Imdex Ltd
ASX:IMD
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1.525
2.7
|
| Price Target |
|
We'll email you a reminder when the closing price reaches AUD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Imdex Ltd
You don't have any saved screeners yet
Thank you for standing by, and welcome to the IMDEX 1H '21 results presentation [Operator Instructions] I would now like to hand the conference over to Mr. Paul House, CEO. Please go ahead.
Thank you, Melanie, and welcome, everyone. Joining me on the call today is Paul Evans, our Chief Financial Officer and Company Secretary. It is our pleasure to provide an update on the first half of the 2021 financial year. During this presentation, we will cover 3 key areas: our financial and operational performance; current market conditions and the positive industry drivers; and finally, how IMDEX is positioned as a growth company. Many of you are familiar with our business. However, like previous presentations, there is additional information in the appendices, expanding on our drilling optimization and Rock Knowledge offerings. I would also like to draw your attention to the new Investor Relations section of our website, where you can find new resources and ways to engage with our business. Commencing on Slide 3 with the financial highlights. As announced in our release this morning, we are proud of the results for the half and our ability to outperform industry growth rates in all market conditions, most notably under the duress caused by COVID. We generated revenue of $124.3 million. This result was down 3% over the prior period yet up 1.5% on a constant currency basis, highlighting a strong rebound in our underlying operations. EBITDA at $33.1 million is up 6% on 1H '20 and 9% on a constant currency basis. Cash from operations was up 33%, reflecting strong client collections. Our directors declared a fully franked interim dividend of $0.01 per share. And we maintained a robust balance sheet with a strong net cash position of $47 million, up 84% on the pcp. Turning to the operational highlights on Slide 4. I'm pleased to report 0 recordable injuries during the half and an improved lost time injury frequency rate. Our team continued to navigate COVID with a heightened focus on employee safety and supply chains both. To support the development of new technologies, particularly during the restrictions imposed by COVID, we signed a joint development agreement with a Tier 1 mining company to advance our drilling optimization technologies. A second JDA to accelerate our Rock Knowledge technologies is in its final stages. Such agreements will form part of our ongoing business model. We advanced our corporate sustainability program, including kicking off an ESG materiality assessment, which we will include in our full year report. The increase in demand for remote working solutions prioritized the upgrade of IMDEXHUB and ioGAS version 7.3 of our geochemistry software. We had a record number of gyro-related technologies on rent. And accordingly, we boosted gyro production capabilities by 33%, and we are on track to increase this to 100% by June. And finally, we had a record December and January for instruments on rent despite the unseasonably warm winter in Canada. Before handing over to Paul Evans to cover the financials in more detail, I would like to call out some of the messages on Slide 5. IMDEX is strong and resilient. Our core business remains profitable during the GFC and past industry downturns. The global -- the current global pandemic has been no exception. Our goal is that we consistently outperform minerals industry growth rates. Our 4-year revenue CAGR of 10.7% can be benchmarked against the S&P 4-year exploration spend CAGR of 4.3%. Our year-on-year EBITDA margin expansion highlights our relentless focus on efficient operations and the improving quality of our product mix. Our global reach and product offering is unrivaled, and we have a highly capable and dedicated team. Its response to the pandemic and our changing client need both has been exceptional. On behalf of the Board and myself, I would like to acknowledge and thank every member of our team around the world. Over to you now, Paul.
