Brisbane-based global testing group ALS (ALQ) has managed to survive a second lot of impairments on its 2013 foray into the oil and gas sector when it paid $580 million for the purchase of the US oil and gas testing and services business, Reservoir Group.
After taking a $289 million hit last April, and then in November asking shareholders to stump up $325 million, ALS slipped out some more house cleaning on Monday of this week with a $330 million impairment to its oil and gas business.
The latest write down is a recognition that the outlook for oil and gas is weak and ALQ and its advisers see no real recovery back to to the $100 a barrel levels any time soon.
The shares though are up nearly 14% since last Friday (they closed at $3.61 last Friday and at $4.10 yesterday).
That is a big vote of confidence from investors who have shown a willingness to punish companies bring big write-downs to the markets, especially repeat offenders (Santos and Slater and Gordon spring to mind).
The oil slump is tipped to remain so bad that Brisbane-based laboratory outfit ALS took a new write-down against its oil and gas testing assets bought only three years ago.
The write-down was counterbalanced by news that ALS, whose laboratories test everything from food to water and coal quality in Australia and around the world, has repaid some of its debt, and maintains a nice cash reserve from November’s raising.
ALS (which started as Campbell Brothers in 1863), expanded oil and gas testing and services with the $580 million acquisition of Reservoir Group in July 2013, raising some of the purchase price from shareholders at $7.80 a share. But the slide in oil prices from mid 2014 crunched business (and many other companies in the sector) and in April last year ALS took a $290 million hit against its energy assets. In November it raised $325 million at $3.35 a share (meaning those shareholders who had stayed around and ponied up, are sitting on a small profit).
On Monday more housekeeping with another $330 million cut from the oil and gas side of the business. That cuts the value to zero.
Justifying the move, ALS managing director Greg Kilmister said in a statement that mid-term projections for oil of between $US40 and $US50 meant there was little stimulus to drive sector activity over the next two years, hence the write down.
On top of the cut in the balance sheet value, it had used some of the money from the fund raising to "in applying $183 million of the $317 million net proceeds raised to the repayment of short term and long term borrowings”. That left the company’s net debt at $488 million (the gross figure is higher as it has $297 million in cash).
The Company’s preliminary final results for the year ending March 31, 2016 will be released to the market on 30 May 2016.
