Thank you for standing by, and welcome to the IMDEX Limited 1H 2024 results. All participants are in a listen-only mode. There will be a presentation followed by a Q&A session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Paul House, CEO. Please go ahead.
Thanks, Ashley. Good morning and welcome, everyone, to the IMDEX results presentation for the first half of FY 2024. I'm pleased to have Paul Evans, our CFO, and Kym Clements, who leads our investor relations, joining me on the call today. Throughout this call, I'll be referring to the investor presentation slides that have been released on the ASX this morning. Slide three headlines our purpose. IMDEX is a leading global mining tech company, setting ourselves apart from the broader mining services arena in the following ways: we place technical leadership at the core of our growth strategy. We build that technical leadership through consistent and disciplined investment in R&D to develop and deliver patented technologies to the marketplace. A feature of our business model is that we are neither capital-intensive nor people-intensive. We are truly global, with limited contract risk, commodity risk, and geographic risk.
Finally, we are developing an end-to-end offering that works together to build a high-quality revenue base with increasing EBITDA margins, and as you will see, this is a feature of our results this half. At IMDEX, we are uniquely positioned to provide insight into our customers' ore bodies. Our purpose and the opportunity we have is to help mining companies and drilling companies better unlock the Earth's resources together. The image on slide four seeks to illustrate how we turn the lights on inside an ore body and unlock the rich data that it contains. This heightened visibility enables all in the mining value chain to make better decisions and to make faster decisions. Through the delivery of high-quality real-time ore body knowledge, we can ensure that the mining industry can execute with optimal precision, confidence, and speed.
Today's presentation agenda is set out on slide five, and we will focus on four key areas: financial, strategic, and ESG highlights, including a deeper dive into our financial performance, which Paul Evans will provide, an update around the grounds, a dip into our strategy as a growth company and the opportunities ahead of us, and finally, the outlook for the balance of FY 2024. Following the presentation, Paul and I are happy to take any questions you may have. Turning now to slide seven and our financial highlights. The headline to begin with is group revenue, which at AUD 235 million is an uplift of 18% on the prior period and another record result for IMDEX. This achievement becomes even more significant when we consider that there has been a global downturn in exploration expenditure during the period, which saw a contraction in activity of approximately 12% worldwide.
Against this challenging backdrop, our revenue growth of 18%, bolstered by a AUD 36 million revenue contribution from Devico for the half, is an excellent result. The softer exploration activity that was evident in 2H 2023 continued to play through into 1H 2024, predominantly in the Western Canada and Western Australian marketplaces. Despite these conditions, the strength of the core business delivered half-on-half growth, a critical statement of our confidence to outperform in all market conditions.
Our EBITDA of AUD 71 million is again a strong result, a record result, and delivers an EBITDA margin of 30%, which is an uplift from 28% in 2H 2023. This notable margin improvement is a direct result of disciplined cost management, the synergies stemming from the Devico acquisition, and the expansion of gross margins in both sensors and fluids. I should call out that our EBITDA result has been normalized for two significant items, totaling AUD 14.1 million.
First, the integration costs for Devico, including the associated organizational redesign costs, which remain on track as has been previously guided. And second, the non-cash impairment of MAGHAMMER, which has been previously recorded as an asset held for sale following our decision to exit the Flexidrill assets that we announced in FY 2022. Further details of these adjustments can be found in the appendices, and Paul Evans will discuss them later in this presentation. Our normalized EBITDA, reflecting the performance of the underlying operations, is therefore up 13% on PCP. Half-on-half, however, revenue and EBITDA are up 11% and 19%, respectively. Turning now to our highlight on net debt. You will recall that we established a AUD 120 million debt facility to help fund the Devico acquisition. We are one year in and on track for the accelerated paydown of this four-year debt facility.
In addition, we have also paid out our AUD 13 million working capital facility during this period. Our net debt position now stands at AUD 45.7 million, an exceptional outcome and a significant improvement half-on-half. This outcome is a direct result of our strong working capital management. Another highlight: this half has delivered strong operating cash flow and continued inventory improvement, a testament to the disciplined operating rigor that continues to unlock value in our business model. Again, Paul will expand further on our overall balance sheet performance in just a moment. For the first time, we've highlighted NPATA, reflecting the impact of the Devico acquisition and once again demonstrating strong performance compared to the prior corresponding period. Finally, our directors have declared a AUD 0.015 per share interim fully franked dividend equating 26% normalized NPATA payout ratio and is consistent with our capital management policy.
We're very pleased that we've been able to put our balance sheet to work for our shareholders. Turning to slide 8 and a quick summary of the strategic highlights for the half, commencing from the left-hand side. First and foremost, I'm very proud of our global teams for their progress in successfully integrating Devico into our operations, while continuing to deliver on our core growth strategy and responding to the challenging market conditions. The operational integration of Devico has been completed ahead of schedule in 1H 2024, thereby unlocking greater savings than originally anticipated. Within our core business, the expansion of our survey technology stack has led to an increase in DeviGyros within our network through a combination of market share gains and survey technology stack upgrades.
