Imdex Limited (IMD) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Imdex FY '23 Full Year Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Paul House, Chief Executive Officer. Please go ahead.

Thank you, and welcome, everyone, to the Imdex Full Year Results Presentation for 2023. Joining me on the call today is Paul Evans, our CFO; and Kym Clements, who leads our Investor Relations and ESG functions. I'd like to commence today at Slide 3 of our presentation. Imdex is a leading global mining tech company, and we distinguish our business from the broader mining services arena in a number of 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. We are neither capital-intensive nor people intensive and we are truly global with limited contract risk, commodity risk and geographic risk. And, finally, we are developing an integrated solution set that works together rather than as individual products to build a high-quality revenue base with a history of increasing EBITDA margins. This has been our consistent position for a number of years. However, it is years like FY '23, where our strategy and the strength of our business model comes into its own. At Imdex, we see our core competencies as being uniquely positioned to provide orebody knowledge to our customers. Our purpose and the opportunity we have is to help mining companies better unlock the earth's resources. With regard to mining engineers without orebody knowledge data, we regard that as being akin to a highly trained surgeon who has been asked to operate in a theater without the lights on. The image on Slide 4 is an extract from our MinePortal solution, demonstrating that it is possible to view an orebody in real time anywhere in the world. Through the delivery of high-quality, real-time orebody knowledge, we can turn the lights on and ensure that the mining industry can execute with precision, with confidence and with speed. Our agenda for today's presentation is set out on Slide 5. We will focus on 4 key areas: our financial, strategic and ESG highlights, including a deeper dive into our financial performance, which Paul Evans will provide; secondly, an update on our core and new business growth activity; third, the outlook in our focus areas for FY '24; and, finally, a brief recap on how Imdex is positioned to benefit from the broader themes driving the industry today. Following the presentation, Paul and I are happy to take any questions. Turning now to Slide 7, and our financial highlights. Group revenue was a record result at AUD 411 million, an uplift of 20% compared to the prior period. Devico contributed 4 months of revenue, totaling AUD 20.6 million and was in line with our expectations at the time of completion. Accordingly, organic revenue growth for Imdex was up 14% for the year. You'll recall that our first half '23 revenue was up 18% on the pcp. The softer exploration activity that took place in 2H '23 played through predominantly in Canada and Western Australia. The strength of our core business continued to deliver strong second half growth over pcp, which Paul Evans will go over in more detail. For the purpose of reporting our performance, we've normalized our EBITDA result to remove the impact of 2 significant items. First, the legal costs that were incurred in the first half of this year, defending our intellectual property in the U.S.A. and second, the acquisition costs that accompanied the Devico transaction. Our normalized EBITDA of AUD 123 million is again a record and represents an increase of 17%. Correspondingly, our normalized EBITDA margin for the year was sustained at circa 30% for the full year. Having regard for both the softer exploration activity in 2H '23 and the rising cost environment in the industry throughout the year, we consider this to be an exceptional outcome and a testament to the discipline of our operating teams around the world. I should acknowledge, we would normally expect our EBITDA growth to be stronger than our revenue growth being a feature of the leverage in our business model. Therefore, 2 additional items are worth calling out in relation to the FY '23 result. First, our product mix, where we saw faster growth in fluid sales over sensors. And, second, an accelerated spend in our R&D as we continue to pass milestones and invest in our digital and IMT growth initiatives. Paul Evans will elaborate on the impact of these 2 items when he discusses the financial performance in more detail. While our P&L performance was a feature of FY '23, the efficient use and leverage of our balance sheet was a highlight. The Devico acquisition was the catalyst that allowed us to put our balance sheet to work for shareholders with a AUD 120 million loan facility used to finance the transaction. Our net debt of AUD 65 million as of 30 June incorporates this facility, and we remain well positioned to fund growth and investments in accordance with our strategy. I will let Paul Evans elaborate on our working capital performance in detail. However, a noteworthy achievement has been the release of the additional investment in inventory of circa AUD 8 million that was built up during the COVID period. And, finally, our Directors declared a AUD 0.021 per share final dividend, bringing the full year dividend to AUD 0.036 per share. This is an increased dividend payout from the prior year and remains in accordance with our 30% NPAT payout ratio. Turning now to Slide 8 and our strategic highlights for the period. The Devico technology portfolio directly complements our core business. This transformative transaction represents a highly significant advancement of the Imdex growth strategy. Furthermore, our organic investment in R&D resulted in the release of 3 next-generation technologies also within our core portfolio, our aiSwyft spectral mineralogy product, our all-altitude OMNIx gyro and our core logging solution LOGGERx. Finally, we made a 40% investment in Krux Analytics and increased our investment in Datarock from 40% to 49% during the period. Further, our extension into the mining production space continued to make great strides across all 3 product categories. Turning now to Slide 9. FY '23 represents the first year that we have integrated our corporate sustainability reporting with our annual report. Our sustainability strategy is divided across 5 focus areas that are tailored to our organization, our people, and the communities in which we operate. I will highlight just a few things that were of particular importance, starting with people on the left of the slide. Our HSE workforce engagement metric was up 42% over the prior year. And in the month of August, we completed our second year without any lost time injuries. We closed our gender pay gap, which is an important milestone and has a deep meaning within our organization. And, finally, we established a Diversity, Equity and Inclusion Council. Within our environment focus area, while we are not a large contributor of greenhouse gas emissions, we measured our Scope 1 and 2 emissions as a baseline for further improvement in the future. Within innovation, our product development stage gate process was revised to elevate ESG considerations at all stages. Within society, we undertook a number of initiatives in the communities in which we operate. However, a highlight has been our partnership with the Canadian Diamond Drillers Association, on mental health programs. And, finally, on governance, we welcomed Uwa to the Board and we formalized a Sustainability Committee that will report directly to the Board in FY '24. I will now hand it over to Paul Evans to discuss the financial performance in more detail.

