Brisbane-based testing group, ALS took a whacking yesterday after what the market saw as a weak first half result, with lower sales, profit and interim dividend, poor outlook and glum news about more restructuring and possible losses.
The shares ended down nearly 7% at $6.06, but at one stage they were down more than double that.
The company reported half-year net profit of $48.7 million, down nearly 15% from last year, off the back of a 5.6% drop in revenue to $672 million, thanks to the weak performance of the about to be flicked oil and gas business.
Both profit and revenue missed market forecasts of $54 million and $686 million respectively.
ALS will pay an interim dividend of 5.5 per cent, down from the 7.5 cents a share paid a year ago. The company said this is in line with its policy of paying out about 50% of underlying net after tax profit “in the current operating environment."
It also said it plans to sell oil and gas operations, excluding lab operation. Investors fear there are more losses to come from this clean out on top of hundreds of millions already taken on this business. That business lost $13.3 million in the half year to September 30, significant worse than the operation loss of $300,000 a year ago, and why the group reported a lower than expected result.
And then there was the big question mark – the revamp of the oil and gas business whose problems have proven to be so intractable that most of the division will go.
Revenue of $672 million was down 5.6% on the $712 million recorded in H12016. The weakness in the oil and gas business was behind the 5.6% slide in group for the half year. “The $38.9 million (45%) fall in revenue experienced by the Oil and Gas businesses, which suffered from continued reduced activity and pricing pressures in the markets served,” the company said.
“The Oil and Gas business recorded an underlying loss for the six months to September 2016 of $13.3 million, significantly worse than the underlying loss of $0.3 million in the September 2015 half.”
“In light of the deteriorating oil price and ongoing challenges in global Oil & Gas markets, the Company has undertaken a strategic review of the sector and ALS’ commitment to providing a broad range of technical services to that sector.
"That review has resulted in the Board taking a decision to divest ALS’ Oil & Gas businesses excluding the Oil & Gas laboratory operations. To assist in this matter ALS has appointed Houston based investment bankers and advisers Simmons and Company, Energy Specialists of Piper Jaffray. Options are currently being considered.
"The Company intends to keep the Oil & Gas laboratory operations, including the Houston laboratory commissioned late last year. Whilst the laboratory operations are presently in a small loss making development phase, ALS is confident the innovative services being developed will see this business generate strong returns on invested capital in the near future,” the company said hopefully yesterday.
ALS Chairman, Bruce Phillips said yesterday that “whilst the Company has made considerable progress in developing a balanced portfolio, the first half result reflected the ongoing commodity price uncertainty impacting companies exposed to the global resources sector”.
“The decision to exit the broader oil and gas sector is in line with the Company’s strategy to commit its resources to grow its core businesses, particularly in the Life Sciences sector where it has more of a strategic advantage and market- leading positions.” Mr Phillips said in the company’s release to the ASX.
Looking to the rest of 2016-17, ALS said that "The underlying fundamentals around most ALS business streams continue to improve and it is expected that the Company will have a much stronger second half than the second half of last year.
“ALS will continue to pursue its multi-year strategy of growing non-cyclical business streams to provide reliable underlying earnings as well as maintain geographical scale and market position in cyclicals to provide leverage and outperformance as the cycle turns to growth.
"The Company remains focused on pursuing growth opportunities in all its business streams, and whilst market conditions are improving, the Company will not take its focus off ensuring as low a cost base as is possible.
"Sample flows into ALS’ geochemical laboratories continue to increase, with financial year to date sample volumes at the end of October being up 16% compared to last year. Importantly that growth has been seen across Australia, Eastern Canada, West Africa and more recently South America, although to date the growth has favored brown field over green field activities.
"The growth is expected to continue as markets move from the bottom of the cycle and green field exploration is expected to recover more strongly. Some early signs of recovery in the metallurgical sector have also been seen over more recent months.
"Activity levels in Mineral Inspection, Coal, Asset Care and Tribology businesses are expected to be similar to the second half last year.
"The Food business is expected to maintain the growth seen over more recent years and the Environmental business is expected to outperform what was a poorer performance in the second half of last year.
“Group after tax underlying profit in the second half of the current financial year excluding Oil & Gas is expected to be in the range of $50 to $60 million based on current market trends and subject to no material changes in the operating or economic environment, compared to $49.3 million last year on a like for like basis.”