Thank you, Paul. Paul has covered the highlights, so I will focus on the notes on Slide 7. Reading through the headline performance, I'd like to point out the EBITDA line excludes the $2.2 million gain in 1H '21 for the Flexidrill deferred consideration fair value adjustment and the $3.6 million gain from the sale of Vaughn Energy Services in 1H '20. The $2.2 million adjustment is based on the regular assessment of the deferred consideration payable to the prior owners of Flexidrill. It updates for a number of elements, including forward revenue projections of the technologies, foreign currency, IMDEX' share price, dividend projections and others. The net profit and earnings per share lines include higher D&A charges. The depreciation charges largely relate to the purchase of assets to support increasing demand for gyro-related technologies and the amortization charge relating to our Flexidrill and AusSpec acquisitions. I would also like to note the number of full-time employees at December 31 was down 3% on the prior corresponding period. Moving now to Slide 8. While the 1H '21 revenue result of $124.3 million was down 3% on 1H '20, it was up 13% on 2H '20. Approximately 33% of our 1H '21 revenue was generated in Asia Pacific, 41% in the Americas and the balance in Africa and Europe. These revenue splits are broadly in line with recent years. COVID continued to disrupt operations during the half, particularly in South America, South Africa and parts of Asia. However, it heightened the demand for our cloud-connected technologies, which support zero entry operations and provide greater value. Activity continued to recover in the majority of our other areas, particularly Canada, U.S.A. and West Africa, and is being boosted by strong industry fundamentals. Moving now to EBITDA on Slide 9. Our 1H '21 result of $33.1 million was up 6% on 1H '20 and 43% on 2H '20. During the period, we continued to benefit from a growing percentage of rental and software revenue, which yields higher gross margins, our digital transformation and focus on streamlining our operations and benefits from lower travel-related costs and new ways of working. We do not anticipate the levels of travel and associated costs to return to pre-COVID levels as restrictions ease. Slide 10 shows the reconciliation from EBITDA and highlights our strong cash generation. From the EBITDA result of $33.1 million, there was a net inflow of operating cash of $33.2 million. On a like-for-like basis, this represents an uplift of 33% on the pcp. This uplift was achieved by a combination of strong EBITDA conversion, a focus on collections and lower tax outlays. Historically, we have achieved a working capital investment ratio of $0.30 to $0.35 for every dollar of incremental revenue. Looking briefly now at our balance sheet at 31 December 2020. Our strong cash generation was reflected in our net cash position, which was up 84% on the pcp. The other balances I'd like to call out include fixed assets, which include lease assets of $33.3 million; intangibles, which account for increased goodwill and IP from the acquisition of AusSpec and Flexidrill; borrowings, which include additional USD funds to manage our currency exposures; and other, these balance accounts: the lease liability of $38.7 million together with deferred consideration for the purchases of Flexidrill of $12.9 million and AusSpec of $2.1 million. Importantly, we continue to invest in leading technologies and software to drive future growth. At 31 December 2020, our return on equity and return on capital employed were 12.2% and 14.5%, respectively. Maintaining a robust balance sheet remains a priority. Our current net cash position of $47 million provides the capacity to accelerate targeted R&D and pursue opportunities for acquisitive growth. Before handing back to Paul, I'd like to provide a brief update regarding our ESG program on Slide 12. We remain committed to enhancing our ESG-related disclosures and delivering solutions that support the sustainability of our client operations. Since our last update, our internal ESG Committee has finalized IMDEX' sustainability policy and key focus areas. All policies and documents supporting our ESG program can be found on our website. During the half, we engaged a global ESG advisory firm to assist with the materiality assessment. This study, together with our climate change gap analysis, will help inform our full year report in August. I will now hand back to Paul to provide an update on current industry drivers and our strategy as a growth company.
