Imdex currently has a 49% joint venture interest with Saudi partner Rashid Trading Establishment (RTE) to provide drilling products and services to the oil and gas industry in that nation.

While the joint venture’s sales have been strong, gross margins have been poor and it has been operating at a loss since it was set up in 2001, said Imdex managing director Bernard Ridgeway.

Imdex will reduce its share in the joint venture to 20%. In return it will receive US$1.5 million in cash and RTE will return 10 million Imdex shares that will be then be cancelled.

Imdex has already written down its investment from A$8.7m to A$5.4 million. By the time the deal has been completed Imdex’s Saudi interests will be valued at about $2 million.

“The restructure is designed to reduce our exposure to risk in the JV,” Ridgeway said.

“It will also let us concentrate our attention and our capital on our profitable Australian-based businesses.”

But he said Imdex would still remain in Saudi Arabia for the long term.

“The Saudi oil and gas business is the largest in the world and we believe Imdex should continue to have a presence there,” Ridgeway said.

The joint venture’s sales were trending up and gross margins were likely to keep improving, he said. Imdex also planned to expand its range of services, with Imdex Arabia eventually becoming a full-service mud company, and this was likely to further enhance the business.

“In time I believe our 20% interest will be worth much more than the current 49%,” Ridgeway said.

He said that while losses have been incurred up to 30 June this year, the Imdex Group was currently profitable and said this trend should continue in the coming financial year.