciation & Amortisation Depreciation	42,068 27,817 24,893 (11%) (3,266) (3,318) (4,182) 26%
Earnings before Interest, Tax & Amortisation (EBITA)	38,802 24,499 20,711 (15%)
EBITA margin Amortisation	27% 18% 15% (17%) (6,055) (6,535) (6,363) (3%)
Earnings before Interest & Tax (EBIT)	32,747 17,964 14,348 (20%)
Net interest expense	(862) (826) (771) (7%)
Net profit before tax	31,885 17,138 13,577 (21%)
Income tax expense	(10,804) (5,811) (3,781) (35%)
Net Profit after Tax (before non-operational items)	21,081 11,327 9,796 (14%)
Net trading result of Surtron after tax Non-operational items Forex gain / (loss) on loan to SEH Impairment of SEH investment Impairment of operations Profit on sale of Surtron business Tax effect of non-operational items	1,001 - - - - 1,057 (677) - - - (10,440) - - - (23,531) - 12,139 - - - (2,219) (317) 3,304 -
Net Profit for the Year after Tax	32,002 12,067 (21,548) -
Basic earnings / (loss) per share from continuing operations (cents)	11.22 ¢ 6.37 ¢ (11.05 ¢) (273%)
Net Cash provided by Operating Activities	10,257 16,175 5,700 (65%)
Cash on hand	13,276 11,975 9,007 (25%)
Net Assets	105,643 116,198 94,495 (19%)
Total Borrowings	35,552 34,039 32,018 (6%)
Net Tangible Assetsper Share	14.02 ¢ 19.10 ¢ 22.83 ¢ 20%

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