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In the Spotlight: XRF Scientific Ltd (ASX: XRF)
In 1972, a 34 year old Perth scientist named David Brown pioneered the commercial development of what is known as X-ray “fusion flux”, a critical component for an analytical technique known as X-ray fluorescence, used to determine the elemental composition of materials.
Brown’s technology was soon adopted by the CSIRO for the development of minerals testing processes, building the foundations for a firm aptly named XRF Scientific Ltd that listed on the Australian Stock Exchange in 2006.
Back then the issue price for XRF shares was a mere 20 cents. Today they are worth over $1.50.
The now 86-year-old Brown, who owns 6.5 per cent of XRF and is a non-executive director of the company, still comes into its head office in the Perth industrial suburb of Osborne Park every day.
Brown is an advisor, mentor and most importantly, an inspiration to XRF chief executive Vance Stazzonelli.
“He is incredibly sharp mentally and physically. He is one of those guys that you would probably mistake for someone in his early 70’s,” Stazzonelli says.
“He's got a wealth of knowledge and decades of experience. He's seen every single sort of economic circumstance that could have arisen in the last four or five decades. So he's incredible in terms of his contribution to the company.”
For many years Brown was the general manager of XRF’s flagship consumables division, which makes the cutting-edge chemicals XRF manufactures and today commands an impressive 50+ per cent of the global fusion flux market.
XRF sells product directly to large Australian iron ore and base metal miners for their own internal laboratories to test mineral samples. It also has its own distribution network into Europe and North America.
14 years ago Brown’s son Jeff took over the chemicals division, adding an important family dynamic to the XRF business.
“David and Jeff are two individuals who are highly passionate about the chemicals they produce and are well known in the industry. They have the ultimate customer focus,” Stazzonelli says.
“In terms of his position on the board, David always puts on the right cap at the right time and he has a very large alignment with shareholders, being a big shareholder himself. He wants to see good long term value for shareholders.”
One of them is former ANZ and Woodside chairman and doyen of corporate Australia, Charles Goode.
Importantly 13 per cent of XRF’s shares are held by the directors and key management personel, including Stazzonelli.
“To me, it's the number one consideration. I think it's absolutely critical. Because I think once you've got significant skin in the game and if it's a significant part of your overall wealth, it just changes your decision making process,” he says.
“As opposed to being, I guess, focused on the short term and not being as concerned about driving long term shareholder value.”
XRF has been chaired for the past five years by Fred Grimwade, who has worked with leading international companies including Goldman Sachs in New York and Sydney, Western Mining Corporation, AWB, Colonial Mutual and Select Harvests. He runs Fawkner Capital, a specialist corporate advisory and investment firm.
“He is someone who has a broad range of experiences and he adds a great contribution to the board. We talk most weeks,” Stazzonelli says.
“He has quite a good balance between when he needs to be hands on versus being an independent non executive.”
Stazzonelli, an accountant by training, joined XRF as Chief Financial Officer in October 2009 when he was 27 years old, before also taking on the role of Chief Operating Officer in January 2011. 20 months later he became CEO.
He was drawn to XRF by its products, the industry and a profitable manufacturing company working in Australia, which he muses is “not something you see too often”.
Today XRF’s consumables, precious metals and capital equipment divisions export more than 50 per cent of their production around the world and sell to 80 countries.
Stazzonelli describes XRF’s culture as “friendly and positive”, allowing it to retain good staff over the longer term.
The business units are run with autonomy, which drives innovation in the various divisions.
“I don’t really like organisations that micro manage a lot. We let our teams and the management run with things on a day to day basis. We have businesses that operate in various parts of the world. Unless you really give them that empowerment to run their own businesses, it is not going to work,” he says.
In its recent annual results XRF reported net profit growth of 16% as strong capital sales and the firm’s diverse revenue streams - around 30 per cent of earnings come from non-resource industries like industrial testing - helped offset a weaker performance in precious metals.
But Stazzonelli remains optimistic about the latter business into the future and opportunities for commodity diversification.
“We see gold analysis as a quite a strong potential growth market. We didn’t previously have much exposure to the gold industry, but we have that now through the Orbis crusher business. The biggest end user market for that is gold analysis,” he says.
“We are quite dominant in Australia for the commercial laboratory groups, but we see good growth potential overseas in terms of getting into some of those overseas gold markets.”
The volatile lithium price has also presented challenges across the XRF supply chain, given the precious mineral is a core input into the manufacturing process for chemicals, while lithium miners themselves are also the firm’s customers.
“Our production costs increased as lithium prices went up, so we had to pass on a lot of those cost increases onto the customers, and we did that in a very sensitive way to ensure that the customers understood what we were doing and why we were doing it,” Stazzonelli says.
“Now, as the prices have been coming off, we've got a job of maintaining our profits while also ensuring that the customers are looked after as well.”
Going forward, a focus of XRF will continue to be on smaller bolt-on merger and acquisition opportunities such as Orbis Mining, of which it now owns 100 per cent after recently exercising an option to purchase the remaining 50% of the shares held by the founders.
XRF also has a constant research and development pipeline of new products it is planning to launch.
“We have that mapped out for many years ahead, and that's not only new machines, but also other consumables and precious metals products,” Stazzonelli says.
“We are also looking to expand quite strongly internationally as well. Whilst we have our presence in some of the key international markets, we still think we can do a lot better, particularly in some key growth markets in Asia and also South America.”
Ultimately he says the secret sauce of XRF has been its people and the management team which has been together for the past 15 years.
Looking after them remains the best piece of advice the CEO has ever received from the man who started it all, David Brown.
“I enjoy talking to David everyday. When you have worked with someone for such a long time, it is such a positive thing,” Stazzonelli says.
“He has always believed that people are the most important part of any business. If you look after your people and retain those good people over the long term, that will drive shareholder value and look after the customers.”
About the Company
XRF Scientific Ltd (ASX: XRF)
XRF Scientific Limited manufactures and markets precious metal products, specialized chemicals, and instruments for the scientific, analytical, construction material, and mining industries in Australia, Canada, and Europe. The company operates through Capital Equipment, Precious Metals, and Consumables segments. The Capital Equipment segment manufactures automated fusion equipment, high temperature test, production furnaces, and laboratory jaw crushers, as well as general laboratory equipment. The Precious Metals segment manufactures products for the laboratory and platinum alloy markets. The Consumables segment manufactures chemicals and other supplies for analytical laboratories. XRF Scientific Limited was founded in 1972 and is based in Osborne Park, Australia.
XRF By The Numbers
- Share Price: $1.43
- Market Capitalisation: $199,473,421
- Historical Dividend Yield: 2.31%
*** Financials as at close of market 9/9/2024
Board & Management
- Fred Grimwade (Non-Executive Chairman)
- Mr Vance Stazzonelli (Managing Director)
- David Kiggins (Non-Executive Director)
- David Brown (Non-Executive Director)