As an aside, our new OMNI-IQ gyros are the fastest-growing sensor in our fleet, a testament to their new and improved running gear making the user experience safer and faster. These initiatives collectively have contributed to the 5% increase in our sensor average revenue per unit. Moving to the strategic pillar titled solution selling, our solution selling strategy continues to gain momentum, supported by the inclusion of the Devico directional drilling technology, where we have seen new projects expand into the U.S.A., Africa, and now Australia through leveraging the IMDEX network. We now have 41% of our top 250 customers utilizing greater than three of our products in solution form, and this is up from 37% in 1H 2023. Looking now at the highlights of our digital business unit, our strategic investments in Datarock and Krux are yielding promising results.
Datarock has reported significant revenue growth, conducting 23 trials compared to just five in the same period in 2023. Datarock's recognition as the investment startup of the year is a great accolade for their team. Similarly, Krux experienced a twofold revenue increase in 1H 2024 and has successfully secured several global contracts with major resource and drilling companies alike, once again leveraging IMDEX's global network. Lastly, our IMT business unit's organic expansion into the adjacent mining production space continues to gather momentum. The number of installed sites, which includes the underground survey solutions offered by BOLT and DeviGyro in underground applications, plus our fluid solutions represented by BHS and the BLASTDOG project, have all increased during the half. Specifically, our BLASTDOG trials are progressing as planned, with several commercial trials converting into purchase orders in H1 and early into H2.
More importantly, we continue to have a robust pipeline of new trials across all IMT technologies that are slated for pursuit in 2H 2024 and into FY25. Turning now our attention to slide nine. FY 2024 marks the first year that we've formed an ESG subcommittee reporting directly to the board, elevating it from the executive leadership working group that it was in prior years and has been building to this moment. Our ESG strategy remains centered around five key focus areas tailored to our organization, our people, and the communities in which we operate. Allow me to highlight now some key achievements. Starting with people, we saw an increase in safety engagement by 10%. We had zero lost-time injuries, and our total recordable injury frequency rate improved from 1.56 to 1.13, reflecting our unwavering commitment to safety everywhere around the world.
Additionally, we were honored to be recognized as a finalist for the Employer of Choice at the 2023 Australian HRD Awards. This accolade reflects the workplace culture that makes IMDEX an exceptional place to work for our people. Turning to innovation, one of our key targets for FY 2024 was to improve the user experience for our core products. Notably, we made our OMNI-IQ running gear lighter, thereby making it safer for a broader workforce. You will recall OMNI-IQ is the fastest-growing sensor in our fleet, highlighting the user experience of our products. Similarly, we developed an underground survey deployment system to reduce the safety risk that is associated with working at heights in an underground operation. For environment, we have made great strides in lifting the percentage of recyclable and reusable packaging for all products.
And within our society pillar, we've established an implementation plan for our community engagement policy, which ensures that we are contributing to our local communities in a meaningful and transparent manner. Finally, governance. It has been our pleasure to welcome Tracey Horton as our newest Non-Executive Director of the board. Tracy's CV is remarkable, and she brings extensive experience from which we are already beginning to benefit. That completes a brief review of our highlights for the half, and I'll now hand over to Paul Evans to discuss the financials in more detail.
Thank you, Paul. Paul has spoken to the first half 2024 financial highlights. I will aim to expand on some of the key metrics on slide 11. Firstly, I'd like to remind everyone the comparative first half 2023 results were achieved in a particularly strong half and do not include any contribution from Devico as acquisition was completed on 28 February 2023. As Paul mentioned, the normalized results exclude AUD 14.1 million of significant items, represented by AUD 6.7 million related to the Devico integration, including the organizational redesign costs, plus AUD 7.4 million resulting from the impairment of MAGHAMMER, previously shown as held for sale.
Expanding on these two items, I'm pleased to report that integration of Devico is progressing ahead of schedule. With the operational integration complete, we are already beginning to witness revenue and cost synergy benefits. Notably, in 1H 2024, we successfully completed a significant organizational redesign with reductions in the cost base expected from 2H 2024. During the first half of 2024, the group continued to progress the investment in MAGHAMMER.
Despite the initial interest in the merits of the technology, uncertainty in the global macro conditions subsequently saw interest levels decline. While IMDEX still owns the technology, conditions are not currently conducive to a sale. Accordingly, the company has conservatively recognized a non-cash impairment in the period. Our normalized NPATA, being net profit after tax and before acquired intangible amortization charge, stands at AUD 32.5 million, reflecting an 8% increase from the prior corresponding period. This figure is before considering significant items and acquired amortization, with the majority of the amortization charge increase stemming from the Devico acquisition. Finally, our full-time employees increased from 647 at 31 December 2022 to 829 at 31 December 2023. At 30 June 2023, the total was 851 and included 187 Devico employees. Moving now to slide 12.