Thank you, Paul. The table on Slide 14 shows the evolution of government-mandated restrictions in response to COVID on the mining regions in which we operate. As you can see, secondary outbreaks are resulting in renewed restrictions in some areas. Our clients are also experiencing temporary delays to the resumption of projects due to site-specific cases. You will note at the bottom of the slide, we have updated what we see are the key risks. Global COVID cases are rising, which may fatigue industry efforts to protect labor and supply chains. Corporate restrictions continue to limit access to sites, particularly nonessential personnel and discretionary projects. And government policy continues to be fluid, impacting labor mobility. While the opportunity ahead of us is exciting, we remain watchful and ready, watchful of the current risks posed by COVID and ready to meet the increasing demand for mining technologies. This confluence of risk and opportunities is accelerating long-term structural change in the mining industry. Moving now to Slide 15. The strength of commodity prices, particularly gold and copper, is being driven by increasing demand and the fundamental need to replace diminishing reserves. S&P's forward commodity price forecast, released on 4 February and representing a combined view of over 30 analysts, maintained copper and gold prices will continue to be above the 2020 averages for the next few years. As you can see from the graph on the left, the significant uptick in the gold price is yet to be matched with increased spending. This increase in demand across all commodities is expected to be consistent around the world. Canada, being a region significant to IMDEX and mining both, is indicative of this underlying trend. It is currently benefiting from positive equity markets, positive budgets and is currently seeing a robust upturn in activity. As you can see from the graph on the right, the focus currently remains on late-stage exploration and near-mine. Turning now to Slide 16. The strong commodity prices and regional activity is being reflected in increased exploration budgets. Bloomberg data shows the total value of equity raisings for December-January period are up 32% year-on-year, and this uplift is heavily skewed towards January. Looking back to May last year, equity raising volumes and values through to January were up 128% and 49% year-on-year, respectively. Similarly, S&P's October update forecast double-digit growth year-on-year for exploration budgets this calendar year. Notwithstanding the current increases in budgets, the graph on the right shows the industry is still a long way off the 2012 peak. The last thing I would like to highlight is the note towards the bottom of the slide. While the prospects are positive, the delivery of intended exploration budgets may be constrained in the short term by capital investment in rigs and access to labor by drillers in selected markets. Slide 17 includes several industry quotes around the long-term outlook for mining tech. Overall, mining is seen as essential to the global economic recovery. The minerals industry is embracing technologies to enable safer, more efficient and more sustainable operations. And decarbonization targets are driving investments in future forward metals such as aluminum, cobalt, copper, nickel and lithium. And IMDEX is extremely well positioned to benefit from these trends. So how are we positioned to benefit? Slides 19 and 20 provide a recap of our product offering and our business model. The key to delivering value to clients is to provide quality data in real time. We develop and offer solutions in 3 broad integrated groups. First, drilling optimization products that reduce the cost of drilling, enhance safety and are critical drivers in improving exploration success, particularly with deeper drilling. Second, best-in-class Rock Knowledge Sensors that deliver quality data across the 4 components of rock knowledge: location, grade, texture and mineralogy. And third, cloud-based software and services to aggregate, store and distribute data to where it needs to be anywhere in the world with secure chain of custody. We help drilling contractors and resource companies both. We help them drill faster and smarter, we help them understand their ore bodies in real time, and we do this right throughout the mining value chain. Slide 20 shows the evolution of our revenue profile. I would like to draw your attention to 3 key points. Our recurring rental and SaaS revenue has been increasing and importantly delivering higher margins. We expect this trend to continue as we execute our growth strategy. Currently, our revenue largely comes from exploration and development, although we are increasing our presence in the mining and production stage. Again, we expect this trend to continue. And finally, our commodity exposure is representative of exploration expenditure globally. Our product offering is largely commodity-agnostic. Moving now to our strategy on Slide 21. Although our business has been impacted by COVID and we responded to meet clients' immediate needs, our underlying strategy remains unchanged. We continue to prioritize technical leadership and embedding real value in our clients' operations. We have an opportunity to leverage our core competencies, global footprint and expand into the mining and production market. We will deliver that. Importantly, mining and production is a much larger total addressable market and less cyclical. Our growth opportunities come from 3 key areas: disciplined R&D, technology acquisitions that are on strategy and collaboration with partners such as the joint development agreements we have recently announced, which help us deliver real value to the industry. At all times, we maintain our focus on streamlining our operations or as we refer to it internally, being match-fit. It includes our cost discipline, embedding new and efficient ways of working and our ethical business practices. Turning to Slide 22 and how we are growing our core business. Again, I would like to highlight 2 things. First, at 31 December, the number of IMDEXHUB connected technologies had increased by 80% on the prior period, reflecting the uptake of hub. And second, the case studies on the right. In both projects, we engaged the resource company and the driller both to optimize the solution for their ore body. In both projects, we have been able to increase the value delivered and the revenue that IMDEX can earn. These examples are illustrative of the growth we can achieve from the bottom left of the previous slide's strategy quadrant. Before concluding with the outlook, I would like to highlight how we are positioned as a growth company. We have a resilient core business that is outperforming minerals market growth. We have the capacity to build new technologies, acquire new technologies and collaborate with other players in the industry. And the industry fundamentals are positive and being further strengthened by the trend towards decarbonization. We are in a strong position to leverage these robust industry fundamentals and the unique competitive position that our financial platform, global presence and leading technology suite afford us. Finally, some commentary on the outlook for FY '21. The long-term outlook for mining tech is stronger than it has ever been. This is underpinned by the strong industry fundamentals, together with demand for real-time data and technologies that enable safe and efficient operations. For the balance of FY '21, we remain watchful and ready to respond to the risks presented by COVID. Equally, we are in a strong position to leverage the opportunities as they arise. 2H '21 commenced with a record number of instruments on rent for January, and demand remains strong. Our business is in excellent shape to drive long-term sustainable growth for shareholders. And that concludes our formal presentation, and I would like to hand over to our moderator for questions.
