Brisbane-based testing services group ALS Limited (ALQ) is not letting the downturn in the mining, oil and gas and other areas of the economy (such as water) and a loss in 2014-15 stop it from continuing on its growth plan.
Management yesterday made it clear in the 2014-15 annual results announcement that ALS will continue growing in oil and gas (despite the downturn in the sector and the newness of the company to the area), while the food and industrial sectors are seeking new growth opportunities, and not pulling back like so many competitors are doing.
The statutory result was a net loss after tax of $174.5 million, compared to a net profit after tax of $154.4 million recorded in the 2014 financial year.
The statutory was due mostly to non-cash impairment charges of $290.6 million after tax primarily against the Company’s oil and gas investments, as well as lower profit margins in the year as the downturn in spending in mining, oil and gas bit hard.
The company yesterday confirmed guidance from earlier this month of a 21% slide in net underlying profit, to $135.4 million for the year to March 31.
That’s down from the $171.9 million underlying profit of the previous year, delivered in very challenging global market conditions.
ALQ 1Y – ALS posts $174.5m loss
Revenue from continuing operations edged up from $1.384 billion in 2014 to $1.422 million in the year to March. That’s just $38 million more in revenue in the year and none of it dropped to the profit line, despite cost cutting, because the company was forced to cut margins to win and keep contracts and business.
The dividend for the half and full year tells the story.
Directors declared a final partly franked (25%) dividend for the year of 10 cents a share, which was half the 20 cents a share (50% franked) declared for the March 31 2014 half year.
All up, the 2014-15 total partly franked (average of 17.1%) dividend for the year is 21 cents a share – almost half the 39 cents, 50% franked) paid for 2013-14.
Despite the weak result, and the absence of any forecast or guidance in terms of earnings or revenue for 2015-16, ALS directors made it clear the group is "committed to maintaining the strong and sustainable growth strategies which have made it a successful global company".
"Despite the impairment to the Company’s oil and gas investments taken in FY2015, the upstream oil and gas markets remain very attractive to ALS and we are confident of achieving our long-term goals in the sector,” directors said.
"The Group will continue to implement its oil and gas strategies including the opening of a large new laboratory in Houston, Texas in the second half of FY2016.
"The Life Sciences division has plans to acquire small food testing businesses in Europe and North America to complement the acquisitions made during FY2015.
"The Industrial division is engaged in several significant tenders to secure increased market share, while the Minerals division expects to gain ongoing market share through technology leadership, quality and innovative service delivery,” directors said.
ALS Chairman, Nerolie Withnall said in yesterday’s statement the result “represented a solid outcome in current market conditions and demonstrates that the Group’s focus on its cost base, maximizing market share, and continuing to execute its long-term strategies of market sector and geographical diversification is working".
“Markets for our services remain challenging in an environment of falling commodity prices and a strong cost focus from most clients,” she said.
And CEO Greg Kilmister said that the operating profit in both the Life Sciences and Industrial Divisions showed some improvement over last year, whilst the more cyclical, resource-exposed Minerals and Energy Divisions saw EBIT deteriorate in line with market movements.
“Geochemical and Metallurgy sample volumes in ALS Minerals declined during the year with North and South America the most affected.
"While ALS Life Sciences and ALS Industrial achieved small organic revenue gains during the year ALS Energy’s revenue growth reflected the first full 12 months’ contribution from the Oil and Gas business.
"Contribution margins remained under pressure from competition across all business streams but the impact of this was buffered by the Group’s focus on managing costs to suit market conditions.
“Market conditions are unlikely to change in the short-term and management remains focused on ensuring our operating model and strategies are aligned to market conditions,” Mr Kilmister said.
ALS shares fell 48 cents or more than 7.4% to $5.95, despite the company guiding investors to yesterday’s results around three weeks ago.
It was just the wrong day for the company to be releasing its results which saw jittery trading on the market. If it had reported on Monday or Tuesday, it might have been a different reaction.
