LA Private

Testing time in mining services division hits ALS

Shares in Brisbane-based testing multinational ALS (ASX:ALQ) dropped more than 4% yesterday after the company’s full year results hinted at emerging pressures in global markets for its mining services.

ALS reported a 23.4% rise in underlying net after tax profit to $320.6 million, from $260 million in 2021-22.

ALS had forecast underlying net profit after tax guidance of between $312 million and $322 million, so the final result was closer to the top end.

That was struck on a 19.5% rise in revenue to $2.421 billion for the year to March 31.

The company lifted final dividend to 19.4 cents per share (only 10% franked), up from 17 cents per share a year ago (30% franked).

That took the full year payout to 39.7 cents per share, up 21% on the 32.8 cents in 2021-22.

The dividend was 60% of underlying net profit after tax – that’s at the top end of the 50% to 60% range adopted last year.

Despite that good news the shares ended down 4.1% at $11.75 as investors worried that a slowdown in demand for testing from the mining sector over the next year would crimp sales and earnings.

ALS Chairman Bruce Phillips said “this was another strong performance by our global business. Underlying continuing NPAT was up 23.4% yoy, exceeding the top end of our revised market guidance.”

“The Company is continuing to demonstrate its resilience in operating through challenging periods of global instability, high inflation, and economic uncertainty.”

And new CEO Malcolm Deane said in yesterday’s statement, “The Group has maintained a strong financial position, high cashflow generation, leverage well within our lending covenants, and has liquidity available to fund our growth ambitions.”

“The underlying performance was supported by the contribution of our two largest businesses which delivered strong growth and increased margins.

“Our market leading global environmental business within Life Sciences successfully managed inflationary headwinds, and our Geochemistry business was able to effectively utilise installed capacity, manage cost and pricing whilst delivering an increased value proposition for mining clients.”

ALS said its Life Sciences division delivered revenue of $1.334 billion, up 17.1%. All businesses contributed to the overall growth, with a strong contribution from the Environmental business, and from key regions such as the Americas and Asia Pacific.

“Underlying EBIT increased by 6.2% to $207 million, with the overall margin contracting to 15.5% due to difficult economic conditions, particularly within Europe, geopolitical instability, restrictive monetary policy, inflationary challenges in some businesses” and the expected margin dilution from the acquisition.

The other major business, commodities grew revenue nearly 23% to $1.087 billion. “All businesses contributed to the growth. The underlying EBIT increased by 29.3% to $330 million, with an expansion of margins by 155 bps to 30.4%, a result of strong operational performances across both the Geochemistry and Metallurgy businesses.”

And the company revealed that it remains in good stead with its bankers “In May, the Group secured an additional ~A$149 million (US$100 million) bank facility which eliminates any potential refinance risk of the existing $128 million debt facility maturing in October 2023 and increases liquidity to $572 million.”

The company was non-specific in its outlook and didn’t provide any earnings and revenue forecasts which also could be why the shares sold off.