[Operator Instructions] Your first question comes from Michael Aspinall from Jefferies.
I just wanted to start off with what you've seen on the ground as the year progressed in some geographies really related to COVID. And just really want to -- want you to talk through what you're seeing in Canada and Peru as those markets have come out of and are just going back into lockdown.
Sure, Michael. So look, we had signaled during -- in various presentations during the first half that some areas like South America, Southeast Asia and South Africa had been more heavily impacted. And whilst they were rebounding, they were rebounding at a slightly slower rate. But that had been more than offset by strong activity in West Africa, Canada and the U.S. and the like. The increased lockdowns that we are seeing now as COVID cases, I guess, come under genuine load and the sheer number of cases around the world simply means that all of the planning that was put into supply chains and mobility, whilst good in the early stages, is now being thoroughly tested. The other balance to that, however, is that it is -- there is -- a lot of planning has been done. Everyone is approaching it in a very calm and methodical manner. And in particular, mining as a key economic activity driver in most regions is being allowed to find ways to be exempted and work around the additional lockdown restrictions. So our expectation is and certainly what we are hearing is that even though those lockdowns are -- give us some pause or some -- keep us watchful, the intent is certainly to work for the mining industry to continue to work around them and find a way to keep operating.
Okay, great. And just a point of kind of clarification on that, does that extend to drilling or exploration drilling in the mining operation?
Yes. So we are -- so mining and production has always been more heavily prioritized. In the early stages, exploration was considered -- or exploration drilling was slightly more discretionary. However, we are obviously seeing that strong rebound in exploration drilling through the first half, and we expect that to be maintained wherever possible even though these additional restrictions are coming in. And that's the area we remain watchful for, but the intent is that they maintain their ability to operate.
Okay, great. And then just looking at the updated split of product sales with 57% of revenue from rental and software products, is software a significant portion of that yet? Or is that more a signal of where you're going?
Look, it is ever growing, and it is growing at a faster rate than the rest of our business, as you would imagine. We -- as we've also called out, a lot of the software sales like installing hub tenants, for example, the revenue itself doesn't come directly from hub. It comes from the additional tools and data that we process or rent through that hub product. But the underlying revenue -- sorry, the straight-up revenue from software-related products is growing.
Okay, great. And so just looking at what that split means, it looks like product sales are down double digit, kind of in line with what we saw in margins in the second half last year, and rental products are up double digit. Is that about right?
Plus or minus, that's about right. There's a fair bit of product mix by region in there as well.
Yes. And then so really just trying to drill down to, can you just talk about -- that implies much stronger growth in tools. Is that more representative of the market growth that you're seeing around the world? And then are you able to split out pricing and volume as well for us?
Yes. So the -- I think we've signaled prior to Christmas that some of the areas that have been under greater geographic pressure were also areas where IMDEX had a heavier weight in fluids or consumables as opposed to tools. So where activity resumed, they were areas where we had a greater weight in tools as well. So that, plus the increased number of tools coming into our business, have accelerated, I guess, the profile of rental products in our revenue portfolio. And then I think your second question was price and volume mix. Is that correct?