Thank you, Paul. Paul has covered the headline numbers. So I'll expand on some of the key metrics on Slide 11. It is important to remember the FY '23 results include 4 months contribution from Devico being revenue of AUD 20.6 million and EBITDA of AUD 8.5 million. With normalized earnings are quoted throughout this release, this has excluded AUD 22.1 million of expenses resulting from AUD 11.1 million of exceptional legal costs incurred in respect of the international IP infringement matter, AUD 10.6 million of Devico transaction and integration costs, and AUD 0.4 million of residual costs associated with the FY '22 settlement with the prior owners of Flexidrill. 2H '23 revenue was up 11% on the pcp. However, the softer second half market conditions meant revenue was down 3% on 1H '23. In addition, the higher proportion of fluid sales relative to sensors and SaaS revenue impacted our EBITDA margin. We delivered strong cash conversion over FY '23. Pleasingly, the working capital build arising from the FY '22 supply chain constraints has largely been released. Net cash being cash less external borrowings was down on the pcp following the Krux and Datarock investments and with the introduction of the new AUD 120 million term loan facility that assisted with the Devico acquisition funding. It is important to call out the 36.8% uplift in employees includes 187 new Devico employees. Moving now to Slide 12. In line with our objective, we continued to outperform industry growth rates as demonstrated by our 13% 5-year revenue CAGR. One of our internal benchmarks for industry growth rates is the S&P exploration expenditure nonferrous metals, which has a 5-year CAGR of 9%. The graph in the center illustrates our half-yearly revenue performance. Excluding the Devico contribution, here we can more clearly see 2H '23 was up 11% on 2H '22, however it was down 3% on 1H '23 due to the softer market conditions in this half. As Paul mentioned earlier in the presentation, the softer exploration activity that took place in 2H '23 played through predominantly in Canada and Western Australia. Despite a positive start to 2H '23, where the January startup recommenced faster than in the prior year and the average number of sensors on hire was up on the pcp, growth moderated for the remainder of the second half. A gradual improvement was apparent in June 2023. Exploration activity was impacted as resource companies sought to combat inflationary cost pressures, demand greater productivity and shift their exploration activity to alternative jurisdictions. This was evident in North America, Australia and West Africa. Pleasingly, the strength of our core business continued to deliver strong second half growth over the pcp and this was evident in Africa, South America, Europe and the U.S. The graph on the right shows our product mix with 60% of revenue generated from sensors and SaaS and the balance 40% from sales. If we remove Devico's contribution, fluid sales represent 42% of total revenue. At present, Devico's sensors are not connected to IMDEX HUB-IQ. Accordingly, this has reduced the percentage of IMDEX HUB-IQ's connected sensors to 30%.Connecting the Devico's sensors continues to remain a key integration activity. Turning now to Slide 13 and our growth by region. Here, we see the distribution of the 20% revenue growth across our 3 regions. I'll draw your attention to 2 key highlights. First, continued strength within Americas, despite the softer exploration market in Canada and, 2, the introduction of Devico and the positive impact of all regions around the world, most notably our stronger position in the European market. Despite the softer exploration market in Canada, we saw more robust activity within the Americas, in the U.S. and South America. Mid to major resource companies, although slow to spend in 2H '23, have available budgets and are now progressing programs in these countries supported by demand for our solutions. Revenue from Africa and Europe region was up 25%, including an 8% contribution from 4 months of Devico. Demand in this region has continued to be steady with a particular focus on critical metals. Revenue from our Asia-Pacific region was up 20%, including 3% contribution from 4 months of Devico. Most notable was the slowing of activity in this region in 2H '23, particularly in relation to gold and junior activity. This was offset by a more robust activity in Asia. Moving to Slide 14. The graph on the left of the slide illustrates our EBITDA historical performance over the past 5 years and the corresponding 24% CAGR measure over this time. FY '23 normalized EBITDA of AUD 122.6 million includes 4 months' contribution of AUD 8.5 million from Devico. Our normalized EBITDA margin shown on the graph on the right were slightly down from the pcp at 29.8%. The slight decrease can be attributed to 2 factors. Firstly, a combination of product mix due to growth in our drilling optimization business, most notably fluid sales, as illustrated on the previous slide. And, secondly, our increased investment to support growth, including our MDEX Mining Technology business and Digital 2.0 on the back of significant progress during the year. The impact is most visible in the center graph where we also see the flow-through margin impact of 3% lower revenue from 1H '23 that also saw -- that we also saw in the previous slide. Looking at Slide 15. From the reported EBITDA result of AUD 100.5 million, there was a net inflow of operating cash of AUD 82.5 million. This represented an 82% conversion rate and is substantially higher than our historical 65% to 70% following the working capital improvements. As mentioned, the additional investment in inventory to mitigate supply chain delays in FY '22 has largely been released. This is an excellent result and highlights our strong working capital discipline. Turning to Slide 16 and a very important part of the Imdex DNA. Our investment in R&D in all markets' conditions is to maintain our technology leadership and continue to deliver value to our customers. In FY '23, AUD 27.4 million was expensed on product development and AUD 5.1 million was capitalized in relation to software. This represents 7.9% of total revenue and a 10% increase in total R&D expenditure on FY '22. This overall investment remains well within industry benchmarks and is conservative as a growth company. Of note is the increase we had previously mentioned to accelerate IMT, BLAST DOG NL acquisition of the MinePortal software, which you can see in Horizon 3 in FY '22 and moving to Horizon 2 in FY '23. Investment in Horizon 1 has increased over the past 2 years as we commenced commercialization of the next generation of core products in FY '24. As Paul mentioned, when recapping the strategic highlights, this year, our Horizon 1 spend saw the release of a number of next-generation core products. Looking briefly now at our balance sheet on Slide 17. At 30 June 2023, net assets has increased notably during the year from AUD 297 million to AUD 556 million. This increase is principally due to the purchase of Devico. External borrowings at AUD 123 million largely reflects the amortized balance of the original AUD 120 million debt facility secured to support the funding of the Devico acquisition. After the further investment in Datarock and Krux, assisted by the working capital disciplines, net debt of AUD 64.9 million remains a conservative gearing level relative to EBITDA. Interest cover on normalized earnings is at a comfortable 14x. This has allowed a declaration of a final FY '23 dividend of AUD 0.021 per share, resulting in a full year FY '23 dividend of AUD 0.036 per share, a 5.9% increase over the prior year and therefore, normalized earnings, maintaining our 30% NPAT payout ratio. Return on equity and return on capital employed ratios fully includes the expanded capital base mentioned early and only includes 4 months earnings from Devico. I'll now hand back to Paul for an update of our core business performance commencing on Slide 19.

