Brisbane-based ALS tests samples of items from gold to lithium to water at labs in 65 countries and would be able to capture this energy-metals demand, he predicted. That was because facilities and required expertise would remain the same, he said.
ALS on Wednesday revealed a jump in profits, margins and dividends. It came amid the commodities boom and harnessing more earnings from its life sciences division, which tests items from air to pharmaceuticals.
One sour note was that its smaller industrial division, which inspects machinery such as turbines or assets such as pipelines, continued to go backwards.
Group profits on a statutory basis rose from $169.6 million to $190.5 million for the 12 months to March. On ALS’ preferred underlying basis, which stripped out factors including a foreign exchange differences on an internal loan restructure, profits rose 42 per cent to $264.2 million.
Steven Ng, a senior portfolio manager at Ophir Asset Management, which holds ALS shares, said the result was strong. “The business seems to be managing the cost environment very well with internal procurement efficiencies helping offset the general inflation environment,” he said.
“Cost control has been a real hallmark of the company during COVID and now during a period of high inflation, which we believe the market isn’t fully rewarding.”
Shares in ALS, which is paying a 17¢ final dividend, were up 25¢ to $12.03 in afternoon trade.
ALS said group revenues rose 23.9 per cent to $2.18 billion, and “underlying” margins lifted from 19.5 per cent to 20.9 per cent.
The inflation gremlin
Amid inflation fears, Mr Naran said the group overall was expecting cost increases of 3 per cent to 4 per cent. The accounts showed remuneration would march up next year between 3 per cent and 15 per cent for some top executives’ fixed pay alone.
Mr Naran’s fixed pay is staying the same but his potential bonuses will rise. His statutory remuneration was $3.5 million last year.
Raw material costs for the group, which made acquisitions and expanded its own operations, rose 25 per cent to $228 million.
Mr Naran said ALS was looking at gradually raising prices across the group by between 6 per cent and 10 per cent over 24 months. “[That] not only should offset inflationary pressures but should help the business on its margin improvement,” he said.
The commodities division provided the biggest chunk of ALS’s underlying earnings before interest and tax at $245 million. Its EBIT margin was at 29.9 per cent.
Revenues rose 42 per cent at its geochemistry section, which tests samples such as gold and is the commodities division’s biggest earner. “We believe there’s still about 15 to 20 per cent headroom in [geochemistry] pricing from where we were at the peak of the last cycle,” Mr Naran said.
The metallurgy section, which includes the battery-linked metals, had an underlying revenue growth of 24 per cent. Its margin is slightly less plump than in geochemistry.
The life science division’s earnings rose 29.3 per cent to $194.8 million. While its margins were slightly reduced on the first half, Mr Naran attributed this to the northern hemisphere winter slowing business in the second half.
Its industrial division’s earnings fell to $17 million, although ALS expressed optimism its trading environment was “gradually improving following the opening of the state borders in Australia”.
ALS is adopting technology of companies such as Chrysos, which uses high-powered X-rays to bombard rock samples and activate atoms of gold and other metals, with the aim being quicker turnaround of sample times.
One technology looking to nip at ALS’ markets is Boart Longyear’s new TruScan technology, which is designed to help do testing such as assaying as drilling is being done.
“If you can do it much, much cheaper, much more accurately and much, much quicker, then that’s going to be something valuable,” Boart chief executive Jeff Olsen told the Financial Review in February.
Mr Olsen said it would compete with ALS in assay testing. “I suspect there will still always be a spot for ALS, but the intensity of using ALS should go way down,” he said.
Mr Naran on Wednesday said the technology appeared good but still “has to not only prove itself in a production environment, it has to be equally accepted by the mining community in terms of the quality of its results”.
“From an ALS perspective, there is some work for them to be done in that regard,” he said.
He maintained ALS always embraced new technology, citing its adoption of the Chrysos product.
Ophir’s Mr Ng said technology breakthroughs were more likely a tailwind rather than headwind as evidenced “by ALS’s relationship with Chrysos”.