Yes. Just interested in that.
Right. So I think we've been consistent in saying that until we see drillers extract increased prices from resource companies that the opportunity for us to increase prices for our products remains fairly low.
Yes.
We do amend our pricing depending on demand to a small degree. And we take the opportunity when we bring new products into the market to set the right price at the right time.
Okay. I think I was kind of more referring to kind of volume versus mix rather than price, but maybe we can follow up on that one later.
Yes. Just the other point there, I think, Michael, is that the percentage point improvement that you're seeing in the half over the pcp is largely the product mix instrumentation weighting that Paul mentioned. So if that helps to answer some of that.
Your next question comes from Josh Kannourakis from UBS.
Can you hear me okay?
Yes, we can.
We can, Josh.
Great. Just to follow on from that question around the product mix in the portfolio. Can we just talk about the gyros? Obviously, a higher-value tool than some of the other tools you've got in your fleet and some positive data around increasing that. Can you give us a bit of a feel for just how much of the fleet that you've got out there today is sort of within gyros and just in terms of those growth rates relative to the other non-gyro tools?
No, Josh, we don't split that out specifically for a number of reasons. However, gyros, we have gyro technologies embedded in a number of different tools in our portfolio. And our walked-out total portfolio is growing. Our gyro fleet of tools is growing at a faster pace, and that is driving some of that outperformance. But breaking it down further than that is not something we push out publicly.
Yes. No, that's okay. And just second question, just around the cost base and very strong cost control in the period. Can we talk a little bit about just some of the initiatives you've got in place in terms of as the cycle continues to improve, just maintaining that cost tightening? And just maybe run through in terms of how we can sort of look at that moving forward and what incremental costs you need to bring into the business as you capitalize on an up cycle over the next couple of years.
Sure. Well, I think the -- let's deal with that in 2 parts. One is the -- a little bit of cost came out naturally with the restriction on mobility. So some of the travel and marketing costs came out. I think more importantly, however -- and we've signaled in the presentation, I think Paul Evans spoke to it, that we don't see those costs resuming into their pre-COVID levels as everyone's found new ways to service customers. So whilst some of that will come back, we don't expect it to go back to pre-COVID levels. I think more importantly for us, our relentless focus internally on supply chain management, operational efficiency, new and effective ways to deliver training and service and in particular, leveraging the investment we've made in our internal digital operating platforms has been key. So we're seeing transactions across that platform. If I look at the resources we have and the number of transactions that each front-line resource can service, we're definitely seeing the scale improvement that's come from that digital transformation investment. That's a highly scalable investment. So as the business continues to grow, it doesn't place extra load on that digital platform. And beyond that, the next phase of that digital platform will be allow -- to allow customers to interact with it directly, which will give us further scalability. And so we expect the -- I guess, the operational efficiency of cost to execute for moving product around our business to our customers to be highly scalable. Where we will look to invest in going forward is the increasing demand for software products and our ability to build and deliver those. And as we move into the mining and production phase, we have a lot of good relationships and contacts there now, but we'll continue to find ways to bring some talent into the business that's more applicable to those phases of the mining value chain.
Okay, got it. And just final one. You mentioned around the accelerated targeted R&D program. Just interested if we could talk to what this means for some of the level of investment in both the tool fleet and also some of the new product initiatives moving forward. And maybe just a quick comment on areas of acquisition focus given your significant cash balance now as well.
Sure. So I think historically, we have been in the position where we've developed technologies and have had to work to push them into the market and to engage client adoption. During this COVID phase and the restrictions that it's imposed, we've found a heightened demand for technology to be pulled into the market. So that responsiveness around R&D is really reflecting us listening to our clients' immediate needs and reprioritizing our R&D portfolio to service them. So for example, access to sites has been limited to conduct trials of some physical tools such as COREVIBE, whereas demand for extra features inside our hub platform or our online training platform has grown considerably. And so by responding to our clients' needs, we've invested more resources there and reprioritized accordingly.
[Operator Instructions] Your next question comes from Hamish Murray from Bell Potter Securities.
