ALS EXITS OIL AND GAS SECTOR AFTER PRICE PRESSURES HIT PROFIT

Written on the 29 November 2016

ALS EXITS OIL AND GAS SECTOR AFTER PRICE PRESSURES HIT PROFIT

UNCERTAINTY in the global resources sector has hit ALS Limited's (ASX:ALQ) half-year profits, prompting the lab testing provider to divest its oil and gas business.

The Brisbane-based company posted a 17 per cent decline in net profit to $51.4 million over the six months to September, compared to the previous half-year.

Revenue was down 5.6 per cent to $672 million, with traditional business streams unable to offset the oil and gas division's $13.3 million loss - down from a $300,000 profit a year earlier.

The board announced plans to exit the resources sector following the deteriorating oil price and ongoing challenges in the market.

ALS will keep its oil and gas laboratory operations, including the Houston lab commissioned late last year. Despite its small loss making development phase, the company anticipates strong returns on invested capital in the near future.

"While 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," ALS chairman Bruce Phillips says.

"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."

The life sciences business delivered a small improvement in revenue at a slightly reduced profit margin compared to last year, while the commodities business recorded steady performance.

ALS will settle its acquisition of food and environmental analytical services provider ALcontrol UK this week, which is expected to deliver more than $10 million in EBITDA annually.

The company also acquired EMICAL in Colombia and BioCity, a lab in Nottingham, during the period.

Final acquisition negotiations with food safety labs in USA, Italy, Turkey, Spain, Poland and Brazil are expected to be completed in March. ALS will have invested $122 million to generate $130 million in revenue and $19 million EBITDA in the first year of integration.

ALS managing director Greg Kilmister (pictured) says the acquisitions offer value and strategic benefits to the company.

"The acquisitions presently being worked on are aligned both geographically and in end markets with the company's stated growth strategy and represent solid value in the short-term with significant further growth also available," Kilmister says.

"In particular, we will have exceeded our initial revenue target for our food safety business of $200 million per annum."

Houston-based investment bankers Simmons and Company, Energy Specialists of Piper Jaffray will explore options to divest ALS's oil and gas businesses.

ALS declared an interim dividend of 5.5c per share to be paid on December 21.

 


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