Annual Report 2018 IMDEX | Real-time subsurface intelligence solutions 216 Balcatta Road Balcatta WA 6021 PO Box 1262 T +61 (8) 9445 4010 imdex@imdexlimited.com Osborne Park WA 6916 F +61 (8) 9445 4042 www.imdexlimited.com 2 | IMDEX Limited Annual Report 2018 IMDEX In-field Geoanalysis solution Real-time Subsurface Intelligence Solutions We are a global mining equipment, technology and services (METS) company. Our IMDEX solutions improve the process of identifying and extracting what is below the earth’s surface for drilling contractors and resource companies – we let clients know where it is and what it is, now. Our vision is to be the leading provider of real-time subsurface intelligence solutions to the global minerals industry. “Our integrated solutions let drillers and resource companies know what is going on below the ground as accurately and quickly as possible. It is this intelligence that enhances the efficiency and profitability of their operations at all stages of exploration, development and mining.” Bernie Ridgeway IMDEX Managing Director Annual Report 2018 IMDEX Limited | 3 IMDEX Limited (IMDEX) ABN 78 008 947 813 Australian Securities Exchange (ASX) Listing Date: 24 September 1987 ASX Code: IMD Registered & Head Office 216 Balcatta Road, Balcatta Western Australia 6021 Registered PO Box PO Box 1262 Osborne Park Western Australia 6916 T +61 (8) 9445 4010 imdex@imdexlimited.com www.imdexlimited.com 4 | IMDEX Limited Annual Report 2018 About this Report This report is intended to provide IMDEX’s shareholders with information about our company, for the financial year ended 30 June 2018. An online version will be available on our website at www.imdexlimited.com/investors. All reference to dollars within this report are Australian dollars, unless otherwise stated. Our Corporate Governance Statement, which is also available at www.imdexlimited.com/about-us/corporate-governance, discloses the extent to which IMDEX has complied with the Australian Securities Exchange Corporate Governance Council’s ‘Corporate Governance Principles & Recommendations – 3rd edition’. FY18 Annual General Meeting Our Annual General Meeting will be held on 4 October 2018 at 11:00 am (AWST) at IMDEX’s Head Office located at 216 Balcatta Road, Balcatta, Western Australia. Members of our Board and leadership team will be available to discuss the company’s performance and operations. Corporate Calendar 4 October 2018 Annual General Meeting 15-17 October 2018 Macquarie Western Australia Forum 12-13 November 2018 UBS Australasian Conference 31 December 2018 FY19 Half Year End 18 February 2019 FY19 Half Year Results Presentation and Webcast 19-22 February 2019 1H19 Road Show 30 June 2019 FY19 Year End 19 August 2019 Release of FY19 Financial Results 20-23 August 2019 FY19 Full Year Road Show 3 October 2019 FY19 Annual General Meeting If there are any changes to these dates, the Australian Securities Exchange will be notified. Contents 06 2018 Highlights & Key Data 24 QHSE 08 Our Company 25 Governance & Risk Leading Brands Integrated End-to-End Solutions Corporate Governance Risk Management Operational Leverage Intellectual Property Client Intimacy Sustainable Earnings Growth 27 Managing Director’s Report 14 Our Operating Environment 30 Executive Management Team FY18 Market Conditions REFLEX Instruments on Hire 16 FY18 Financial Performance Minerals Revenue by Region Minerals EBITDA Reconciliation of EBITDA to Cash from Operations Summary of Financial Highlights IMDEX Board of Directors 18 20 22 Chairman’s Report 34 Our People Global Workforce Focus Areas 2018 Diversity & Equal Opportunity 37 38 The IMDEX Way Objective and Strategy for FY19 39 Company History Annual Report 2018 IMDEX Limited | 5 2018 Highlights IMPROVED SAFETY PERFORMANCE IN FY18 INCREASED REVENUE 24% AND EBITDA 35% MAINTAINED ROBUST BALANCE SHEET AND THE ABILITY TO DRIVE ORGANIC AND TRANSFORMATIONAL GROWTH WITHIN THE MINING VALUE CHAIN CYCLICAL UPSWING OF GLOBAL MINERALS INDUSTRY CONTINUED WITH A STEADY INCREASE IN DRILLING ACTIVITY REFLEX INSTRUMENTS ON HIRE AT 30 JUNE 2018 INCREASED 10% ON 30 JUNE 2017 CONTINUED INVESTMENT IN R&D AND THE COMMERCIALISATION OF NEW TECHNOLOGIES THAT GENERATE ADDITIONAL REVENUE OPTION TO ACQUIRE CoreVIBE™ AND MagHAMMER™ DRILLING PRODUCTIVITY TECHNOLOGIES ACCELERATED DRILL AND BLAST PROJECT IN COLLABORATION WITH ORICA, ANGLO AMERICAN AND TECK RESOURCES, WHICH WILL PROVIDE GREATER EXPOSURE TO THE MINING PHASE PROGRESSED OUR TRANSITION TOWARDS ONE IMDEX – ONE PROVIDER OF INTEGRATED SOLUTIONS THAT INCLUDE LEADING AMC AND REFLEX BRANDS ADVANCED DIGITAL TRANSFORMATION PROGRAM 6 | IMDEX Limited Annual Report 2018 Key Data at 30 June $218.5 million FY18 Revenue $42.4 m FY18 EBITDA Revenue EBITDA NPAT EPS (cents) Operating Cash Flow Net Assets Market Capitalisation Shares on Issue TRIFR (Per million hours worked) Number of Employees Banking Institutions Legal Advisors Auditors Share Registry FY 2018 218.5m 42.4m 21.1m 5.7 15.9m 186.1m 458.4m 369.7m 4.28 529 FY 2017 176.2m 31.5m 3.7m1 1.1 13.1m 159.8m 279.3m 367.5m 6.2 437 Bankwest Bankwest Hopgoodganim Hopgoodganim Deloitte Touche Tohmatsu Deloitte Touche Tohmatsu Computershare Computershare 1 Includes $16.2m (non-cash $11.5m) of financing costs in relation to the Bain Capital debt which was fully repaid Annual Report 2018 IMDEX Limited | 7 Our Company A Substantial Competitive Advantage Leading Brands AMC and REFLEX are dominant within the global minerals industry and have a reputation for quality and ease-of-use Integrated End-to- End Solutions IMDEX is a single provider enabling clients to increase efficiencies and reduce the cost of their operations Operational Leverage Intellectual Property IMDEX is the leading provider IMDEX has world-class of real-time subsurface research and development solutions with an established capabilities and a portfolio global presence in all key of protected technologies mining regions of the world Sustainable Earnings Growth IMDEX is developing solutions for all phases of the mining value chain including exploration, development and mining Client Intimacy IMDEX values its long- standing relationships with resource companies and drilling contractors. The company collaborates with these clients to enhance and support their operations 8 | IMDEX Limited Annual Report 2018 Annual