Thanks, Paul. While our financials incorporate Devico business, the metrics on Slide 19 relate to Imdex only. Once again, progress was made across all key metrics, and I'll highlight a few of them here. ARPU was up 7%. Our average rock knowledge sensors on hire finished FY '23 in line with pcp. It's worth noting that the strong first half was offset by the softness in the second half and the difference between the average sensors on hire between those 2 halves was a decline of 11%. Customers connected to our HUB-IQ cloud-based platform has grown by a further 10%. And, finally, our solution selling strategy expanded out of North America with earnest and into Africa and Australia. The percentage of our top 250 clients who use greater than 3 products, continues to grow and now sits at 46%. Slide 20, quite simply provides a recap of the strategic rationale behind our Devico acquisition, which we completed on 28th February this year. Devico was a significant addition to our core business. The combination of Imdex and Devico gives us a market leadership position in Europe, a market leadership position in directional core drilling, complements our market leadership position in survey tools, and, finally, a world-class R&D team and facility in Norway. Turning to Slide 21, and I'm pleased to share an update on the integration of Devico on the left. It has been 6 months since completion of the Devico transaction and integration has gone very much to plan. Critically, we've added 187 people to our business with 0 safety incidents recorded. All key management personnel have been retained and all employees have been on-boarded through the Imdex HR platform and the Imdex Academy training platform. All Devico group sites have been brought into the Imdex network without incidents and all Devico products have been added into the Imdex GDR platform, which will facilitate cross-selling within our Imdex network. The ability to leverage the Imdex Digital 1.0 systems investment is key to optimizing our tool fleet and gross margin performance in the sensor business and will be a key contributor to the cost synergies in the months to come. Finally, we've made progress in moving the remaining Devico's sensor sales to a rental model, positioning customers for a better service model and positioning the business for better long-term returns. Looking now to the right-hand side of the slide and an update on the performance of Devico itself. Whilst we did not provide specific revenue synergy guidance at the time of acquisition, I'm delighted to report that the strategy to combine Devico and Imdex teams, products and client networks is already unlocking some gains. First, we've been able to deploy DeviGyros to customers within the Imdex network, initially displacing competitor tools. To-date, we've deployed 17% more DeviGyros throughout our Imdex network compared to the total DeviGyros that were on rent at the time of completion. I must also point out that since completion, the Devico business in Canada was impacted by the recent softening in exploration activity in that market in the same way that Imdex was. Secondly, we've seen a growth in the Devico directional core drilling business since completion, with an increase of 14% in the number of active DCD projects around the world. This increase includes a number of new projects in regions that leverage the Devico expertise into the Imdex network, where Devico was formerly not present. Both of these statistics exceed our original expectations and position the combined business to unlock significant value for shareholders in the years to come. Finally, and most importantly, I would like to acknowledge the Devico team. We've spent considerable time getting to know the Devico business and their people. It has been a genuine pleasure discovering the strong alignment of our corporate values and our purpose as we look for ways to bring advanced technologies to the mining industry. And so, to Erlend, Torkil, Anita, Espen, John, [ Randy, Don, Augusto and Megan ], and all of your respective teams, please accept our thanks and our warmest welcome to the Imdex Group. Turning now to Slide 22, an update on our new business growth initiatives, which includes our digital products and our extension downstream into the mining production space with our IMT products. Starting at Slide 23. We made progress in FY '23 in each IMT product category. Demonstrations and trials continue with a growing list of interested customers. I'll draw your attention to 2 key highlights. First, our Imdex bulk product used to survey underground production holes is only recently launched and is seeing early success with 4 installed sites. The capabilities of the Devico team have greatly aided this initiative. And by the end of FY '25, we expect the bulk solution to exist in all regions. Secondly, as of today, we have 3 BLASTDOG units operating on rent. All IMT products remain in the commercial prototype phase, which is specifically designed to test the value of these products and refine the