IMDEX LIMITED — Annual Report 2013

Aug 18, 2013

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RECORD OIL & GAS REVENUE REFLECTS SUCCESS OF DIVERSIFICATION STRATEGIES

19 August 2013

Imdex Limited (ASX: IMD) today announced its results for the 12 months ended 30 June 2013 (FY13), which saw the company achieve record revenue within its Oil & Gas Division.

The results reported today also reflect:

• Continuing subdued activity within the minerals sector due to the cyclical industry slowdown;

• Ongoing development and diversification of the business;

• The extension of some development projects into FY14;

• Continuing strong activity within the oil and gas sector with significant opportunities for long-term growth; and

• Strong working capital management driving significantly improved operating cash-flows.

Financial results

• Statutory revenue down 14% to $232.8 million (FY12: $269.6 million);

• Combined revenue (excluding interest) down 11% to $249.4 million (FY12: $278.9 million);

• EBITA down 53% to $35.2 million (FY12: $75.2 million), including $3.0 million of one off restructuring costs, with the majority of these costs incurred in 4Q13;

• Net profit after tax (NPAT) down 58% to $19.4 million (FY12: $45.8 million);

• Net assets $188.5 million (30 June 2012: $168.1 million);

• Operating cash-flow up 44% to $39.0 million (FY12: $27.1 million);

• Comfortable gearing levels with net debt/capital of 22.3% (FY12: 22.3%); and

• Final fully franked dividend of 0.40 cents per share, total FY13 dividend of 2.90 cents per share fully franked (FY12: 7.25 cents per share fully franked).

Operational Highlights

• Acquisition of ioGlobal;

• Deployment of Imdex’s SRUs to all principal mining regions globally;

• Increased market share in previously underpenetrated regions;

• Continued investment in innovative products and leading technologies;

• Record revenue generated by the Oil & Gas Division, with strong growth achieved within Europe and Asia Pacific and the Australian CBM market; and

• Continuing strong revenues and EBITDA performance by the VES International joint venture.

Commenting on the full year results, Imdex’s Managing Director, Mr Bernie Ridgeway, said:

“Imdex’s performance throughout FY13 was adversely impacted by subdued activity within the minerals sector, brought about by the cyclical slowdown.

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“Due to the cyclical nature of the minerals industry, in recent years we have adopted diversification strategies including plans to grow our business globally, expanding into new markets – specifically oil and gas– and investing in the development of innovative products and technologies.”

Mr Ridgeway said Imdex has successfully advanced these strategies and the company now has a business which is increasingly diversified by geography, customer and commodity base, with exposure to major and intermediate companies engaged in long-term projects, as well as a growing presence in the oil and gas sector offering material growth opportunities.

Minerals Division

Imdex’s Minerals Division consists of the AMC and Reflex (including ioGlobal) businesses. These businesses market innovative drilling fluids, chemicals, solids removal technologies, downhole instrumentation and data management solutions, together with geo-analytical consulting services and software, to the global minerals industry. AMC is the leading provider of drilling fluids to the global industry, and Reflex is the number one global supplier of downhole instrumentation to that industry.

Financial performance

The Minerals Division generated revenue of $182.7 million, contributing 73% of the company’s combined full year revenue. This represents a 24% decrease on the record result achieved in the previous corresponding period (FY12: $241.7 million). Operational EBITA decreased 50% to $43.2 million (FY12: $85.7 million). The decline in both revenue and EBITA reflects subdued activity in the minerals sector as already noted.

While the introduction of some of Imdex’s development projects was behind internal expectations, significant progress was made towards their commercialisation. The company continues to pursue market share growth in principal and underpenetrated mining markets, driven by Imdex’s leading innovative products and leading technologies. Such products and technologies are assisting Imdex’s direct and indirect customers reduce costs and increase operational efficiencies, helping them respond to increasingly challenging market conditions.

Key operating highlights and achievements

• Acquisition of ioGlobal, a provider of data management solutions for the mining, mineral exploration and oil and gas industries (effective 1 November 2012), providing Imdex with a range of new and significant growth opportunities, enhanced technologies and product offerings;

• The integration, including the rebranding of the company’s products and services under the Reflex banner, is proceeding well;

• Deployment of Imdex’s Solids Removal Units (SRUs) to all principal mining regions globally;

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• Imdex continues to receive positive feedback from customers, however, the slowdown in the minerals sector resulted in customers being more cautious than anticipated about adopting new technologies in the short-term;

• Ongoing development of Imdex’s underground SRUs and heli-portable SRUs ;

• Increased market share in previously underpenetrated regions;

• Establishment of new manufacturing facilities in Brisbane, Calgary and Argentina, enhancing operational efficiencies by reducing lead times and overcoming import restrictions; and

• Reduced inventory levels reflecting the cyclical slowdown in the minerals sector.