In line with our objective, we have consistently outpaced industry growth rates, as evidenced by a 13.1% five-year CAGR. To provide context, one of our internal benchmarks we use to reference this, the S&P exploration expenditure for non-ferrous metals, registered only a five-year CAGR of approximately 5.6%. Excluding Devico, IMDEX revenue was in line with the PCP. This is a commendable result given global exploration budgets was estimated by S&P to be down some 3% from calendar year 2023 over calendar year 2022. Similarly, drilling project activity was down an estimated 12% compared to the PCP. As noted on the slide, the regions with greatest impact were Canada and Australia, which were down some 15% and 11%, respectively. Devico revenue was up 18% to AUD 36.1 million compared to the average six-month calendar year 2022 revenue, and is explained in more detail on the next slide.
Slide 13 illustrates the increased contribution from Devico, directional drilling, and sensors. This is an excellent outcome demonstrating leverage into the IMDEX client base, particularly given the transition of sensor sales to the longer-term, higher-margin IMDEX rental model. Despite the softer Canadian drilling market, we've made significant strides introducing directional drilling into new markets and attracting new customers. Another notable achievement was securing the first directional drilling contract within the Australian market. Turning now to slide 14. The Americas demonstrated robust growth, achieving a 31% increase despite the challenges posed by the softer Canadian market. As a result, the Americas now account for 50% of our total revenue, up from 45% from the prior corresponding period. This growth was supported by strong demand for our end-to-end solution offerings alongside the positive contribution from Devico products. Our Asia-Pacific region was in line with the first half of 2023.
Growth in this region was limited due to the contraction in the Australian market. Revenue from our Africa and Europe region experienced a 19% uplift, in line with the strategic intent and our larger footprint in this region. While our intention is to integrate Devico seamlessly into our reporting structure by the end of FY 2024, its strong performance is evident in this slide, particularly in the Americas and Europe. Slide 15 provides a breakdown of the revenue composition of our two revenue models, being sales plus sensors and SaaS, for the combined IMDEX Devico business and the IMDEX-only business. On the right-hand side of the slide, we see the IMDEX group graph illustrating the combined IMDEX and Devico revenue streams. Notably, sensors and SaaS revenue now account for 64% of group revenue, up from 60% in the prior corresponding period.
Pleasingly, for the IMDEX-only business shown on the left of the slide, we've witnessed a positive trend in the first half of 2024 to the higher-margin sensors and SaaS revenue increasing to 58% of total revenue. This improvement in product mix has resulted in a corresponding enhancement in gross margin, which has positively influenced the overall result in the first half of 2024, as reflected on the next slide. Slide 16 illustrates our consecutive half-on-half performance since the first half of 2020. As depicted in the graph, we have observed a consistent trend of margin growth, and despite the recent lower activity levels, we have seen the stronger earnings resilience of the broader IMDEX business model demonstrated.
There are a number of drivers contributing to this. Expansion of margins with the introduction of new products, releases, and bundled solutions into our global network. Improved weighting of sensors and SaaS revenue as the higher-margin sensors and software business has grown, as demonstrated in the prior slide. And lifting our overall gross margins. Maintaining a focused cost discipline while continuing to invest in R&D, the majority of which is expensed, to support core business and the new growth IMT and digital initiatives. Revenue synergies from the Devico integration efforts, particularly with the introduction of the expanded sensor stack and the expansion of directional drilling into existing IMDEX customers and markets. And lastly, cost synergies from the integration effort. As previously mentioned, we also finalized the organizational redesign from which we expect to deliver cost savings in the second half of 2024.
Furthermore, I'm pleased to confirm we'll exceed the 2 million annualized cost synergies identified at the time of acquisition, further enhancing our operational efficiency. Our first half 2024 EBITDA margin at 30.2% was marginally down on the PCP, however, up on the second half of 2023 for the reasons I've mentioned. Pleasingly, we see the returning of our 30% baseline EBITDA margin, which we had previously referenced. Moving now to slide 17. We are pleased to report the stronger revenue performance from Devico in the first half of 2024 has leveraged the additional investment introduced in the second half of 2023. This has resulted in a 13% improvement in EBITDA for the first half of 2024 compared to the six-month average for calendar year 2022. This achievement translates into a 45.4% EBITDA margin for the first half of 2024.
It's important to highlight that had it not been for the softness experienced in the Canadian market, we would have expected high revenues and a similar overall EBITDA margin percentage to that achieved in calendar year 2022 and those expected at the time of the acquisition. Looking at slide 18 and our cash conversion. From the normalized EBITDA result of AUD 71 million, there was a net inflow of operating cash of AUD 59.5 million.
This is an outworking of the working capital disciplines put in place and represents a strong 84% conversion rate, pre-tax 97%, and is higher than historical levels. As indicated on the slide, the additional investment in inventory implemented to mitigate supply chain delays in FY 2022 has now been released. Consequently, the working capital investment profile has reverted to historical levels. Looking briefly now at our balance sheet on slide 19. I've spoken to the working capital balances.