commercial model before moving into production and full commercialization. While our push into mining production is still at a relatively early stage, we remain both committed and excited by the prospects of this sector. Slide 24 has been shared previously and is added here as a reminder of the size of the opportunity ahead of us. Whilst we are earning BLASTDOG revenues from 3 sites today, we see the immediately addressable market to be in excess of 100 sites. Turning to Slide 25 now and a quick recap of our digital strategy. Our strategic intent is to take the data that we originate from our sensors, as illustrated to the left-hand side of this schematic, and build the software solutions that enrich that data, give it context and enable our drilling and resource customers to make more informed decisions about their orebody with increased precision and with speed. Examples of the solutions we seek to bring together are highlighted in the center of the schematic. And so, on Slide 26, we are pleased to provide an update on these select digital solutions. And the highlights are, aiSwyft was launched, moving aiSIRIS from semi-autonomous to fully autonomous, highlighted by the 5-day turnaround time saving. Client migration is progressing, and overall volumes are up 20%. ioGAS experienced extraordinary growth rates of just over 20% year-on-year. Datarock has continued to grow its SaaS revenue platform, which really only launched in 3Q '23 and has made great strides in 4Q '23. And, finally, the Krux Analytics investment that we finalized in April as a best-in-class solution to replace our IMDEX Mobile product has grown at pace and 23% of IMDEX Mobile customers have already migrated to the Krux platform and 35% are committed. Turning now to Slide 28, and the outlook for the business. I'll begin by reminding that S&P forecasts exploration activity to contract by circa 20% throughout calendar 2023. We do see evidence of this softening in the marketplace to date, most notably in Canada and Australia, as we have spoken about earlier today. The strength of H1 gave way to this softening in H2, which has now stabilized. We see this in our own numbers. By way of comparison, Imdex rock knowledge sensors on hire at 1 July were down only 8% on pcp. And while this is behind the prior year, it remains above the general market performance. As of today, sensors on hire have continued to improve, and we are currently up 5% from 1 July 2023. Looking ahead, we expect demand to remain steady throughout FY '24 as resource companies continue to respond to the high-cost environment where the baked-in increase in labor rates is likely to extend the recovery phase. Importantly, however, mid-tier and major resource companies remain well funded and capital raisings have shown some signs of improvement for juniors. Looking further afield into FY '25 and beyond, the fundamentals remain extremely attractive. S&P forecasts an increase in exploration spend in FY '25. The demand drivers outlined on this slide remain very strong. Encouragingly, there is an increased trend towards adoption of innovative solutions, driven first, by productivity and, second, by orebody knowledge 2 critical themes in the industry today. Our recent investments in Devico's directional core drilling technology and our investment in Krux's drilling analytics solutions speak directly to the demand for improved productivity. Turning to Slide 29 and our focus areas for FY '24. Protecting our people as a combined global team will remain a priority. We will continue to pursue growth drivers and operational initiatives around: one, our investment in our core and the continued integration of Devico; 2, investment in our digital solutions and IMT products; and 3, investment in Digital 2.0 to bring further efficiencies into our business. We remain acutely aware of maintaining our disciplined approach to product portfolio management and efficient operations. Turning now to Slide 30. We look back at FY '23 with great pride. We have long maintained that the Imdex business and the Imdex business model is positioned to grow in all market scenarios. The external market volatility impacting the second half activity has allowed us to demonstrate our ability to grow and run a disciplined core business, while at the same time, continue to invest in our growth strategies. Our network around the world positions us to leverage the shifting geographic activity, our commodity agnosticism positions us to benefit from growth in critical metals activity and our balance sheet is being put to work for shareholders, supporting the current growth, supporting our M&A activity and maintaining our 30% dividend payout ratio. Finally, Paul and I would like to acknowledge our teams around the world have been instrumental in the discipline required to steer the business through a very interesting FY '23. We look forward to FY '24 with great confidence. That completes our presentation for today, and I would like now to hand back to the moderator to take any questions.

