Half Year Results FY2020
ASX / media release
ALS delivers underlying NPAT of $98.2 million, exceeding guidance
H1 FY20 financial highlights (compared to H1 FY19):
- Revenue from continuing operations of $919.1 million, up 11.3%
- Underlying NPAT from continuing operations of $98.2 million, up 5.3% and exceeding guidance of $90 million - $95 million
- Life Sciences organic revenue growth of 10.2% and underlying EBIT margin expansion (pre-AASB 16 impact) of 15.8%, up 73 basis points (bps)
- Industrial organic revenue growth of 20.3%
- Underlying basic earnings per share (eps) of 20.3 cents per share (cps), up 6.3%
- Interim dividend of 11.5 cps, up 4.5% and partially franked to 30%
- FY20 underlying NPAT expected to be between $185 million to $195 million
- Statutory NPAT of $135.6 million, up $50.7 million due to one-off gains
ALS Limited (ASX: ALQ) today announced underlying net profit after tax (NPAT) from continuing operations of $98.2 million for H1 FY20, exceeding the guidance range of $90 million to $95 million provided to the market in July 2019. This is an increase of 5.3% in NPAT compared to the prior corresponding period (pcp).
This performance was primarily driven by strong organic growth across all regions in the Life Sciences and Industrial divisions combined with some acquisition growth, including an initial contribution from ARJ, a Mexico-based pharmaceutical laboratory acquired in August 2019. The Commodities division grew revenue by 1.9%, driven by Metallurgy, Inspection and Coal. Geochemistry sample volumes were down by 11% in the half resulting in a 2.9% reduction in revenue.
ALS Chairman, Bruce Phillips commented “This is a pleasing result, particular given the level of global macroeconomic uncertainty. The Group has exceeded guidance for the first half and is well positioned for the full year, allowing the Board to declare an interim dividend increase of 4.5%.”
Managing Director and CEO, Raj Naran commented “This strong organic performance in the Life Sciences business demonstrates our continuing drive towards our 2022 strategy of growing non-cyclical earnings to 50% of our underlying EBIT. The additional margin expansion in the half is especially pleasing as we have grown in our key markets, focused on innovation and maintained strict cost control measures. We continue to focus on the food and pharmaceutical markets to support our organic and acquisitive growth.
“As previously flagged, we saw some global macroeconomic uncertainty impact the Geochemistry business in H1 FY20. We have seen good growth in other parts of the Commodities division which should see a low single digit revenue increase in FY20.”
Half Year Results AnnouncementHalf Yearly Report including Appendix 4DInvestor Presentation Half Year Results FY2020Dividend Distribution ALQ
Life Sciences division improved underlying EBIT margin by 73 bps
Life Sciences delivered 15.4% revenue growth to $468.6 million. The division achieved organic revenue growth of 10.2%. Underlying EBIT grew by 20.9% to $74.0 million while the margin continued to expand to 15.8% (pre-AASB16 impact), an improvement of 73 bps compared to H1 FY19.
All regions contributed to this result which was driven by investment in green field opportunities combined with a focus on business development, productivity and client service improvements leading to growth in market share. The USA, under a new management team, continued to drive productivity improvements, new business wins and saw underlying EBIT margin expansion of 700 bps compared to pcp.
Environmental saw revenue increase by 15.6% driven by strong growth in the USA, Latin America as well as in Australia due to infrastructure programs and a stable mining sector.
The company acquired Mexican-based pharmaceutical testing laboratory ARJ in the first half, a business with ~$30 million of annual revenue and 500 employees. ARJ will act as a hub for the existing Latin American operations to grow in Argentina, Brazil, Colombia and Mexico.
Food and pharmaceutical delivered revenue growth of 18.1% primarily driven by acquisition growth. This included an initial contribution from ARJ, which delivered performance in-line with expectations and is expected to continue to benefit from ALS’ regional and global presence.
Life Sciences continues to remain a key focus for acquisition opportunities with a strong pipeline of bolt-on opportunities in the food and pharmaceutical sector.