Can you hear me?
Sure can.
Yes.
Yes, perfect. Just a little bit back on just the rental component and how that plays out. Just noticed that the total number of IMDEXHUB-IQ connected instruments is up 80% versus pcp, a pretty impressive result, and you're calling out the revenue uplift you get there. Just interested to know, I guess, whether you can give us any commentary on how much of, I guess, that rental revenue uplift is driven by you guys increasing your penetration of customers at existing sites with increased, I guess, instruments on single rigs plus the revenue uplift from the IMDEXHUB versus increasing your customer base. Because I noticed that we're still at 58 of the top 100 clients using IMDEXHUB as well, which is no change from I guess, first half. So the -- I guess the other question there is as we see exploration returning with COVID and with vaccines and with diminishing COVID, can we expect to see this uplift continue, I guess?
Yes, very happy to expand on that, Hamish. So first of all, you're referring to Slide 22. That 58% of the top 100 was at December. Actually, as of today, it's 62% of the top 100. And so to answer your question, there is a combination of increased clients and increased sites and those starting to bring through increased number of tools per site, such as you see in the case studies that are also on that slide. The 80% increase is really a reflection of 2 things. It's just more us putting -- the more tools we build are increasingly hub-connected, so the natural weight of connectable tools is going up. And then as we either increase our engagement with a client or add a new client, that's what's driving that total number of IMDEXHUB-IQ-connected instruments. We've previously been asked how far through that journey do we think we are. And I've guided you that we're a single-digit percentage of the way through that penetration of hub or connecting our clients to hub, connecting their science -- their sites to the hub and connecting the maximum number of tools through each hub tenant. And so that 80% uplift still indicates we've got some way to go in terms of opportunity for us or runway for us.
Yes, perfect. And then just one on the segment accounting. Looking at the results that you guys provide, which I think is profit before tax and interest, it looks like the Americas region really did bounce as a percent at the margin level. Now I thought that was one of the areas you guys had previously called out as being South America heavier on the fluids and therefore impacted. Now is that just because Canada is strong and we have more rental exposure to Canada, and that's where the uplifts come from and maybe offset South America, which has been a bit weak and you lose fluids? Is that the way to think about it? And therefore, as that comes back, I guess, we get more revenue uplift, but maybe that margin normalizes?
Right. So the -- I'll turn to Paul Evans in a second. But first of all, when -- in that total Americas segment, North America is 2/3 and South America is 1/3. And so there's a bit of -- so those comments around South America being lower are weighted down by the fact that it's a smaller portion of the total Americas. Paul, did you want to add to Hamish's question?
Yes, sure. And I think, Hamish, your point around South America being softer, it is the Canada and the U.S. have compensated for that lower result in South America. So it is both the U.S. and Canada that has offset that shortfall in South America.
Yes, perfect. And we got a slight uplift -- just a continuation on that, we got a bit of slight uplift on EMEA as well. Is that reflective of continued sort of penetration of the instruments, I guess?
Very much so in West Africa.
Yes.
And just one more for me. Just the fair value adjustment up on Flexidrill, I mean what's the read-through on that? What do you think -- what's the core driver? And is there anything we can sort of take away from that about your confidence in commercializing this?
Yes. Look, it's -- largely, the bigger portion of that was share price-driven. And you might remember that the payment is dependent on a -- on there being an offset for any share price appreciation and any future dividend projections. So that, given the share price had moved considerably since 30 June, that was -- that appreciation was largely what caused that.
Your next question comes from Ben Brownette from CLSA.
Paul Evans, can I -- on the margin, the geographic segment results, can you talk about Asia Pacific? Because that margin came back a lot. And then that Americas margin looks awfully high, notwithstanding the lower fluid results. So can you just elaborate a bit more on both of them, please?