[Operator Instructions] Your first question comes from Josh Kannourakis with Barrenjoey.

Just a couple. Firstly, just around into FY '24, how should we be thinking about product mix and therefore sort of gross margin trends versus the gross margin in the second half?

Yes. Thanks, Josh. Look, we -- you may recall that the drop -- the shift in that product mix comes because of the softening activity in Canada and Australia, where we are heavier weight tools as opposed to fluids. We regard the growth in our fluids business is a good thing, because following fluids comes more tools. So that creates opportunities in South America, Africa and Asia. However, obviously, to the extent that there is a recovery in activity in Canada and Australia, that will then keep shifting that product mix ratio. So, there's potential upside benefit if those regions come back faster than -- well, faster than they are trading at today.

Got it. And if things just stay as they sort of -- as they are sort of staying at the moment, condition wise, should we be using the sort of second half gross margin as we sort of go forward, if conditions remain the same?

Yes. So, I think, conservatively, Josh, that's a safe assumption. And, obviously, as we're looking to leverage our solution selling opportunities, we would be looking to grow fluids and sensor solutions concurrently. So, you could use that as a safe guide.

Got it. Just second question on costs. Just in terms of -- similarly on the second half trends in terms of the cost base, you did call out a bit of incremental investment in Devico and a few other engines in the second half. What should we be thinking about in terms of the sort of OpEx base into FY '24? And are there any moving parts either coming in or coming out of the cost base versus the second half trends of the Devico?

Right. So, there will be probably a couple of points to raise there. So, broadly speaking, we see our cost, which includes operating costs and the expensed R&D cost as being relatively stable. So, where we are today is set as we look forward at FY '24. That will be influenced by 3 things. Firstly, there will be some synergies that we can unlock through the combination of Imdex and Devico, which we previously called out. So we should start to see those come into the business as we start to complete a full year of ownership. Secondly, as we pass positive milestones with Digital and IMT, we will back those up with investments to start commercializing those opportunities, but that will be done in a disciplined manner. And, finally, the one we're watchful for, although it has had no significant impact in our business, is the rising cost environment, which we've very carefully managed to avoid, unlike, I think, what you are seeing in our sector more broadly and we're just watchful that that doesn't creep into our business.

Our next question comes from William Park with Citi.

I just wanted to delve a little bit more on the margin in second half for Devico. I mean, in comparison to the figures that you provided at the time of acquisition, it looks like it's a 10 percentage point decline. Just wanted to unpack that a little bit more. I appreciate that there was additional investment going into the business. But just wanted to understand whether there will be some step changes from second -- the levels that we've seen in the second half or should we expect that to sort of persist if the activity levels remain subdued?