Report 2018 IMDEX Limited | 9 COLLECT DATATAKE ACTION1. Traditional Process( TIME )2. IMDEXHUB-IQ™INFOANALYSISDATAACTIONACTIONANALYSISINFODATAIMDEXHUB-IQ™SERVICEPROVIDERSRESOURCECOMPANIESQUALITY DATA & CHAIN OF CUSTODYDrilling Optimisation Downhole Navigation Structural Geology Driller Operable Geophysics In-Field GeoanalysisINTEGRATED IMDEX SOLUTIONSSTREAMLINE PROCESSES & TIMELY INFORMATIONEXPLORATIONMININGDEVELOPMENT Leading Brands IMDEX has two leading brands – AMC and REFLEX. Together they provide a unique product and service offering to clients globally. Company Structure AMC redefines the way drilling fluids, equipment, technologies and software are used to optimise drilling programs – it strives to maximise productivity while enhancing safety and sustainability. AMC is also growing its presence within the horizontal directional drilling, waterwell and civil construction sectors. For further information, please visit www.amcmud.com REFLEX technologies include downhole instrumentation, data management and analytical software for geological modelling. These market leading technologies – recognised for their ease of use and accuracy – are complemented by unrivalled expertise in geo-scientific data analysis and interpretation. For further information, please visit www.reflexnow.com 10 | IMDEX Limited Annual Report 2018 Downhole Navigation Structural Geology Drilling Optimisation In-Field Geoanalysis Driller Operable Geophysics Integrated End-to-End Solutions Our company delivers IMDEX solutions that integrate our leading AMC and REFLEX brands. We assist clients to reduce their costs and increase their productivity by providing end-to-end solutions across the full mining life cycle. Central to these solutions is our IMDEXHUB-IQ™ – an award winning cloud-based web portal that collects, stores and provides critical operational data in real-time. This data is protected through a validated chain of custody and secure database and can be accessed from any internet connection to smart phone, tablet or PC. Annual Report 2018 IMDEX Limited | 11 At IMDEX we have operations in all of the key mining regions of the world. East Sussex - UK Rastede - Germany Timmins - Canada Amsterdam - Netherlands Smithers - Canada Vancouver - Canada Salt Lake City - USA San Luis Obispo - USA Torreón - Mexico Coahuila - Mexico Accra - Ghana Parauapebas - Brazil Belo Horizonte - Brazil Itajai - Brazil Quito - Ecuador Lima - Peru Mendoza - Argentina Santiago - Chile Dubai - UAE Jakarta - Indonesia Manila - Phillipines Johannesburg South Africa Kalgoorlie - WA PERTH - WA Adelaide - SA Townsville - QLD Brisbane - QLD Mudgee - NSW Melbourne - VIC Operating Leverage Our global presence and comprehensive distribution network allow us to: provide local support to clients; have greater access to international mineral exploration markets; and efficiently introduce new solution sets to these markets. 12 | IMDEX Limited Annual Report 2018 Intellectual Property Our world-class research and development facilities are located in Perth, Western Australia and San Luis Obispo in North America. We engage a team of talented engineers and geoscientists who are leaders in their field to develop and commercialise innovative solutions for the global minerals industry. Managing and protecting this intellectual property (IP) is vital and our company takes all possible measures to safeguard and defend our unique and competitive position in the market. These measures include: a dedicated IP Manager; registering patents, trademarks and designs; vigilant management of trade secrets and confidential information; internal IP training for all employees; ensuring the freedom to operate; and scanning the environment for competitor activities. Client Intimacy At IMDEX we support some of the largest resource companies and drilling contractors worldwide. We also provide an innovative edge to global collaboration initiatives that are working towards future industry needs. Industry research partnerships include the CSIRO, Olympus, DET CRC, MINEX CRC and CRC ORE. Sustainable Earnings Growth Our company has a clear objective of delivering sustainable earnings growth for shareholders. To achieve this we have a two-tiered strategy that includes: Organic growth – protecting and building our core business; and Transformational growth – extension into new market segments within the mining value chain, for example drilling productivity and drill and blast applications. Annual Report 2018 IMDEX Limited | 13 Our Operating Environment FY18 Market Conditions Broad-based recovery in the minerals sector globally Recovery spanned all key mining areas – particularly the Americas Commodity prices strengthened and were generally at the highest level in a little over three years. Potential US – China trade war adversely impacted commodity prices towards the end of FY18 Major, intermediate and junior companies were well funded with increased budgets Mineral exploration/development drilling increased steadily Exploration was principally associated with brownfield projects – some greenfield activity was evident Resource companies continued to focus on increasing efficiencies and cost reductions New technologies continued to gain momentum in order to achieve efficiencies and drive productivity Mining companies need to replace diminishing reserves Increased investment in junior explorers by major resource companies Risk appetite of resource companies is likely to increase as mine life remains an issue REFLEX INSTRUMENTS ON HIRE Seasonal Holiday Shut-Down - DECEMBER JUNE 17 - JUNE 18 10% REFLEX instruments on hire increased despite decrease in mineral exploration expenditure. JAN 14 - DEC 16 8 0 n a J 8 0 r p A 8 0 l u J 8 0 t c O 9 0 n a J 9 0 r p A 9 0 l u J 9 0 t c O 0 1 n a J 0 1 r p A 0 1 l u J 0 1 t c O 1 1 n a J 1 1 r p A 1 1 l u J 1 1 t c O 2 1 n a J 2 1 r p A 2 1 l u J 2 1 t c O 2 1 n a J 3 1 r p A 3 1 l u J 3 1 t c O 4 1 n a J 4 1 r p A 4 1 l u J 4 1 t c O 5 1 n a J 5 1 r p A 5 1 l u J 5 1 t c O 6 1 n a J 6 1 r p A 6 1 l u J 6 1 t c O 7 1 n a J 7 1 r p A 7 1 l u J 7 1 t c O 8 1 n a J 8 1 r p A Strong correlation between increasing instrumentation and activity Rig utilisation rates and driller rates indicate industry cycle is in early stages Quality of rental fleet is increasing. New technologies provide additional value for clients. 