Other notable items I wanted to highlight. Intangibles now include the finalized purchase price accounting estimates for Devico, reflecting AUD 230 million of goodwill and AUD 100 million of other intangibles. Borrowings reflect the amount owed of our new AUD 120 million debt facility introduced in the second half of 2023 to assist with the purchase of Devico. In addition to committed repayments during the period, the accelerated payout of the separate working capital facility was also made.
It is important to note that while the latter facility has been paid down, it remains available for redrawal. Interest cover on normalized earnings remains strong at 9 x, while the net debt leverage ratio is at 3.3 x. Our return on equity and return on capital employed metrics were strong for the period. Additionally, as Paul mentioned, our fully franked dividend for the first half of 2024 is consistent with our historical payout ratio. I'll now hand back to Paul for an update on our regions and our broader industry landscape.
Thanks, Paul. This subheading on slide 21 encapsulates what we are currently seeing in our regions. For the past 12 months, we have described the market as steady as clients respond to the rising cost environment. This position continues to be the case today. Growth opportunities, however, are starting to appear. Majors and producers are taking advantage of lower drilling activity by juniors and starting to deploy more rigs. And conversations are increasingly turning from cost out towards focus on productivity improvements. Steady remains the prevailing theme, and once again, we regard this as presenting opportunities for IMDEX. The key message on slide 22 is that the underlying industry fundamentals remain compelling. Despite this recent uncertainty, the IMDEX business has been able to outperform and is well-positioned to benefit from recovery in the medium to longer term.
While not the major driver for the IMDEX business, equity raisings remain steady, albeit down year on year by volume. Importantly, most major and mid-tier producers continue to generate cash and remain well-funded for the opportunities ahead of them. While some uncertainty remains in the near term, we do not anticipate any further deterioration in the market, a position that has been confirmed through our attendance at recent industry conferences in London, Vancouver, and South Africa. S&P's latest forecast suggests that exploration spend for the calendar year 2024 will be stable or experience a modest decline of less than 5% as compared to calendar year 2023. Turning now to slide 24. The graph on the left illustrates that while exploration budgets have increased some 56% over the past 5 years, they remain well below the $21 billion peak we saw in calendar year 2012.
Over a similar period, our revenue and earnings have increased by 133% and 289%, respectively, once again highlighting the strength of our business model, our operational efficiency, and our strategy. On slide 25, our growth strategy focuses on technology leadership and the end-to-end solutions for our clients, which now includes Devico's directional drilling. Concurrently, for our emerging IMT and digital business units, we are leveraging our core competencies around sensors to develop applications for the mining production market. We supplement these core product capabilities with geoscience analytics, AI, and computer visualization capabilities to give greater value to our product offering and our customers to enable faster decision-making. Once again, regardless of the market macro, the IMDEX strategy has the capability, product suite, and addressable market to continue to outperform.
The results of Devico, Crux, and Datarock for the period, plus the rapid uptake of new R&D solutions, are the surest validation of this strategy. Our focus for the balance of FY 2024 will remain on protecting and investing in our people. Our core business, through solution selling and the integration of Devico products throughout our network, presents further opportunities regardless of market conditions, and we remain firmly committed to investing in our business growth units, both IMT and our digital solutions. Turning now to discuss the outlook on slide 28. Approximately 12 months ago, we recognized that the industry faced 12 to 24 months of uncertainty ahead. As we stand today, that view has played out exactly as expected. Pleasingly, our IMDEX business has continued to grow its core, has integrated Devico, and has continued to execute its strategy with great success.
Our outlook for the near term is for demand to remain steady. Some industry participants continue to grapple with a high cost environment and commodity volatility, leading to various anecdotes and headlines to that effect. As I commented on earlier, other participants are taking advantage of weaker activity by juniors to increase their own drilling programs, with many major clients reporting expanding exploration budgets. Furthermore, as attention shifts from costs out to productivity in, the IMDEX portfolio and its business model is well-positioned to grow in line with the strong medium to long-term fundamentals that will resume driving the sector. As a guideline, as of mid-February, the number of sensors on hire is up circa 5% on the PCP. However, this reflects the addition of some of the Devico sensor fleet as we progress the systems integration around the world.
Another reference point, S&P's market intelligence, suggests that exploration spend will remain stable in calendar year 2024, but possibly experience a slight decline of less than 5% compared to calendar year 2023, as mentioned earlier. Turning now to medium and the longer term. The industry's long-term drivers are robust. There is a critical imperative for resource companies to replenish diminishing reserves, and new discoveries are likely to be located at greater depths with greater ore body complexity and therefore necessitating larger drilling campaigns, newer technology solutions, and more complex processing. Global commitment to achieving net-zero emissions will continue to drive demand for critical metals, further underscoring the necessity for continued extraction of reserves. Between the IMDEX core plus Devico, Datarock, and Crux, IMDEX is in a strong position to support this emerging demand.