Yes. I might kick off with that one, William, and I'll hand over to Paul for a bit of clarification. So, there's been -- there's probably 3 or 4 things that collectively are worth considering as we look at the Devico margin. As Paul called out, we have made some investment in labor that support the growth of the directional core drilling business. So that's cost we invest now that will unlock gains later on. Secondly, when we're merging 2 businesses that are -- I mean, reminded that Devico was a core business with Imdex's business. And so as we've integrated the 2, there is a minor adjustment around levels of work in matching their people to our people. So there has been a little bit of rebalancing in how our cost base shapes up there. Thirdly, they had a policy of capitalizing their running year. We have a policy of expensing our running year. And so there is a small adjustment related to that. But, looking forward, we don't have any significant -- other than the broader integration costs that have been called out, we don't see any significant change in the cost base. So there is -- sorry, the last thing I should call out is, we did transition -- they had still some part of their sensor business that were product sales and we've transitioned that from product sales to product rentals. And so, the combination of those 4 little things collectively all make a little bit of a difference. But as they are set and done, we don't see any further changes to the overall cost base inside the Devico business looking forward.

Yes. I think Paul covered that quite well. I think, the way to think about it is really aligning Devico to Imdex in how we operate and getting those policies consistent. But more importantly, stepping up the DCD capability to deliver that revenue growth in the other regions, which was the scalability that Imdex could provide Devico and that is starting to happen in the 4 months just gone.

And just on pricing, it looks like you've held the ARPU growth that you've called out in third quarter into fourth quarter. But just wanted to -- appreciate if you could provide some color around, I guess, volume growth early in first quarter FY '24. Just wanted to understand if you could provide some additional color around pricing as well.

So, pricing, we've been very consistent and clear, I think, William, that our pricing power doesn't behave the same way as it does for rigs and labors in the broader mining services sector. So we are fairly pricing elastic in our tools and so there are other -- we need to price our tools based on the value that they unlock, number 1. Number 2 -- and, as such, we haven't put significant price rises through for our sensors business. Number 2, to the extent that we've had input cost shifts in our fluid business, we have been able to pass those on as they have come into the business and likewise pass the savings back through as those raw materials come in. And so, our fluids business is quite flexible to ensure that we protect those margins. The one area where we do have some pricing opportunity has been, when we bring new products into our portfolio, because we get them to reset the value that those new tools add. And so periodically as we bring new tools in, that is our opportunity to set pricing. We don't get to put pricing increases through based on demand quite so much as other industries do. The only other -- probably one thing to call out by adding the Devico, DeviGyro into our sensor stack, we have been able to control the pricing range to ensure that we get the right value for each survey tool in that sensor stack. So, for example, the 17% DeviGyros that we put out through the Imdex network has gone out at a price that's on average 20% higher than what the DeviGyros were going out previously. So we do -- and that is -- we called that out at the time of the acquisition and that's us just clearly articulating the difference in value that a magnetic tool, a reference tool and a north-seeking tool should and could deliver to our customers.

And just one last one. I mean, I appreciate that you don't really need to sort of grow the workforce in order to deliver revenue, I mean, obviously, with the exception of Devico, but just stripping out Devico's workforce, it looks like, I guess, the labor has increased somewhere around 2.5% in the last 6 months or so. 2 folds to this question. One, how quickly -- I mean, is your revenue -- does that sort of reflect your revenue growth, I guess, expectation in an organic level in the near term? And, 2, if so, I mean, how quickly can you flex up, I guess, given the tight labor market?

Yes. So, I'll answer that in 2 parts, William. The increased headcount is not so much connected to our core business as it is connected to the ramp-up of our IMT and our Digital business. And so, I guess, one of the things, our EBITDA is a blend of our core business and those investments, and those headcounts are going into those investments. To the second part of your question, we've been pretty fortunate in our ability to attract and retain good people. So, we don't regard the tight labor market as a particular threat. And the way we combat that is through a broader employee value proposition and remuneration policy, where we pay it [ 62.5 ] for example. And we've been very successful so far in using that to attract and retain the best people. The evidence of that is that our attrition rate, which sits at around 12% or 13%, would be easily one of the lowest in the industry.

Your next question comes from Nicholas Rawlinson with Jefferies.

So, sensors were down 8% year-on-year at June 30, but it has since risen by the 5%. For the September quarter from last year it was very strong, so the comp is pretty tough. Just wondering, given the seasonality, how much sensors are currently down on a year-on-year basis?

You're right. It did perform quite strongly in the September quarter of last year. What that actual comp is, I don't have at the hands, Nicholas. So, we would normally mention that number when we do our AGM.