14 | IMDEX Limited Annual Report 2018 ) B $ S U ( t e g d u B n o i t a r o p x E l ) z o M ( s e i r e v o c s D r o a M n i j i l d o G 24 21 18 15 12 9 6 3 0 180 160 140 120 100 80 60 40 20 0 WORLD MINERAL EXPLORATION Estimated Budget Annual Indexed Metals Price 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 8 1 0 2 4 3 2 1 0 I l n d e x e d M e t a s P r i c e ( 1 9 9 6 = 1 ) CY18 budgets forecast to increase by 15 – 20% to US$10bn The Americas attracted >50% of expenditure, Asia/Pacific – 17.5%, Africa – 14% Gold/copper represent >70% of global expenditure. Gold/base metals >80% Source: S&P Global Market Intelligence GOLD IN MAJOR DISCOVERIES (1990 – 2017) Gold in Major Discoveries Projected New Gold in Major Discoveries Gold Price Gold Exploration Budgets 0 9 9 1 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 COPPER IN MAJOR DISCOVERIES (1990 – 2017) Copper in Discoveries Projected Copper in Discoveries Copper Exploration Budgets 120 100 ) M ( s e i r e v o c s D r o a M n i j i r e p p o C 80 60 40 20 0 0 9 9 1 1 9 9 1 2 9 9 1 3 9 9 1 4 9 9 1 5 9 9 1 6 9 9 1 7 9 9 1 8 9 9 1 9 9 9 1 0 0 0 2 1 0 0 2 2 0 0 2 3 0 0 2 4 0 0 2 5 0 0 2 6 0 0 2 7 0 0 2 8 0 0 2 9 0 0 2 0 1 0 2 1 1 0 2 2 1 0 2 3 1 0 2 4 1 0 2 5 1 0 2 6 1 0 2 7 1 0 2 l l G o d P r i c e ( U S $ / o z ) G o d E x p o r a t i o n B u d g e t s ( U S $ M l ) l C o p p e r E x p o r a t i o n B u d g e t ( U S $ M ) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 US$54.3b gold exploration past 10 years 215.5 Moz Au, 41 discoveries US$32.2b in the preceding 18 years 1,726 Moz Au in 222 discoveries Easy deposits found – 263 major discoveries in past 28 years, 139 in 1990s and contain most of discovered gold New mines – under cover, deeper, more drilling, more expensive and longer development time Mined Au ore grades 2005 – 2015 declined from 2.44g/t to 1.83g/t, trending lower Source: S&P Global Market Intelligence – Data as of July 25 2018 US$26.6b spent on Cu exploration over past 10 years – 140 Mt Cu in 29 discoveries US$12.4b spent over preceding 18 years - 862.8 Mt in 191 discoveries Mined Cu ore grades 2005 – 2017 declined (0.74% to 0.59%) Declining grades, more material moved and processed, water and energy consumption, achieve the same unit of produced metal Size of mines increasing as low grade Cu deposits are typically larger ore deposits – larger economies of scale, increases waste rock removal, explosives consumption, tailings generation and area of local habitat disturbance License to operate remains a challenge Source: S&P Global Market Intelligence – Data as of July 25 2018 Annual Report 2018 IMDEX Limited | 15 FY18 Financial Performance Revenue from continuing operations of $218.5 million, up 24% (FY17: $176.2 million) EBITDA from continuing operations of $42.4 million, up 35% (FY17: $31.5 million) Net profit after tax of $21.1 million, up 470% (FY17: $3.7 million) Operating cash flow from continuing operations of $15.9 million (FY17: $13.1 million), up 21% Strong balance sheet – as at 30 June 2018, net assets increased by $26.3 million and net cash totalled $7.9 million MINERALS REVENUE BY REGION ($m) MINERALS EBITDA ($m) FY18 Americas Asia Pacific EMEA 125.4 142.3 145.5 218.5 176.2 42.4 31.5 20.3 15.6 7.4 FY14 FY15 FY16 FY17 FY18 FY14 FY15 FY16 FY17 FY18 BALANCE SHEET $m Cash Receivables Inventory Fixed assets Intangibles Other assets / deferred tax TOTAL ASSETS Payables Bank loans HP finance Other liabilities, provisions, current tax TOTAL EQUITY 16 | IMDEX Limited Annual Report 2018 30 JUN 2018 30 JUN 2017 13.9 49.3 33.6 36.5 59.5 33.3 226.1 26.4 5.9 0.2 7.5 186.1 19.4 41.5 29.9 32.2 60.4 27.5 210.9 30.4 6.5 0.6 13.6 159.8 RECONCILIATION OF EBITDA TO CASH FROM OPERATIONS ($m) Reported EBITDA $42.4 Working capital investment normalised in 2H18 – FY18 in line with expectations 58.4 (9.7) Similar working capital ratio expected in FY19 Cash tax increasing in line with profitability FY19 investment in core product development expected to be similar to FY18 FY19 investment in transformational initiatives expected to be up ~$1.5m on FY18 (6.3) (14.4) (4.7) (6.8) (0.6) 15.9 EBITDA before Core & Transformational Core 1 Transformational 2 Working Capital Other Taxes Financing Costs Cash from continuing operations 1 Core - Investment in product development for organic growth. 2 Transformational - Internal digital transformation program, IMS Drill and Blast and CoreVIBE™ and MagHAMMER™ technologies. Annual Report 2018 IMDEX Limited | 17 Summary of Financial Highlights FOR THE YEAR ENDED 30 JUNE 2018 (AUDITED RESULTS) 2018 $’000 2017 $’000 17-18 Var % REVENUE FROM CONTINUING OPERATIONS (EXCLUDING INTEREST INCOME) 218,475 176,225 24% EARNINGS BEFORE INTEREST, TAX, DEPRECIATION & AMORTISATION (EBITDA) FROM CONTINUING OPERATIONS 42,384 31,496 35% EBITDA margin Depreciation and impairment Amortisation EARNINGS BEFORE INTEREST & TAX (EBIT) Net interest expense Net profit before tax Income tax expense NET PROFIT AFTER TAX FROM CONTINUING OPERATIONS 19.4% 17.9% (12,772) (10,692) (333) (583) 29,279 20,221 (688) (16,413) 28,591 3,808 (7,476) (1,243) 21,115 2,565 19% (43%) 45% (96%) 651% 501% 723% Profit from discontinued operations - 1,098 (100%) NET PROFIT AFTER TAX 21,115 3,663 476% Basic earnings per share from continuing and discontinued operations (cents) 5.73 1.14 403% Net Cash provided by Operating Activities 15,900 13,071 22% Cash on hand Net Assets Total Borrowings 13,942 19,379 (28%) 186,126 159,820 16% 6,076 7,147 (15%) Net Tangible Assets per Share (cents) 34.27 27.07 27% Small % variances may exist within this report due to rounding 18 | IMDEX Limited Annual Report 2018 IMDEX In-Field Geoanalysis solution Annual Report 2018 IMDEX Limited | 19 IMDEX Board of Directors Our Board has extensive professional expertise, business experience and knowledge of the mineral exploration, mining and technology industries. It also has considerable experience within capital and financial markets. Members of the Board are well respected in these sectors and play an active role in our company’s strategic planning. In March 2018 the Board attended the PDAC International Convention, trade show and investor exchange in Toronto, Canada. The PDAC is the world’s leading convention for people, companies and organisations in, or connected