ALS Delivers Robust Revenue Growth, Cuts Final Dividend | KOSEC

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ALS Delivers Robust Revenue Growth, Cuts Final Dividend

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Back at the start of May, analytical testing provider, ALS Limited, revealed that its financial position remains strong with more than AUD$450 million of surplus liquidity in undrawn debt and cash. Yet, the liquidity level will increase to that of AUD$650 million when the increase in bank facilities are fully executed. The extra liquidity further places ALS in an excellent position to finance its operations and to meet the maturation of a US Private Placement debt trance due at the end of the 2020 calendar year.

Likewise, the positivity was reflected in its FY20 results announced on 27 May 2020. Specifically, revenue from continuing operations climbed 10 per cent to that of $1,831.9 million, contributing to the underlying net profit after tax (NPAT) of $188.8 million. This marks a 4.3 increase in underlying NPAT and falls within the guidance $185 - $195 million. One of the beauties about ALS Limited lies with the fact that its business is diversified across eighteen divisions. Specifically, two outperforming divisions that contributed vastly to the exceptional performance are Life Sciences and Industrial.

Revenue from the Life Sciences division came in at $939.2 million, delivering a stunning 13 per cent growth. In FY20, ALS bought over Iberian-based food testing business Aquimisa as well as Mexican-based pharmaceutical testing business ARJ. With combined annual revenue of circa $65 million, the addition of both firms have expanded the group’s current network while conforming to ALS’s “bolt-on” acquisition approach.  More broadly speaking, the acquisitions have proven to be wise as both businesses continued to outperform despite the COVID-19 pandemic.

Likewise, ALS’s Industrial division continued to shine. Revenue surged 17.6 per cent to $250.5 million, and earnings advanced 13 per cent relative to the prior corresponding period. Specifically, Asset Care’s organic growth was fuelled by the surge in maintenance revenue from Australian energy and mining sectors alongside growth in USA greenfield activity. Meanwhile, Tribology presented a 12.9 per cent surge in revenue supported by a favourable mining production environment.

Yet, a deeper look into the financials reveals a less optimistic picture. This is because statutory NPAT came in at $127.8 million as a result of discontinued operations, restructuring costs and impairment charges. ALS recorded a non-cash impairment of its Latin American Life Sciences division and Industrial division of $50 and $40 million respectively. More broadly speaking, the decision to impair its asset values further reflect the impact of COVID-19 pandemic as well as uncertainty in the broader market conditions.

Taking into account the above considerations, the group has therefore declared a final dividend of 6.1 cents a security partially franked to 70 per cent. This was relative to the 11.5 cents, partially franked to 35 per cent back in FY19. Despite the less than ideal results, the dividend also demonstrates ALS’s prudent capital management strategy and its strong liquidity position. Nevertheless, ALS is confident that it is in a good position for long-term growth backed by positive market trends such as the increased outsourcing of testing services.

By Caroline Wong 

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Caroline Wong

Caroline Wong is a Research Analyst at KOSEC – Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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