On slide 29, I'd like to leave you with a brief comment on IMDEX's competitive position and its connection with the results for the half. Record revenue, EBITDA, and margin expansion define market trends has been our highlight. The strength of our market leadership position and our unique end-to-end portfolio is delivering market share gains. Our resilient earnings profile, even after absorbing investments in our new growth activities, and an exceptional Devico performance, which is still less than 12 months into ownership. We have an outstanding balance sheet, and our working capital management has been exceptional, and this positions IMDEX well to continue to execute on its growth strategy and take advantage of new opportunities as they present themselves. That completes our walkthrough of the first half of the results, and I'll hand back to Ashley now for any questions.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from William Park with Citi. Please go ahead.
Good morning, Paul and Paul. Thanks for taking my question. Just firstly, on the near-term outlook statement you provided where you're expecting demand to remain steady in second half of 2024, is that on a PCP basis versus first half 2024?
More on a PCP basis. I think what we're seeing, William, is really there has been a lot of bouncing around, so a little bit up and a little bit down, but averaging out, we expect it that as we have contracted into this current period of demand, we expect that current period of demand to remain steady as we look forward in the next 6 to 10 or 12 months.
Thank you. That sort of leads into my next question around, I mean, you've alluded to average sensors as higher, being up 5% at mid-February. But can you just step through what that number sort of looks like excluding Devico? And I know in the Q1, you've talked about that number being down 9% year-over-year. Just wanted to understand how that's tracked in Q2 as well, please.
Yeah. Great question, William. So you're quite right. As we've integrated systems and added the Devico tools in, that 5% up on PCP doesn't compare to PCP on an apples-to-apples basis. And that 8% to 9% down on PCP that we spoke to back around the AGM and after the full year 2023, that differential is now down about 5% on PCP. And so if you strip out the Devico tools coming into the fleet, we're seeing an improvement, being down 9% to now only being down 5%, but it does remain down on PCP.
Thank you. And this one is, I know they're pretty topical across the board. Just in terms of your exposure to Lithium and Nickel, I know you've repeatedly said your business is commodity agnostic, but just wondering if you could sort of expand on what your exposure to Lithium and Nickel at the top line and also how quickly you can sort of deploy your products and so forth from one side to the other, please? Thank you.
So Cobalt, Nickel, and Lithium collectively are less than 15%. And remembering that if you take nickel, which has obviously been a particular headline in Australia because of some of the behavior coming out of Indonesia, well, we also have a business in Indonesia. And so again, the strength of the global business is that we are able to respond to some of those geographic challenges in a very positive manner. Any money that's not being deployed into Nickel ultimately gets deployed into Copper or Gold and other commodities. And so we don't see that being a significant adverse impact on our business.
Thanks, Paul. That's all the questions I had. Thank you.
Thanks, William.
Your next question comes from Evan Karatsis with UBS. Please go ahead.
Great. Thanks. Just on these one-off, sorry, the significant items you've called out, can you just break down specifically that AUD 6.7 million one? Can you break down what was the Devico integration and what was the organization redesign, please?
Yeah. And then.
And then more importantly, do we expect these significant items to continue in the 2H or anything in the 2H as well?
Yep. Yep. Hi, Evan. So about a third of the AUD 6.7 million was related to the org design. And what we called out previously, that we felt that the full-year integration cost would be in the order of AUD 10 million, we still are calling that for the full year. So of the org design costs, approximately half of that cost is related to KMP, Devico KMP, and IMDEX KMP incentives that are in there as well.
Okay. So just to confirm, so no change to the AUD 10 million. So next shot, was it AUD 3.3 million for the second half? Is that right, firstly?
Correct. Correct.
Okay. And then these KMP retention, I mean, is that an ongoing thing, or is this just a one-off?
It does flow into next year, but we expect that to be part of normal operations as we go forward next year.
Okay. Gotcha. Thanks for that.
It'll abate pretty quickly, Evan, and we really don't want to be in a position where we're calling out significant items in FY25.
Yeah. Okay. That's really good to hear. Okay. Thanks for that. Just final one for me. On the cash conversion you've delivered, so the 84%, I mean, it's one of the strongest you've delivered for some time. Was there anything one-off in that, or is there, I guess, a reason we shouldn't expect a similar level of cash conversion going forward now that your supply chains have normalized or somewhat normalized?
Yeah. Look, it was a strong result. And I think with the unwind of that inventory build that we had in 2022 with the post-COVID supply chain constraints and that historical trend where when we do see an increase in revenue or top-line growth, generally, you are investing about 30% into working capital. And obviously, with that being relatively flat, we haven't seen that investment.
I might add to that, Evan. We have continued to do some product rationalization, and so some of the benefit is as we continue to rationalize the SKUs in our fluids portfolio, that's been a very successful bit of work. And it's probably worth making the comment that we do get asked a little bit about whether we see some of the port disruptions, shipping lane disruptions around the world, as having a risk of a further impact on supply chains. We're quite watchful, but at this stage, we don't see any shift or any material risk.
To the extent that it may continue to unfold that way, our supply chains more broadly are in a much better position today than they were two years and three years ago with some of the hard work done, largely a result of the U.S.- China trade tariff disputes a few years ago and then, obviously, the impact of COVID. We feel we're in a much sharper position to respond to any supply chain threats, but we're not really seeing any of that today.