with, mineral exploration. Members of our Board also visited IMDEX’s facilities in North and South America to gain further insight into these high-growth regions. Key priorities for the Board during FY18 included: Improving our safety performance Strong Corporate Governance Transitioning to One IMDEX Driving our two-tiered growth strategy 20 | IMDEX Limited Annual Report 2018 “Each Board member has diverse yet complementary skills and everyone has extended well beyond their obligations to make meaningful contributions to the development, long- term growth and governance of our company.” Anthony Wooles IMDEX Chairman MR KEVIN DUNDO Non-Executive Director Appointed to the Board 14 Jan 2004 MS SALLY- ANNE LAYMAN Non-Executive Director Appointed to the Board 6 Feb 2017 MR IVAN GUSTAVINO Non-Executive Director Appointed to the Board 3 July 2015 MR BERNIE RIDGEWAY Managing Director Appointed to the Board 23 May 2000 MR ANTHONY WOOLES Non-Executive Chairman Appointed as Chairman 1 July 2016 Annual Report 2018 IMDEX Limited | 21 Chairman’s Report On behalf of the IMDEX Board of Directors I’m pleased to present the company’s Annual Report for the 2018 financial year (FY18). FY18 was a positive year for the company. Safety performance The IMDEX Board and leadership team have rigorously improved, revenue and earnings grew substantially and assessed these investments – both organic and IMDEX made good progress internally with its objective to transformational – applying a balanced yet healthy sense achieve sustainable earnings growth for shareholders. of urgency. All of the company’s investment decisions and development projects are subject to this gateway process. Improved Safety Performance Whilst there are still substantial gains to be made, the Board & Leadership Team company’s safety performance improved steadily throughout Our Board and leadership team have continued to work very the year and encouragingly, has become ‘front of mind’ well together. Throughout the year we refined and strengthened within the organisation. During FY18 the Lost Time Incident our leadership team to support our corporate progression. Frequency Rate (LTIFR) was 2.57, a 20% improvement The Board is confident the company has a strong and talented on the previous year. Further information regarding IMDEX’s team in place and on behalf of the IMDEX Board, I would like to safety initiatives can be found on page 24 of this report. thank Bernie Ridgeway and the leadership team for their strong Increased Revenue and Earnings IMDEX took advantage of improving market conditions and achieved strong top line growth. Pleasingly, the company also maintained solid margin performance. The revenue result of $218.5 million represented a 24% increase on FY17 and Group EBITDA was $42.4 million, a 35% increase on the previous year. Sustainable Earnings Growth for our Shareholders The company maintained its clear objective of delivering sustainable earnings growth for shareholders. As a result, IMDEX remained focused on a two-tiered strategy; focused organic growth of the core business and pursuit of transformational growth across the mining value chain. performance in FY18. I would also like to thank my fellow Board members. The Board has diverse yet complementary skills and in FY18 each Director has made a significant contribution to the development, long- term growth and governance of our company. During FY19 our Board will continue to place great emphasis on ensuring IMDEX is a safe, high performing and welcoming workplace. Dividends During FY18 the Board acquired the option to invest in transformational technologies that have the potential to deliver substantial long-term growth for the business. As a result IMDEX will not be paying a dividend for FY18. Key elements of this strategy include maintaining the Our Valued Shareholders company’s clear technology leadership, delivering unrivalled Importantly, on behalf of the Board, I would like to express solutions for clients and driving operational excellence. our gratitude to the valued shareholders of IMDEX. Progress throughout the year included: the commercialisation of new leading products; securing the option to acquire the CoreVIBE™ and MagHAMMER™ technologies; solid progress Kind Regards with the digital transformation program and; the establishment of global partnerships with major resource companies and drilling contractors for our integrated solutions. Anthony Wooles IMDEX Chairman 22 | IMDEX Limited Annual Report 2018 IMDEX In-field Geoanalysis solution Annual Report 2018 IMDEX Limited | 23 Quality, Health, Safety and Environment During FY18 we significantly improved our safety performance and successfully increased safety awareness in our company. We achieved a Lost Time Incident Frequency Rate (LTIFR) of • Incorporated additional safety measures in our employee 2.57, which represents a 20% improvement on the previous performance and reward system. year. This is an excellent result given the diverse and often remote, areas, in which we operate. During FY19 we will continue to focus on enhancing our employee safety behaviours and safety culture as an Safety initiatives implemented during FY18 included: organisation. Our LTIFR target for FY19 is 2.18 – a 15% • Increased communication regarding safety – supported by the Board and leadership team; • Continued monthly employee safety meetings; • Promotion of lead indicators including hazard, near-miss and success alerts; improvement on the previous year and our ultimate goal is zero harm. To achieve this, additional initiatives will include: • • Introducing iAuditor to all IMDEX employees globally; and Implementing a learning management system to improve the efficiency and effectiveness of our safety • An iAuditor trial – an online safety management tool that training methods. includes digital forms, journey plans and safety inspections; During FY18 we we implemented improvements to our quality • Completed HSE Operational Controls Audits globally; and management system and achieved certification to the revised ISO 9001:2015 standard. “The company’s safety performance improved steadily throughout the year and encouragingly, has become ‘front of mind’ within the organisation.” Anthony Wooles IMDEX Chairman 24 | IMDEX Limited Annual Report 2018 Governance & Risk