Yes, sure. So maybe just touching on Asia Pacific first. Asia Pacific was impacted by Southeast Asia revenue being softer through COVID, and that was relatively strong gross margin business. That was offset by Australia to some extent, but there was a net negative drop-through from that. In addition, the corporate components of depreciation, which we mentioned earlier, the higher amortization charge from Flexidrill and the AusSpec acquisitions and corp costs contributed to that lower PBT result in Asia Pacific. What we're seeing in the Americas is particularly out of Canada, a strong instrumentation and thus higher gross margin dropping through, combined with the lower costs of operation with travel and the like that we mentioned earlier that were COVID impacted that is contributing to that improvement. Plus, in addition, some of the FTE reductions that we saw between 1H '21 and 1H '20 were out of South America.
Right. So your comment on travel, so that would impact both at the segmental and at the corporate level, which you're suggesting may not return in the second half. But then going forward, are you suggesting that when you've found better ways to do business, so while, of course, some costs come back, it's not going to be in a material enough amount to call it out? Or is that what you mean?
Look, it was a substantial cost for the business running in the order of $4 million to $5 million as an annual cost, which is obviously now much less than that. And we would expect to hold that number -- you would hope, around 50% would be a worst case you would hope going forward on that.
Okay. And then just back on the gross profit margin, that was the best you've had, I think. And so this is going to be driven by fluids being down, but the more tools you've got at the higher GPM drives that up. So are you able to give us any kind of indication just within the tools business, the extent that gross profit margins increased in that part of the business alone just to get a feel for, I guess, your overall utilization and then -- and how many newer tools you've got? And so we can clearly understand that when fluids come back, whether gross margins can be sustained around that 68%, 69% level.
Yes, sure. So I think there's a couple of things going on. And as you mentioned, with these fluids volumes being lower, and that, as we've called out previously, with COVID impacts being greater in South America, in Africa and parts of Asia that they are more heavily fluids-dominant markets. Thus, there is that natural weighting, which has lifted the instrumentation percentage. We would expect some of that to claw back as those markets return -- as those fluids markets return. But inside the instrumentation fleet, we have seen those gyro-related technologies, which are going out at stronger monthly rentals, which generate higher gross margins increasing. And therefore, of that percentage -- 1 percentage point that you saw increase, you'd expect to hold on to a portion of that as the fluids returned. Without giving you any exact numbers on that, it is showing that there will be a continuation of improving gross margins going forward.
Improving gross margins from the 68.8 in the first half this year?
Yes. Look, I think you could see that soften off as the fluids return. But as a general trajectory over the next 12 months, you would see the instrumentation and the higher-margin products generating stronger gross margins.
Yes. Okay, great. And then with respect to the tools being at a record, you mentioned it's more difficult to get price, but what about utilization? Can you -- or what about more tools? Can you talk about how to capitalize on additional revenue either through better utilization or more tools?
Yes, sure. So we -- I suppose, maybe the way to answer that is when we're looking at our production capacity, and Paul calls out in the -- in his presentation this morning that we're increasing the gyro production capability we are making to demand. And it's fair to say that if we had more tools, gyro-based tools in the market available in our fleet at the moment, we could ramp those out. So I think the utilization of the newer technologies is increasing in demand we're making to demand.
Your next question is a follow-up from Michael Aspinall from Jefferies.
Just 2 quick follow-ups, guys. So just 2 from me. Can you run through your latest expectation for the Drill & Blast project in particular?
Yes, sure. So during COVID, we had the decamp of an operating site where we were conducting trials. We stood up our own test sites so that we could further the development of the tool sensor itself and the robotic and automation technology. We're now in a position where we are looking to -- we actively need to engage back on a client site so that we can start collecting more data. You remember that our partners in that project are Orica, Anglo and Teck. And so we are very actively working with those guys. Everyone is very well aligned in trying to get into the next phase of testing for that tool. Everything that we've learned so far is consistent with what we had hoped. And so that project is running on target, and the next critical test for us is to get access to a site to enable more data generation.
Do you have any kind of expectations of when they might be? Or is it just talking to customers at the moment?
So we're just working closely with our industry partners. The tool is in what we would call the engineering prototype phase. We'll move it through our engineering stage gate process, which is engineering prototype through to commercial prototype, sort of manufacturing prototype through to commercial.