Yes. I think, Nick, the -- being down at a similar level at -- as a comp basically would be the right way to think about it.

Okay. And that statement that you made in the outlook that demand is expected to remain steady in FY '24, are you sort of suggesting that volumes in FY '24 will be flat on FY '23? That seems pretty optimistic given the exit rate.

Yes. I mean, we exited at -- we started the year at a point below where we started the prior year. And so, we see that steadiness and that slight uptick that we're already calling out as -- by the time that sort of bounces around, that's why we're calling it as a pretty steady FY '24 outlook. But we certainly were very clear in the view that the softening that we saw in H2 has now ceased and has stabilized. And so, we don't think there is any risk to the downside in that area. We just think it's about the pace of recovery.

Okay. Great. And just, lastly, those 3 BLASTDOGs that are operating by paid trials. So those were 3 different customers?

That's correct.

Your next question comes from Mitch Sonogan with Macquarie.

Just a quick one. Just following on from Nick there just on BLASTDOG. [ Are you able ] to let us know what level of commercial revenue was, I guess, recognized in FY '23? Should we think of that as any potential headwind or tailwind into '24?

So, we haven't disclosed that, Mitch, and we don't intend to. Suffice to say, it was pretty low. You might remember that the trial models that we were using at that time were not revenue related or they weren't revenue connected. And where we have matured our go-to-market strategy around that is instead of short-form free trials, we're doing longer form paid trials that then grow in commercial revenue over time. So -- but FY '23 was very low.

Yes. And just you've mentioned the slight pickup in raising activity there. I guess, Paul, just can you get a little bit more of a detailed update across the different segments and just how you're seeing things there? Obviously, you've talked about Canada and Australia with the juniors coming off, but, yes, just keen to understand how you're seeing that across the fluids business and rentals and get more detail?

So, you're talking about the -- so just so I'm clear, Mitch, you're asking how do we see the outlook for fluids and sensors in those 2 regions, specifically?

Just more broadly across the board, is that throughout fall. Just obviously talking about different parts of the outlook, you've talked about being broadly steady, but you see a bit of an uptick in raising. So just keen to understand if you're hearing or seeing anything from your big customers, anything worth calling out across all of your major geographic segments?

All right. A bit more of an around the grounds. Okay. Yes, certainly. Look, certainly, if I go back to the comment that I made, because of that rising cost environment in the mining sector, more broadly, the productivity rates for drilling overall are significantly down. And so, you would have heard AngloGold Fields or Northern Star all referred to that in some of their public commentary in the last few months. And so, the demand to get productivity up is leading to a lot of conversations with our -- particularly with our mids and majors or anyone who is a producer around ways to improve drilling productivity as a way to get greater orebody knowledge. And so those conversations have certainly grown in volume and that is consistent around the world. But the impact of it is most dominant in Australia and Canada, because that is where the larger rising cost environment is being felt and, therefore, the activity has softened in response. But, certainly, we're seeing a continued inflow of funds into South America, strong activity in that area. And we're seeing bit of a resurgence in activity in Chile. We're very watchful of Argentina, where the activity is strong, but the political situation less so. We see a recovery in Peru and Ecuador, where there is still some opportunity for us to follow that growth in activity. Africa is -- there is a little bit of movement geographically of activity within Africa. Burkina Faso used to be quite strong and now we've seen a lot of activity moved out of Burkina Faso and into neighboring countries, whereas we're seeing strong growth opportunities in Central Southern Africa or around the Zambian region and the like. Europe, pretty steady and strong. Australia is, again, a little bit of a 2-speed environment, where the gold sector around Kalgoorlie has been more impacted than, say, critical metals or iron ore. And the competition for labor within Western Australia, the iron ore majors are able to pay significantly higher wages than some of the gold players. And so, you're seeing a bit of tension for labor within the West Australian market more specifically. Some rigs have been moving from WA across to the East Coast. And if you have a look at, say, the Mitchell's numbers earlier or last week, I think they came out, you're sort of seeing some strong activity over in that area.

Your next question comes from Evan Karatzas with UBS.

Okay. Just on this -- the lower margin for Devico, because some of the cost investments, was this sort of known as you close the deal you'd have to make that investment? I'm just trying to understand there -- that.

Some of it we had a little bit of a view of and some of it came to pass as we started the integration process, Evan.

Got you. Okay. All right. So, it's a little bit of -- that you had to make that additional investment and obviously a bit of top line weakness [ or do you think ] you mentioned some weakness in Canada, that's driven the margins or expectation, is that the way to think about it for Devico there?