Corporate Governance Risk Management The Australian Securities Exchange Corporate Governance Council sets out best practice recommendations, including corporate governance practices and suggested disclosures (ASX Recommendations). ASX Listing Rule 4.10.3 requires companies to disclose the extent to which they have complied with the ASX Recommendations and to give reasons for not following them. Unless otherwise indicated the ASX Recommendations including corporate governance practices and suggested disclosures, have been adopted by our company for the full year ended 30 June 2018. We also provide a Corporate Governance section on our website, which includes the relevant documentation suggested by the ASX Recommendations. www.imdexlimited.com/about-us/corporate-governance. The identification and proper management of risk within IMDEX is an important priority for the Board and management. The Board has sought to minimise the business’ risks by focusing on the company’s core business. The Board is responsible for ensuring that the company’s risk management systems are adequate and operating effectively. Risks are reviewed by Senior Management monthly and by the Audit and Risk Committee on a regular basis. The Board believes that through the Board itself, the Audit, Risk and Compliance Committee, the Internal Audit Function and external auditors there is adequate oversight of the company’s risk management and internal controls. Annual Report 2018 IMDEX Limited | 25 REFLEX LOGGER-IQ™ 26 | IMDEX Limited Annual Report 2018 Managing Director’s Report Dear shareholders, I am pleased to provide you IMDEX’s Annual Report for the financial year ending 30 June 2018 (FY18). Market Conditions REFLEX Instruments on Hire Throughout FY18, operating conditions were positive for our There has always been a strong correlation between our company due to the broad-based recovery in the mineral sector REFLEX instruments on hire and activity within the global globally. The recovery spanned all key mining areas; however, minerals market. Our instruments are not commodity it was particularly evident in the Americas, which remains a high- specific, however, as I mentioned earlier, gold and copper growth region for IMDEX. remain the principal commodities driving activity. Commodity prices strengthened during FY18 and were generally As at 30 June 2018, the total number of instruments on hire at the highest level in a little over three years. Recent macro- was up 10% compared to 30 June 2017. It is important to economic developments such as the US Government’s decision note that the quality of the rental fleet is increasing, as our to impose tariffs on Chinese imports have, however, had an newer technologies provide additional benefits for clients and adverse impact on commodity prices around the end of FY18. command higher rental revenue. The value clients place on Data from S&P Global Market Intelligence suggests that the 2017 calendar year mineral exploration budget of US$8.4 billion was up 14% on the previous calendar year and was forecast to increase by 15% – 20% to US$10 billion in 2018. In my view this increase for calendar 2018 is perhaps a little optimistic, however, the number of mineral exploration drill holes is rising steadily. Gold and copper continue to represent approximately 70% - 75% of exploration expenditure and it was interesting to note the rising interest in battery metals such lithium and cobalt this year. Exploration expenditure remains largely associated with brownfield projects, although some greenfield activity was evident. these technologies is evidenced by the increase in the number of instruments on hire during 2014 – 2016, despite the sharp decrease in mineral exploration expenditure (see graph on page 15). Financial Performance I am pleased to report our company benefited from the positive market conditions, together with growing interest in our leading technologies and our ability to provide integrated end-to-end solutions. During the full year we generated revenue of $218.5 million, which represents a 24% uplift on FY17 (FY17: $176.2 million). Our corresponding EBITDA result was $42.4 million, which also As I have mentioned throughout the year, a key driver for exceeded the prior period (FY17: $31.5 million) by 35%. Further exploration is the fundamental need for resource companies information regarding our revenue and earnings can be found to replace diminishing reserves. An interesting development on pages 16 to 19 of this report and our 2018 Financial Report. throughout FY18 was increased investment in junior explorers by major mining companies. Similarly, their risk appetite is likely to increase as mine life continues to be an issue. Resource companies and drilling contractors are continuing to focus on achieving greater efficiencies and reducing the cost of their operations. Industry disruption and employing big data Our cash flow for FY18 was $15.9 million – this represents a 21% increase on the previous year. As at 30 June 2018 our balance sheet was in a robust position – net assets had increased by $26.3 million and we had net cash of $7.9 million. technology were common themes at key industry conventions We remained committed to maintaining the strength of our and it was pleasing to see the increasing value placed on new balance sheet, while delivering sustainable earnings growth – technologies to drive productivity. This is good news for IMDEX. via our organic and transformational growth strategy – within the mining value chain. Annual Report 2018 IMDEX Limited | 27 Operational Achievements IMDEX Mining Solutions In addition to our continued investment in research and Another excellent opportunity for our company is a development, which resulted in the commercialisation of collaboration project with Orica – the world’s largest provider new technologies and additional revenue per month, there of commercial explosives and innovative blasting systems were a number of exciting operational achievements – to substantially enhance drill and blast operations. throughout FY18 that support our growth strategy including: • An option to acquire CoreVIBE™ and MagHAMMER™ technologies; The IMDEX Mining project combines our expertise in leading downhole equipment and sensors to acquire real-time data, with Orica’s proven success