Okay, great. And then at your AGM update, you mentioned tools were up 90% year-on-year, I think was the number. Are you able to give us an order of magnitude for what that looks like year-on-year with the record number of tools for December and January?
So we -- yes, we've not -- we haven't given that percentage out in terms of the uplift. But you'll remember that December is normally a seasonal low. And so I guess the way we articulate it is the highest load we've ever had for a December close, meaning that activity sustained very well. And then we would normally come out of the gate at about mid-January. And I guess this year, because of the -- because we started from a much higher load point, and there was a strong resumption of work post-Christmas, that January number is higher than any other previous January. So it's a good position to be in, but it reflects the speed of recovery more than anything.
Your next question is a follow-up from Hamish Murray from Bell Potter Securities.
Sorry, I'll try to be quick, just a couple of follow-ups. Just the signed JDAs, just in the structure of them, is there a pathway to, I guess, revenue from them? Or is it more development, I guess?
Right. So the JDAs are a really new and actually very, very productive way for us to find access to client sites when access had been restricted under COVID. So typically, we would go out and find trial sites all over the world. Under the JDAs, what we're looking to do is to engage deeper with one client in a way that allows us to really get a more intensive presence on an operating site as opposed to a test site in order to further or fast-track the development of that technology. So it was borne out of necessity with the restrictions imposed by COVID. However, it yields a much more intensive and client-engaged product as a result. So as we kick these off, we expect to learn a lot more a lot faster and in a manner that is very closely aligned with what the customer wants.
Yes, perfect. And a follow-up on the optimization technology, particularly COREVIBE. I mean you guys have called out that one limitation on exploration spend may be the access by the industry to rigs given the underinvestment. We've seen over the last 5 years, COREVIBE in particular stands out as a tool that could increase the -- I guess, the meters that established drills are able to drill right now via OpEx instead of CapEx for the drillers. Are you guys getting any inbounds given that we're seeing that rig fleet tighten in terms of utilization?
Well, actually, COREVIBE, MAGHAMMER and XTRACTA all would fit that profile for that kind of productivity improvement, Hamish. The key issue with COREVIBE is that the degree of training required and the time spent on site required as a trial to validate the technology and to train the users is quite intensive. And that is access that we're not able to get under COVID at the time. And so we're using the joint development agreement-type model where possible to expedite all 3 of those technologies so that we can get a more controlled and disciplined access to sites. Yes, we do think that, that could expedite or improve the amount of drilling that gets done within the existing capital. What we actually hear from our drilling clients is that whilst they're running at fairly high rig utilizations in some jurisdictions, there isn't actually an inability to get rigs. They can get their hands on more rigs, build rigs, buy rigs as they need to. The constraint is that unless they can achieve a better price from the resource companies, then they're not going to make that investment in new rigs because with that comes the better price allows them to bring more labor into the industry to solve the labor problem. And the labor problem is probably the bigger constraint than the capital problem. Really, calling out the available rigs is just that, that is a -- it is something that will have to be dealt with. But actually, the first block that needs to move is the labor block, and that's more likely dependent on pricing between the driller and the resource company.
Perfect. And just one last one. A final note in the accounts about AMC, party to litigation in relation to infringement of patents to a third party. You note that the courts have found in favor of you guys. Can you give us any indication of materiality of what that judgment might have for you guys? And any sort of dates or time lines around it? And I guess if it was material like the asset sale we saw last year, would there be chances of a special? I'm not sure.
It's probably a little early. We're working through the quantum litigation at the moment. And so because that's a process being handled by the courts, it would be inappropriate for me to give you any guidance on quantum or materiality. But it is with the courts. There is nothing left to decide other than the quantum. And we're, I guess, actively working through the courts on that matter now.
There are no further questions at this time. I'd now like to hand back to Mr. House for closing remarks.
Thanks, Melanie. In closing, the industry outlook despite COVID remains positive, and IMDEX is well positioned financially, operationally and technically to meet this growing demand and outperform the market and deliver the value to shareholders. Many thanks for listening into this call, and we look forward to speaking with many of you during the course of this week. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.