Yeah. Yeah. Okay. That's really well answered. Good result, guys. Thanks.
Your next question comes from Mitchell Sonogan with Macquarie. Please go ahead.
Yeah. Hi, Paul and Paul. Thanks for taking the questions. Can you hear me?
Sure can, Mitch.
Yep. Thanks, guys. Look, just circling back to the outlook and the commentary around demand to remain steady, you've obviously talked about seeing some other opportunities popping up from the seniors, but also Devico's clearly got good momentum within it. So I guess just thinking about the full year, just in terms of analyzing that first half, I guess from your perspective, is there anything that you can see from a downside/upside scenario, just how you're thinking about the second half from a group perspective? Thank you.
I think what we've spoken to previously is that if that uncertainty is in the marketplace, then our forward-looking confidence is obviously tempered a little bit. And what we do is we see a combination of ups and downs. And so initially, we saw North America and Australia as the two areas with the highest cost growth and the lowest unemployment rates. Those regionally were the first areas to respond and reduce activity. Now, what happens is a lot of the resource companies, as they have global footprints, while they may respond first in North America and Australia, these are usually corporate programs that they then ripple out around the world. And so if you take some of the tier-one mining companies, while the initial driver was high cost, slow unemployment in North America and Australia, they still run that cost-out program around all of their operations globally.
So they ripple it through South America, Africa, and the like. And so we're seeing that initial response, which was North America and Australian-led, now being rolled out globally. And that's why I make the point that I think we'll continue to see a few ups and downs as we go. But as they come through that and they shift their focus from that cost-out to, "Well, actually, we need to drill more meters to prove up reserves," how do we do that and gain productivity at the same time? And that's where we're starting to see conversations turn. So I think the next six months is a really short timeframe to make any strong predictions around how quickly that will happen, which is why we've been saying we see this steadiness or uncertainty for the next 6 to 12.
Yep. Thanks. Very clear. And just looking at the core EBITDA margins - and this is just going to slide 16 , you've talked about them being impacted by product mix and FTE investment. Can you maybe just quantify what the mix impact was in that period and just remind us what additional investment's been put into the business and is the cost base the right size now? I guess just following on from that, I know EBITDA margins hit the 30% at the group level, but in the core, do we see a pathway of those getting back towards that 30% level? Thanks, guys.
Yeah. I'll grab that one. Yes, we do, is the short answer. I think the business has repositioned itself so with that top-line growth, we can absorb and lift from that point. What we're seeing, and I suppose going back to slide 15 and trying to demonstrate the product margin shift in first half 2024 from second half 2023, that improvement of the sensors and SaaS from 58% up from 57%, is that 1% margin improvement, which understanding the margin differential on those two product groups, you can see that there is uplift coming through from that product mix. Separately, we've called out that within those product groups, we've also seen product margins as we've rolled those end-to-end solution sets out, and that has been a contributor to that improved margin in the first half of 2024 compared to second half 2023.
And then coming back to the cost base, I think with the org redesign, what we've effectively done is rebase and position that for growth. And what we see with an understanding we were 851 FTE at the end of June, 829 at the end of December, that does give an indication of the rebasing of that cost base and what we see as a benefit coming through in second half 2024. I hope that's answered the question.
Yep. No, that's good. Thanks, Paul. Just a quick one as well. Just on the cost benefits coming through in the second half from Devico, and you've mentioned you're on track to exceed the original sort of AUD 2 million. Can you maybe just talk through what we should be expecting in second half and, I guess, looking out? Is it sort of AUD 3 million you think you've found, or is it beyond that? Thanks.
Yeah. It's a full year, AUD 2 million is what we're calling out. We are calling out that we expect those benefits largely in that order in the second half.
Okay. Great. And Paul, just final one from me. On BLASTDOG, you've made the comment there that several commercial trials have converted into purchase orders in the first half and second half. Can you maybe just give a little bit more detail, a bit of an update on what the current contract structure looks like, or just any further information you can give on how that program's tracking would be appreciated? Thanks, guys. That's all from me.
Yeah. Sure, Mitch. Look, I think what we had said prior to Christmas was in working with some of the clients that we were trialing the technology with, recognizing that these drive significant change management within an operation, we shifted our mindset from going from short trials to long contracts to doing longer trials converting to recurring POs, recognizing that as changes continue to involve a lot of stakeholders inside a mining operation, that ongoing purchase order renewal was going to be the best way for the client to adopt that tech. And so pleasingly, that's playing out exactly as we had hoped. I mean, mind you, we were heavily guided by our clients in putting that model together.
As we sit today, we've had multiple sites, multiple commodities, and multiple companies, albeit small numbers, but in line with expectations, shifting those commercial prototype trials into those purchase orders, giving us more stability and embedding ourselves in those operations, which is exactly what we'd hoped to do. We're just very pleased it's playing out that way.