with blasting • IMDEX Mining Solutions – a collaboration project and technology development. Together, we aim to transform for drill and blast applications, which provides greater the way the industry undertakes the drill and blast process, exposure to the mining phase; utilising digital and automated technologies to create safer and more productive blast outcomes for clients. The project is also being supported by multi-national mining company Anglo American, Canada’s largest diversified resource company Teck and the CRC-ORE, which aims to ‘optimise resource extraction’ for the minerals industry. The mining industry does not currently possess the capability to characterise the rock mass in detail, in near real-time and accurately design, load, time and fire for targeted blast outcomes based on rock variation. Consequently, blasting outcomes are variable and carry cost and productivity impacts down the mining value chain. In July this year, we were proud to be a recipient of funding from METS Ignited, which will accelerate this collaboration project, which we believe has the potential to revolutionise drill and blast activities in both open pit and underground operations across all commodities. Investment in this important project will enable us to generate more sustainable future earnings. • Progress with our transition towards One IMDEX – delivering integrated solutions for our clients; and • Advancement with our digital transformation programme. CoreVIBE™ and MagHAMMER™ Technologies As announced to the market in January 2018, we entered into an exclusive option agreement to acquire New Zealand based companies Flexidrill Limited and Flexidrill Construction Limited (together “Flexidrill”) and its patent protected technologies – the CoreVIBE™ and MagHAMMER™. Since then, we have been co-developing these new technologies, which are generating considerable interest from our industry. Should we exercise our option, the CoreVIBE™ and MagHAMMER™ are expected to provide a significant additional global revenue stream for our company in FY20 and beyond and be EPS accretive within 12 months of option exercise. The CoreVIBE™ technology has the potential to increase average drilling productivity rates by approximately 30% in traditional diamond coring applications – results that have been supported to date by IMDEX field trials. The MagHAMMER™ technology allows for RC drilling to be run without compressed air resulting in significant economic, safety and operational benefits. It may also be used for blast hole drilling applications. The CoreVIBE™ and MagHAMMER™ technologies are patent protected and align with IMDEX’s rental model. These technologies complement IMDEX’s Drilling Optimisation Solution and would strengthen our competitive position in this market segment. IMDEX is the only company to provide such integrated and connected solutions. These are unable to be replicated by competitors due to patent protection. 28 | IMDEX Limited Annual Report 2018 One IMDEX Throughout FY18 we further refined our internal structure to support our transition towards One IMDEX – that is, one provider offering integrated solutions throughout the mining value chain. This offering is currently unique to our market and provides us with a significant competitive advantage. Digital Transformation Program During the year we continued to progress our digital transformation program, which is being undertaken to enhance our systems and processes and enrich our client experience. As part of this focus we established the role of Chief Information and Transformation Officer and welcomed Mathew Regan to our team. Mat will support our One IMDEX progression and is responsible for the efficient delivery of our digital transformation program. Outlook Despite the recent softening of commodity prices, the outlook for IMDEX remains positive. Rig utilisation rates were approximately 45% - 50% at the close of the financial year, drilling contractors are achieving some increases to their metre rates and exploration expenditure is approximately half of the 2012 peak. These factors suggest we are still in the earlier stages of the minerals industry cycle. We expect this cycle will continue with a steady increase in activity underpinned by the need to replace diminishing reserves. I am confident IMDEX is in a strong position to leverage improving market conditions and the unique competitive position our global presence, leading technologies and integrated product offering provide. My Thanks to a Great Team I would like to thank our senior leadership team and all IMDEX employees for their hard work and expertise throughout the year – it is a pleasure and a privilege working with talented and innovative people. I would also like to thank our Board members for their counsel and dedication to the long-term growth of our company and the safety and well-being of our team. Together, we have all created some solid foundations to deliver industry changing projects, future growth and a great place to work and a company dedicated to increasing returns for shareholders. Kind Regards Bernie Ridgeway IMDEX Managing Director Annual Report 2018 IMDEX Limited | 29 Executive Management Team Mr Bernie Ridgeway Managing Director • Bachelor of Business and Qualified Chartered Accountant • Member of the Institute of Chartered Accountants Australia and New Zealand and the Australian Institute of Company Directors • Non-Executive Director of Sino Gas and Energy Holdings Limited • Over 35 years’ experience with public and private companies as a business owner, Director and Manager Mr Paul Evans Chief Financial Officer & Company Secretary • Chartered Accountant • Fellow of the Institute of Chartered Accountants Australia and New Zealand • Chief Financial Officer and Company Secretary since 17 October 2006 • Extensive experience in commercial, general management and financial roles • Industry experience covering the media, manufacturing, mining services and telecommunications industries Mr Paul House Chief Operating Officer • 26 years’ experience in management and operations across the resources sector and diversified industrial services markets • 14 years with SGS, the world’s leading inspection and testing firm, with a dominant presence in the resources geochemistry assay and metallurgy sectors • 