Some analysis of the $XRF Results

As expected, $XRF had softer revenue growth of 6% to PCP compared with 46% in the 1H23/1H22; however, the better comparison is with +28% in the PCP , as 1H23 benefitted from the Orbis acquisition uplift.

Nonetheless, a slower period. I tend to overlook the statement about $1.1m Orbis revenue slipping into H2 and the prediction of a strong H2. Sales fall where they will, so let's just count it when its delivered.

However, overall the business is being well managed. Operating Expenses only increased 6% over pcp in line with revenue, which I think is good in the current environment.

Margins expanded sligtly across the board, driven by improved %GM which may in part reflect product mix.

• %GM to 43.3% from 41.7%
• % Operating Margin from 21.2% to 22.6% and
• %Net Margin from 14.7% to 16.2%

As a result, NPAT advanced a very healthy 16%.

On cash flows, there was a slight fall in OpCF to $2.169m and an increase in PPE capex to $1.1m of which $0.7m was to expand production capacity. As a result, FCF fell negative again as follow:

OpCF $2.169m

InvCF -$1.135m

Leases - -$0.694

==============

FCF = $0.34

So cash at the close fell to $8.322m from $10.401m at 30-June, due to payment of $3.600m dividend, and net debt reduction of $0.373m

Expecting a strong H2, witj no dividend to pay in H2, should see the balance more than restored by the full year.

The xrTAG product was launched in June 23, and CEO Vance Stazzonelli reported the "market reaction to the product has been positive". Rolling this out to establish more referecnce sites is a priority for H2.

My Takeaways

I'm a newcomer to this SM favourite. The results are solid, albeit unexciting. Although revenue growth was slower, the business is being well managed, and new products and capacity expansions position it for future growth. The market reaction today has been muted, down anywhere from 1% to 5%. For today, I am happy to hold at my 2% RL position.

Disc: Held in RL and SM



@BendigoInvesto Interesting result from XRF when you dig past the headline numbers. At the broad level it looks like a classic XRF result, solid revenue growth, good margin expansion leading to scale all down the P&L, but under the surface there was a major shift in reporting lines with the German office in particular copping a big hit to revenue:

It's actually remarkable that the Australian business was able to cover it entirely, particularly with higher margin Consumables helping at the bottom line.

Commentary from Vance that German office will pick up in the 2H based on sales orders in hand, he has been pretty honest about lumpiness in the past so hopefully we see a strong 2H.