Your next question comes from Josh Kannourakis with Barrenjoey. Please go ahead.
Hi, Paul and Paul. Thanks for taking my questions. First one, just a little bit more on the cost base. So just to clarify, following on from Mitchell's questions, so if we look at the cost out that you mentioned, the sort of synergy that you talked about, but also some of the org structure development, how does that look from the 1H sort of first half rolling into the second? And maybe also, just if you could give us some context then around anything else in terms of mix and gross margins as well that we should consider into the second half.
Yep. Yep. So I think when you look at the Devico integration and obviously both happening at the revenue line and the cost line, the revenue synergies, as we called out in the presentation, there has been good progress both at a sensor level introducing the greater sensor stack into IMDEX clients and therefore getting that uptake, and similarly into new markets for directional drilling. So I think when you look at both the revenue line and the cost line, there are benefits playing in, which we'll see more in the second half. I think when you come back to the more broader cost base across IMDEX, having done the org redesign, what we're really looking at is repositioning IMDEX for the next point of growth and that reinvestment into those new business units being IMT and digital.
Albeit there will be a net saving going forward, but we're using some of those savings to help lift and push forward with those initiatives.
Got it. So just sort of keep it relatively flat, expose the synergies.
Yeah. I think so, Josh. I mean, again, the call out there is that our core business absorbs that organic investment in those new business units around IMT and digital, and the milestones that we're passing in those new business units are really strong. And so continuing to invest in those is key. And obviously, the savings we've unlocked just enables us to do that.
Got it. And so, Paul, the other one was on the just gross margin and sort of mix considerations into the second half.
Yeah. Look, I think that trend as we go forward with that sensor directional drilling uplift, you would expect that continuation of that higher sensors and SaaS ratio. In addition, that we're seeing a greater movement, as we called out, the 41% of our customers greater than or the top 250 clients, it's increased from 37% to 41% with greater than three products. That in itself also helps lift the gross margin within those product sets, and we'd expect more of that into the second half. So I think risk to the upside as we move through that.
Yep. That's really helpful. And just final one from me around the digital business. I know you don't break out the revenues particularly as of yet, but obviously some big growth off small base though from Krux and Datarock. At what point in time do you think that would be material enough to break it out separately from the numbers?
Look, I think I'd love to say that they were larger, but therefore disclose them separately. I think FY 2025, we would like to think that we could start to lift those out and become more meaningful to report separately.
Got it. And what's meaningful? I can say if it's 5% of revenue or something like that.
In that order, Josh. Yeah.
Okay. All right. Thanks, guys. Appreciate your time.
Thanks, Josh.
Your next question comes from Nicholas Rawlinson with Jefferies. Please go ahead.
Hi, Paul and Paul. Thanks for taking my questions and congrats on the result. Just firstly, the Q2 looked very strong for Devico with revenue basically in line with the Q1, which is pretty unusual given the seasonality. Could you just elaborate on what's driving that?
Look, there was obviously seasonality in that result, but I think as momentum gathered for the synergies that we spoke to earlier and the pushing directional into those new markets, you were seeing the results starting to lift in that Q2.
Great. Thanks, Paul. And just further on from Mitchell's question on BLASTDOG, how many purchase orders have you actually received for the first half and going into the second half? And could you maybe elaborate on the unit economics a little bit?
Yeah. We'd rather not at this stage. And most of these are commercial in confidence with our customers. I would simply say that to the extent that we've talked about unit economics in the past, it's not materially different in any way in terms of total outcome. But the way we structure the product has probably evolved a little bit to call out the logging versus the digital solutions, for example, or the insights that we provide. But yeah, the overall outcome is pretty much the same.
Okay. Great. And you can't sort of give us any indication on how many units you've actually sold?
We'd rather not at this stage. But it's not that many. And it is multiple. We use that word for a reason. So multiple commodities, multiple sites, and multiple customers. But I think you'll remember before Christmas, sorry, before Christmas, we only had a number of trials in the pipe, and we were just looking to progress them. And that's going as intended, is the simplest way to put it.
Okay. Thanks, Paul. And just lastly from me, is Digital 2.0 still progressing in months? Just wondering if the full benefits have been delivered now or if there's more to come. And if they haven't all been delivered, what sort of uplift are you hoping to drive from that?
Yeah. I think we did reshape Digital 2 a little bit to prioritize being able to bring the Devico systems together with the IMDEX systems. So what we're looking to do is probably wrap that up by 30 June this year as a Digital 2.0 and then reset a Digital 3.0 going into FY 2025. But suffice to say, most of the programs have completed. We're probably still the two things that we're still working on is really extending our GDR, that digital revenue solution that drives our operating model from sensors, expanding that into fluids. And so we see potential margin efficiency once we roll that out, but that's still got a little way to go.
And then, of course, there's the financial ERP consolidations that we're doing to bring the Devico entities and the IMDEX entities together, which will give a lot of synergies in just how we run and consolidate the business.