18 years working in resources markets around the world including Africa, the Middle East, South Asia, South East Asia, Australia and the USA. Additional roles have included strategy, innovation, market entry strategy, restructuring and turnaround performance and corporate finance positions • Bachelor of Commerce from the University of Western Australia • Fellow of the Australian Institute of Management and a Graduate Member of Australian Institute of Company Directors 30 | IMDEX Limited Annual Report 2018 Throughout FY18 we further refined our internal structures and re-defined roles to support our transition towards One IMDEX – including the creation of Chief Operating Officer and Chief Information & Transformation Officer roles to drive our integrated AMC and REFLEX operations, digital transformation and operational excellence. Mr Troy Giesler Global Sales Director • Over 30 years’ experience within the drilling industry • 5 years in senior management positions at IMDEX • 19 years with MI-Swaco, including 7 years as Global Business Line Manager for the company’s HDD, mining and waterwell operations • Bachelor of Science from Colorado State University with a major in Business Administration Mr Mathew Regan Chief Information & Transformation Officer • Extensive management experience in business transformation, strategy, innovation, supply chain optimisation and IT communications • Bachelor of Computer Science from Edith Cowan University and a Masters of Information Technology from the University of Western Australia • Stanford University Executive Program • Graduate Member of Australian Institute of Company Directors Derek Loughlin Global Business Development Director • 29 years’ experience within the drilling industry • 12 years in executive management positions at IMDEX • 17 years with leading drilling company Boart Longyear in engineering, operations, sales and global exports, working in Ireland, Australia and Germany • Honours Degree in Mining Engineering from the Camborne School Of Mines, UK • Diploma of Executive Development at the International Institute for Management and Development in Lausanne Annual Report 2018 IMDEX Limited | 31 Dr Michelle Carey Global Manager – IMDEX Product Development • Over 20 years’ experience in the mining industry working for companies including BHP and WMC • 7 years in executive management roles at IMDEX • Extensive experience in developing innovative products for the mining industry • PhD in Geochemistry from Monash University Mr Kingsley Weber Human Resources Director • Over 30 years’ global leadership and consulting experience in: R&D; marketing; sales and key account management; international business and market development; human resources; organisational design and development; and corporate strategy and execution • Diverse industry experience including: chemicals; healthcare; satellite communications; environmental management; manufacturing; and banking • Fellow of the Royal Society of Arts • Member Institute of Directors • Graduate Diploma in Marketing (MCIM) • Member Chartered Institute of People Development 32 | IMDEX Limited Annual Report 2018 Mr Tim Price General Manager – IMDEX Product Research • 32 years’ experience in engineering and product development, 7 years with IMDEX, 20 years with Scientific Drilling International holding positions from Design Engineer to Senior Vice President of Engineering • 5 years in Aerospace and Semiconductor Test Industries • Bachelors of Science in Electronic Engineering and Master of Science in Electrical Engineering from California Polytechnic State University, San Luis Obispo Dr Dave Lawie Chief Geoscientist / Chief Technologist – Mining Solutions • Chief Geoscientist for IMDEX since 2012 • Global positions in exploration geochemistry and R&D with Pasminco and Anglo American before joining ioGlobal as Managing Director in 2004 • ioGlobal provided geochemistry and geometallurgical consulting services, cloud based data management and the ioGAS desktop analytics – the company was acquired by IMDEX in 2012 • PhD in Geosciences from University of New England Annual Report 2018 IMDEX Limited | 33 Our People Global Workforce During FY18 our global workforce increased by 21% to 529 people (FY17 437). Additional personnel were engaged to support the increase in activity, our geoscience capability in all regions and IMDEX’s digital and transformational projects. FY18 EMPLOYEES BY REGION FY17 EMPLOYEES BY REGION APAC Americas EMEA APAC Americas EMEA Total Employees 529 Total Employees 437 FY18 EMPLOYEES BY GENDER FY17 EMPLOYEES BY GENDER Female Male Total Employees 529 Female Male Total Employees 437 FY18 EMPLOYEES BY BUSINESS UNITS FY17 EMPLOYEES BY BUSINESS UNITS Corporate AMC Minerals REFLEX IMDEX Technologies IMS/Flexidrill Corporate AMC Minerals REFLEX IMDEX Technologies IMS/Flexidrill 34 | IMDEX Limited Annual Report 2018 Focus Areas 2018 IMDEX’s Global Human Resources (HR) function is evolving to become an influencer and strategic contributor in the future success of IMDEX. The Global HR team has partnered with the organisation to determine business critical HR initiatives, aimed at ensuring IMDEX moves at pace from a state of reactiveness and maintenance to operational excellence. These initiatives form part of a 3-year HR Strategic Plan. Outlined in the table below are the initiatives delivered in FY18, designed to assist in the achievement of IMDEX’s organisational strategy and goals. Review of HR capability and structure to enable future growth and customer outcomes TALENT ACQUISITION & ONBOARDING EMBED TECHNOLOGY BUILD ACHIEVEMENT ORIENTATED CULTURE FOSTERING TALENT & LEADERSHIP GROWTH CREATE AND MAINTAIN ENGAGED WORKFORCE IMPROVED HR PROCESSES AND REPORTING Preferred Supplier Agreement Improved Recruitment Processes Orientation & Onboarding HRIS Implementation & Change Management Performance & Reward Strategy Leadership Development Framework Talent Review & Succession Planning Climate Survey Results & Action Planning HR Policy & Process Gap Analysis Underpinned by customer service focus in everything we do Annual Report 2018 IMDEX Limited | 35 Diversity & Equal Opportunity at IMDEX At IMDEX we value diversity in our workforce. We seek to employ, retain and develop employees for the long-term, assisting in their development and the