Yes. That's right. So there obviously, they had a reasonable portion of their revenue exposure in sensors and directional in the Canadian market. So, to the extent that the Canadian sensor market was affecting the Imdex business have also affected their business in the same way.

Okay. All right. Got it. That makes perfect sense. Okay. Maybe, just then moving into earnings expectations for Devico in '24. I think, you've previously said around the AUD 29 million mark, which is a slide on that CY '22 number. Obviously AUD 8.5 million, the annualized run rate is a bit below that level. So, I'm just trying to understand, should we still expect around that AUD 29 million of earnings from Devico in '24? And then if you can just talk to that, if so, I guess, the drivers of that run rate step-up, if you can, please?

Yes. So, Evan, I think that that would be our aim and target. The development of the DCD business in the other region supports extra growth in that Devico business. What we'll try and do in the results as we move into the half is still call those contributions out. But as we increasingly move through this half, the sensor business will become fully integrated into the Imdex business and we are doing -- working through a process of doing the same with the DCD business. But it -- the costs that we've seen go into this second half of '23 are scaling up at DCD business in those other regions.

Okay. All right. Great. And then, maybe just a final one for me. Just the first sort of 8 weeks, 2 months of FY '24, you've obviously mentioned the sequential improvement in sensors on hire of around 5% since 1 July. Can you just talk to what you think has driven that? And, I guess, also the sustainability of that sequential improvement in your view, please?

Yes. So, probably there is a couple of little factors. There is no one major factor, Evan. So, to give you an example, we would normally see the Canadian summer drilling program kick in in about May. However, there has been significant bush fires in the Canadian market. I think, most of Ontario was on fire at some point. And so, you saw a slight delay in the summer drilling program in Canada, which you're now seeing come through July. So, there's just a little bit of -- there's a few factors around about that are offsetting and compensating. Equally, we would normally expect in South America, the winter, we would have to stop drilling during the winter, but because the winter was unseasonally warm down there, they got to continue drilling for longer than expected. So, we've had more tools on hire in that region through winter when it would normally would have contracted. So, those are positive signals. We've definitely seen Canada come back from some of its -- from its lows. And if you go back to Slide 13 in the deck where you saw the Americas was overall up by 19% or 12% organically, Canada was actually down for the year. So, you're seeing the impact of them coming back can have a positive impact on the business.

[Operator Instructions] Your next question comes from Evan Karatzas with UBS.

Sorry, just a bit of a follow-on -- a quick follow-up question, given no one else is out there. I just want to understand that -- can you just remind me what you said on the increase in the SG&A and the head count? I sort of just missed that part, where you've invested it in and when we should expect, I guess, the return, or how we should see that return on that headcount and people investment? Because it's obviously pretty significant through that SG&A line, if you can, please.

Yes. Look, Evan, the run rate that we saw coming into second half '23, which largely looked at supporting the growth in the business and particularly in our IMDEX Mining Technology and Digital investments, and operationalizing those is what Paul talked about earlier. And as those come online, and we do commercialize, we would hope to then see those costs being offset. I suppose, where we are with our head count as we go into '24 is we are very focused on those particular initiatives and moving those to commercialization, but being very cautious as we manage our cost base in the other areas of the business.

Okay. All right. I'll follow-up on that. Okay. And then, just a final one for me. Just on the PP&E CapEx, obviously, you sort of tailed off a bit through the second half, I guess reflecting the market softening a bit. Are there any sort of initial expectations where we should think that that PP&E CapEx ends up for '24 or at least first half '24, if you can?

Yes, I think -- I'll let Paul elaborate, but the good feature about our PP&E is that, we only really invest on the back of demand. So, if it goes up, it's because the demand is there. What will drive that demand will either be market activity or as we release new products into the market and there's demand for those new products. But, Paul, did you want to elaborate?

Yes. No, I think that's really the flavor there on that. And, I think, just a bit understanding that there will be a little bit of generational change over in this as we go forward. But, largely, again, driven by the demand of the market.

There are no further questions at this time. I'll now hand back to Mr. House for closing remarks.

Thank you. Well, thank you for joining us today to recap our FY '23 results and our outlook for FY '24. Once again, the Imdex business remains in very good shape, and we regard the performance of the core business during a particularly challenging FY '23 is to be very strong. And to do that, whilst continuing to advance in our growth strategy across IMT, Digital and the acquisition of Devico, which will be transformative for our business in the years ahead has represented a significant milestone for the year. Our focus, as always, as we look forward, is to make sure that we deliver the plans in front of us in the areas that we can control, and we look forward to reporting an update to you at the end of the first half. With that, thank you very much for joining us today.

That does conclude our conference for today. Thank you for participating. You may now disconnect.