Mr Ridgeway said that while market conditions in minerals remained challenging, Imdex was wellplaced to grow market share in both principal and underpenetrated regions.

“While Imdex’s diversification strategies will not offset cyclical lows in the short-term, our innovative products and leading technologies position us well as customers increasingly look to reduce costs and improve productivity in their businesses.”

Oil & Gas Division

Imdex’s Oil & Gas Division includes AMC Oil & Gas and a 30% share of VES International (VES, formerly DHS Energy Services). The VES joint venture is the third largest global provider of downhole survey services to the oil and gas markets, operating primarily in the USA, Middle East and Latin America. The AMC Oil & Gas and VES businesses provide drilling fluids, production and completion chemicals, and downhole survey services to the conventional and unconventional oil and gas markets.

Financial performance

Imdex’s Oil & Gas Division contributed 27% of the company’s combined revenue for the full year, generating $66.7 million. This result represents a 79% increase on the previous corresponding period (FY12: $37.2 million). Operational EBITA improved by 47% to a loss of $4.1 million (FY12: loss of $7.7 million) with AMC Oil & Gas incurring only a small component of this (less than $1.0 million). This EBITA loss reflected high non-cash depreciation, amortisation and taxation charges in the VES businesses and additional acquisition accounting adjustments.

With year-on-year revenue growth reported since FY10, Imdex will continue to achieve growth through improved performance in the VES joint venture and increased fluids and equipment sales/rentals in Europe, Middle East and Asia Pacific.

Key operating highlights and achievements

• Record FY13 revenue, reflecting investment committed to the development of the Division in prior years driving growth;

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• Continuing strong revenues and EBITDA performance by Imdex’s VES joint venture;

• Establishment of a new mud plant in Bremen, north-western Germany;

• Continued growth from the coal bed methane industry in Australia, with an increased demand for sump-less drilling solutions to ensure minimal environmental disturbance;

• The first explosion proof SRU placed into the coal bed methane industry in Queensland, Australia;

• Relocation of Imdex Technology Germany to California; and

• The expansion of VES International’s presence in Latin America with the acquisition of a downhole survey business in Ecuador.

Mr Ridgeway said “The Oil & Gas Division achieved record revenue for FY13 and continued its trend of year-on-year growth since FY10. This result highlights significant progress towards our long-term goal of generating 30–40% of revenue from the Oil & Gas Division and the growing momentum of our diversification strategies. We expect this Division to be profitable in FY14.”

Dividend

Imdex continues to maintain its policy of reinvesting in the longevity of its products and business growth, whilst maintaining a steady and sustainable dividend stream for the Company’s shareholders. Accordingly, the Directors have declared a final fully franked dividend of 0.40 cents per share, bringing the total dividend for FY13 to 2.90 cents per share fully franked.

Dividend record and payment dates are 11 October 2013 and 25 October 2013 respectively.

Outlook

Imdex has been working diligently in recent years to diversify the business by geography, product, customer and commodity base. This will enable the company to drive growth and also reduce its exposure to slowdowns which are characteristic of the minerals sector. The Oil & Gas Division delivered 27% of FY13 revenue, representing significant progress towards the long-term goal of generating 30-40% of combined revenue from oil and gas.

While Imdex anticipates activity in the mining sector will remain subdued throughout FY14, the company is well placed to grow market share in underpenetrated regions and to benefit from the commercialisation of new products and technologies.

The company has historically continued to invest in its growth and diversification strategies through previous cycles, which has positioned the business well for long-term growth.

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The company is managing inventory and working capital with care and will continue to look for opportunities to manage costs in a measured and disciplined manner. Imdex is also maintaining a disciplined approach to investments in new products and technologies.

The oil and gas sector remains robust with significant opportunities for long-term growth. The investments made to date in equipment, working capital and qualified personnel have driven strong revenue growth and the Division is well positioned to continue to deliver top line growth and will be profitable in FY14.

Key priorities for FY14

• Strong cost discipline and prudent working capital management;

• Continuing to increase Imdex’s market share in previously under penetrated regions;

• Utilising Imdex’s specialist technical expertise and product development;

• Expanding Imdex’s data solution offerings to new and existing customers globally;

• Investing further and growing Imdex’s oil and gas market presence to increase return on investment in this Division;

• Continued support of customers as they seek to increase efficiencies and reduce costs; and

• Capitalising on investment in Imdex’s oil and gas equipment and SRUs.

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