development of the culture and values of our company. This is done by promoting the value of different perspectives, ideas and benefits brought by engaging employees from all available talent. Our Diversity Policy can be found on our website at www.imdexlimited.com/about-us/corporate-governance. Our company is also committed to providing equal opportunities for all employees. We ensure employment decisions are made solely on the basis of merit, taking into account relevant skills, qualifications, experience and ability, and without bias or prejudice - further information can be found within our Code of Conduct Policy at www.imdexlimited.com/about-us/corporate-governance. IMDEX Employee Assist Program (EAP) In December 2017 we launched an Employee Assistance Programme (EAP). Our EAP is provided by Optum, a global and independent organisation that provides coaching and Business Acumen Training During FY18 we introduced employee Business Acumen Training program to build a team of business partners throughout IMDEX – our aim is to listen to, harness and implement ideas for innovation and business improvement. counselling services. Successful workshops were undertaken in all of our regions and The confidential EAP is available 24/7 and is free for all IMDEX employees and their immediate families. Optum also distributes monthly newsletters, which contain useful advice and information for all IMDEX employees. the initiative will continue during FY19. “Every IMDEX employee will have an opportunity to attend and contribute as we deliver workshops globally and create a pool of creative ideas.” Kingsley Weber Human Resources Director 36 | IMDEX Limited Annual Report 2018 The IMDEX Way The IMDEX Way sets out the key principles and expected behaviours that govern our company’s decision making, business practices and employee reward programs. Integrity Communicating openly and honestly. Avoiding activities or organisations that are unethical, harm people or the environment. Accountability Teamwork Taking responsibility for and delivering Working collaboratively, safely and with respect for on IMDEX’s commitments to the Company, clients and colleagues. diversity within IMDEX’s Group to achieve the best results for the Company, clients and colleagues. Being Dynamic Maintaining an efficient global Company with the flexibility to provide localised client solutions and the adaptability to react quickly to new opportunities and change. Continuous Improvement Innovation Pursuing IMDEX’s strategy of ongoing growth and Leveraging IMDEX’s advanced technologies reward for shareholders, clients and employees and research and development capabilities through continuous improvement of the Company’s to deliver innovative, leading edge products products, services and work practices. and services that optimise client operations. Annual Report 2018 IMDEX Limited | 37 Objective and Strategy for FY19 We maintain our clear objective of delivering sustainable earnings growth for shareholders via a two-tiered strategy, which includes organic and transformational growth. Key elements of this strategy include: maintaining our technical leadership; enhancing our client intimacy; and driving operational excellence. Maintain technical leadership Next generation core products Rapid-response frontline innovation Transformational products - drilling productivity and drill & blast Enhance client intimacy Integrated IMDEX solutions – AMC & REFLEX Client help desk and service centre Training – IMDEX Academy Enhance strategic partnerships Implement key account management Drive operational excellence Enhance safety performance One IMDEX Digital transformation Engage, develop and retain talented people Streamline distribution and supply chain 38 | IMDEX Limited Annual Report 2018 Company History December 1980 Australian company Pilbara Gold NL incorporated July 1985 Pilbara Gold NL changed name to IMDEX Limited Sept 1987 IMDEX Limited listed on the ASX 1988 1997 2001 Formation of Australian Mud Company Acquisition of Surtron Technologies Pty Ltd and Ace Drilling Supplies Joint venture formed with IMDEX and Rashid Trading Establishment (RTE) in Saudi Arabia July 2005 Sale of IMDEX Minerals August 2005 Acquisition of African based company Samchem August 2006 Acquisition of Swedish based REFLEX Group of Companies and United Kingdom based company Chardec May 2007 July 2007 July 2007 Acquisition of Swedish based company Flexit Ace merged with REFLEX. IMDEX finalised the sale of its interest in IMDEX Arabia to RTE Acquisition of Canadian based Poly-Drill and a 75% interest in Kazakhstan based Suay Energy Services October 2007 Sale of Surtron Technologies November 2007 Acquisition of Chilean based company Southernland January 2008 Acquisition of German based company System Entwicklungs July 2008 Acquisition of the remaining 25% of Kazakhstan based Suay Energy Services September 2008 Acquisition of Australian based company Wildcat Chemicals Australia July 2010 New regional structure implemented and business reporting streamlined into Minerals and Oil & Gas Divisions September 2010 Acquisition of Australian based companies Fluidstar and Ecospin March 2011 Acquisition of German based company Mud-Data July 2011 July 2011 Formation of DHS Services joint venture Acquisition of Australian based company Australian Drilling Specialties Pty Ltd August 2011 Acquisition of Brazilian based company System Mud Indústria e ComércioLtda January 2012 Acquisition of Vaughn Energy Services (VES) by IMDEX’s DHS Services joint venture November 2012 Acquisition of ioGlobal Pty Ltd, ioAnalytics Pty Ltd and ioGlobal Solutions Inc. (together ioGlobal) December 2012 DHS Services and Vaughn Energy Services rebranded as VES International September 2014 Acquisition of 2iC June 2015 Divestment of Suay Energy Services 2016 Divestment of AMC Oil & Gas January 2018 Option to acquire Flexidrill Limited and Flexidrill Construction Limited (together Flexidrill) Annual Report 2018 IMDEX Limited | 39 40 | IMDEX Limited Annual Report 2018 IMDEX In-field Geoanalysis solution Annual Report 2018 IMDEX Limited | 41 216 Balcatta Road Balcatta WA 6021 Australia PO Box 1262 Osborne Park WA 6916 Australia T +61 (0) 8 9445 4010 E imdex@imdexlimited.com © IMDEX Limited August 2018
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