Great. Can I just ask one more question just quickly? How's the process going in terms of integrating your core tool onto the IMDEX HUB? Because last time we spoke, that was sort of a priority for FY 2024.
Yes. So the new core tool has been displayed at the most recent conference in Indaba, and we'll do so again in North America later this month, early next month. And so that will be a HUB-connectable tool. So it's in the early stages of release to the market.
Okay. Great. Thanks, Paul.
Cheers, Nick.
Your next question comes from Jakob Cakarnis with Jarden Australia. Please go ahead.
Thanks, operators. Some difficult names in there for you to get right. Thanks for that. Hi, Paul. Two questions. I just wanted to follow on from Mitchell's question, please. Paul Evans, I know that you don't seem like you want to touch the synergies number, but can you just give us a sense, please, if there was any in the first half? And then just on the slide 17 that you provided, you're calling out that Canada's part of the margin difference, if you like, versus the first half of 2023 with the higher synergies expected. Are we going to eclipse that first half 2023 number? And where are you guys seeing the cap? Is some of the benefits going to be traded back to customers over time, please?
Yeah. Look, there's a couple of things in there. I suppose when we talk about the momentum of the Devico integration and those synergies, it's definitely, as we mentioned earlier, more second-quarter weighted, and that lifts into the second half. So not a material number that I'll call out for the first half. What we're really looking to do, and I think as we and as we've spoken before, it's becoming increasingly harder to keep the two businesses separated as we do integrate, and particularly as you roll the Devico products into the IMDEX customer base. So look, I think you'll see those synergies more evident in the second half, and that momentum should build. But how you then report that moving forward is going to become harder to separate.
Okay. Sounds like we're on the path to a resegmentation. Paul Evans, just in terms of the product mix changes that you're seeing, and it sounds like you're doing some optimization in the portfolio there. You just talked to whether or not you're getting closer to the right sort of portfolio to take to customers, just noting you are seeing the number of products used by customers increasing, which is in line with the strategy. There are some working capital benefits. Are there any cost benefits moving forward, and how do we think about those beyond headcount, please?
Yeah. Look, in terms of the progression of the product suites and the solution sets that we offer, we are introducing more sensors into that and more software into that. So you'd expect sensors and SaaS over the medium- to long-term lift as a percentage, understanding that the fluids component is an important element of the, in many cases, of the total solution set. So I think that's the risk to the upside on the sensors and SaaS percentage as we go forward. As you go forward in a working capital context, obviously, you don't have the inventory build potentially on the sensors and SaaS. So there is a potential working capital benefit as you drive more of that sensors and SaaS side of the business. And then I think as the cost base, you look at the cost base as you go forward.
With our sales teams globally, they are becoming more multidisciplined, solution-focused, value-focused, and then having product experts within the teams supports that value proposition sale to our clients. So there is a better scaling as you push that model as a combined model versus a separate sales and sensor business, which we were very much prior to 2017, if you recall how that was lifted up through that period. That all helps to manage that cost base.
Okay. Thanks, Paul. Just final one, just on the opportunities, Devico's getting closer to being fully integrated. Are we right in thinking that you're probably more weighted to a more balanced capital setting for shareholders moving forward, or should we think about M&A on the agenda given some of the opportunities that are thrown up?
Yeah. I might take that one. Look, I think we set out to make sure that we could demonstrate our capability to do small and large M&A, be effective at those integrations, put our balance sheet to work, pay down that debt, and then look for opportunities to go again. As we sit today, we certainly see confidence in the way we have managed the integration, the cultural fit, the systems work, and obviously, the balance sheet management. I think putting the balance sheet to work is good. We do think there will be further opportunities ahead of us. There are certainly strategic gaps in our end-to-end portfolio. They don't limit what we do today, but they would add value if we could add them in time to come. And so we remain watchful for those opportunities, whether small or large.
Thanks, guys. Great result.
Thank you.
There are no further questions at this time. I'll now hand back to Mr. House for any closing remarks.
Thank you. This half, I wanted to finish by acknowledging the leadership team that came across from Devico and worked tirelessly with the leadership teams from IMDEX around the world across every area, being operations and R&D and shared services, to not only integrate the business, which we acknowledged at the last reporting period, but to really start to unlock the real value for our shareholders, as is evident in this half's results. You guys have been fantastic, and I appreciate the hard work that's got us to this point. The industry, looking ahead, faces twin challenges: the high-cost environment and greater geological complexity, both. Both of these present hurdles to the looming supply-demand gap for the majority of minerals. New technologies that simultaneously deliver greater ore-body intelligence in real time and lift overall industry productivity are increasingly being sought after in order to bridge that supply-demand gap.
These challenges have been well signaled, and IMDEX has been methodically developing the capability, partnerships, and products to meet these challenges head-on. So despite the near-term noise within the industry and the broader economic macros, the positive medium to longer-term fundamentals are unchanged. At IMDEX, we are very much excited about what lies ahead. To everyone, thank you very much for joining us on the call today.
That does conclude our conference for today. Thank you for participating. You may now disconnect.