Commodities division delivered $81.4m of underlying EBIT despite Geochemistry headwind
The Commodities division increased revenue by 1.9% to $319.9 million. There was a reduction in underlying EBIT (pre-AASB16 impact) of 2.9%, with subdued equity funding for junior miners in the period impacting Geochemistry.
Metallurgy saw revenue growth of 5.5% after gaining market share in Australia and Canada while Inspection had revenue growth of 14.6%. Coal delivered revenue growth of 9.5% due to the diversification of its offering into less cyclical activities such as superintending and mine site services.
Industrial division grew underlying EBIT by 27.0%
The Industrial division delivered a 23% increase in revenue and 27% increase in underlying EBIT (pre-AASB16 impact) at a margin of 12.2% (+38 bps).
Asset Care organic revenue growth of 23.3% was driven by an increase in maintenance related revenue and contract wins in the USA chemical sector. Tribology saw organic growth of 12.5% supported by a strong oil and gas and mining production environment in Australia and expansion of service offering the USA leading to new contract wins.
Capital management and balance sheet
The company’s strategy is to utilise capital across a share buy-back program, dividends and bolt-on acquisition opportunities to deliver returns for shareholders while maintaining a strong balance sheet.
The share buy-back continued early in the period with an additional $22.0 million worth of shares acquired, bringing to the total to $153.4 million for the entire program, at an average share price of $7.04.
The share buy-back program has been extended to December 2020, with a total amount of $250 million, which is in an increase of $25 million compared to the latest program amount of $225 million. The company will continue to use its existing cash balances and free cash flow to fund the buy-back program. An Appendix 3D in respect to the on-market share buy-back program is attached to this announcement.
The balance sheet remains strong with a gearing ratio of 38% and leverage ratio of 1.9 times.
Interim dividend up 4.5% year-on-year
The Directors have declared an interim dividend of 11.5 cps, partially franked to 30%. This represents a 4.5% increase over the prior year and a payout ratio of 56.5% of underlying NPAT, in-line with Board’s target of 50 – 60%. The dividend is subject to a record date of 28 November 2019 and a payment date of 16 December 2019.
The dividend reinvestment plan continues to be suspended while the share buy-back program is in place.
Overview of H1 FY20 result
Contributions from the company’s divisions for H1 FY20 are summarised below:
|Half year financial results
(from continuing operations)
||H1 FY19||+/-||H1 FY20
|Net finance costs
|Foreign exchange gains
|Other corporate expenses
|Income tax expense
|Net profit attributable to minority interests
* attributed to equity holders of the Company and excluding restructuring and other one-off items, divestment and impairment losses and amortisation of acquired intangibles
Outlook for FY20
The fundamentals of the business continue to be strong despite some impact from macroeconomic uncertainty.
The Life Sciences division continues to grow on an organic basis and is expected to deliver an overall FY20 margin expansion of 50 bps.
Geochemistry sample flows are expected to see a small improvement in H2 FY20, as investment in the mining sector slowly increases, but are anticipated to be slightly lower than pcp. The Commodities division is expected to deliver low single digit revenue growth for FY20 driven by price and mix in Geochemistry, and growth in Metallurgy, Inspection and Coal.
The Industrial division expects to see an improvement in contribution in H2 FY20 compared to pcp, from new business wins and operational improvements.
Group underlying NPAT from continuing operations for the full year is expected to be in the range of $185 million to $195 million. This is based on current market trends, reflecting the seasonality of the business and subject to no material changes in the operating or economic environment, including US and China trade tensions, Brexit and the political and social situation in LATAM, Africa and Hong Kong.
Conference call details
Raj Naran (Managing Director and CEO) and Luis Damasceno (Chief Financial Officer) will host a conference call today (20 November) at 9.30am (AEST). To participate in the call, please dial 1800 590 693 (toll free Australia) or +61 7 3105 0937 (international) and quote the passcode 472646.
For further information please contact:
Raj Naran, Managing Director
+61 (7) 3367 7900
Simon Starr, Head of Investor Relations
+61 428 275 170
About ALS Limited
ALS is a global Testing, Inspection & Certification business. The company's strategy is to broaden its exposure into new sectors and geographies where it can take a leadership position.