ALS Limited

Good day and thank you for standing by. Welcome to ALS Limited H1FY26 results briefing. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 and 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Malcolm Dean, CEO and Managing Director. Please go ahead.

Thanks, Maggie, and good morning, and thank you all for taking the time to join today's briefing. It is great to be back with all of you to share ALS Fiscal Year 26 half-year results. It has been another strong period for ALS, a half that reflects our ability to deliver through changing markets while staying disciplined on growth, margin, and cash. As usual, I'm joined by our Chief Financial Officer, Stuart Haddon. We intend that this presentation will take for approximately 30 minutes and will follow with a Q&A session. Let me start by running through the highlights of the half year results. We are pleased to have delivered another set of strong results in line with our strategy plan. We produced revenue growth of 13.3% to 1.7 billion and pleasingly organic growth was recorded across all business streams. Underlying EBIT increased by 14.7% to 287.2 million and the EBIT margin strengthened by 20 basis points to 17.3%. Excluding acquisitions, the EBIT margin was 19.1%. Commodities performed strongly with positive market conditions supporting low meat-teens organic growth in both minerals and industrial materials. Life Sciences was solid with a robust food result and strength in our key environmental geographies despite headwinds in certain regions. We continue to unlock value from increasing investment in digital innovation and AI across all business streams, with the goal of setting the standards for smart labs globally. And finally, we are pleased to report continued strong free cash flow of $303.9 million, representing 88% of underlying H1BDA. So overall, a strong balanced results with growth across all divisions, discipline execution, and cash generation that continues to underpin our strategy. So let's now turn to how this aligns with the broader ALS vision. At ALS, we remain guided by our vision to be the global leader in the discipline of scientific analysis in pursuit of a better world for all, while ensuring safety is always front of mind. Health and safety underpins everything that we do and remains top priority in every aspect of our business. This is essential to protect our people, to drive performance, and to build trust with our clients. We're very pleased to report continuous improvement in safety performance with total and lost time injury rates for the half year, the lowest ever recorded by ALS. Our safety records continue to strengthen, and that performance foundation flows directly into our results. There's a lot on this slide, so let me draw the attention to three key themes. Strong top line growth, margin discipline, and continued balance sheet strength. The business delivers strong overall revenue growth of 13.3% in the half. and organic growth was solid at 6.9% at the top end of our guided range. The return on capital employed remained steady at 19.4%. Underlying net profit after taxes was up by 17.2% to $178.4 million. On a higher share count post the May 2025 equity raise, Underlying earnings per share increased by 13.7% to 35.7 cents per share. Our cash generation, balance sheet, and liquidity remain strong, supported by our disciplined capital management framework that enables us to continue our growth journey moving forward. Reflecting the group's solid performance while at the same time maintaining balance sheet strength to pursue growth, The board of directors has declared an interim H1 dividend of 19.4 cents per share, an increase of 3%, which equates to a 55% payout ratio, right in the middle of our indicated payout range. So let's now turn to the operational performance across our business streams. At a divisional level, the picture is one of strong execution with some variations in certain end markets. Starting with the commodities division, in minerals, we saw strong organic revenue growth of 11.8%, driven largely by an uptick in sample volume across our hub-and-spoke network. Metallurgy softened, reflecting the normal lag we see between exploration spend and downstream testing demand, with an improvement in Q2 compared to Q1. Industrial materials delivered strong organic revenue growth of 12.2%, All those margins were compressed across the coal and the oil and lubricant business. Combined, the margin in the commodity business was slightly down 11 basis points to 28.1%. Within this, it is important to note there was an improvement in geochemistry margins of approximately 100 basis points as operating leverage more than offset the impact of discounted pricing flowing through from fiscal year 25. In overall terms, minerals margins were steady, with the above geochemistry improvement being offset by margin contraction in metallurgy from lower activity levels. In life sciences, environmental delivered organic revenue growth of 4%, with growth in key EMEA and APAC markets, checked by lower volumes in the Americas. In food, organic revenue was up 7%, And we saw growth and improved margin profiles across all key regions. And finally, our pharmaceutical business saw organic revenue increase by 0.9%, as well as achieving positive earning growth. Combined, the operating margin in life sciences business increased by 74 basis points to 15.1%. Excluding acquisitions, the margin in the legacy business improved by a similar 57 basis points to 17.7%. both ahead of our targeted improvement range of 20 to 40 basis points each year. So let's unpack that growth in more detail, starting with revenue performance. As mentioned before, a solid revenue performance that once again highlights the strength and diversification of the portfolio. Our business delivered $1.7 billion in revenue for the half, a 13.3% increase compared to first half of 25. Of these, 6.9% was organic growth. 2.3% was from acquisitions, noting there were an additional two months contribution from the Western business. And there was a positive FX impact of 4.2%, largely from the depreciation of the Australian dollars against major European currencies. At constant currency, revenue still increased 9.2%. So we are now moving to divisional performance, and we'll start focusing on commodities. where that growth strength was most visible. Total revenue for commodities increased by 14.3%. Organic growth in geochemistry and industrial materials was aided by positive effects. On a constant currency basis, revenue growth was 12%. The underlying commodities EBIT margin, as mentioned before, declined marginally by 11 basis points to 28.1%. The minerals margin, however, improved slightly by 11 basis points to 31.3%, with operating leverage countering the drag-through of pricing pressures experienced in fiscal year 25. We believe that these negative pricing impacts have largely flashed through in H1 and are anticipating subsequent ongoing margin improvements in H2. Geochemistry recorded 14% organic growth. largely through improved sample volumes from exploration testing, continued take-up of high-performance methods, and mine site production testing growth. As also mentioned before, metallurgy was subdued with top-line decline and consequent margin erosion, which impacted the overall minerals margin. But also, as mentioned earlier, we have seen an improved run rate by the end of Q2 compared to the growth rate of Q1. As highlighted in the announcement, we have a management change in minerals, with Bruce McDonald announcing he will retire effective 31st of March, 2026, after 22 extremely successful years at ALS. Bruce has been instrumental in creating the world-class mineral business that we have today, and he will continue to be available for a period after his retirement to ensure a smooth transition to his successor and support projects at my direction. We have already started a comprehensive global search assessing both internal and external candidates. And finally, industrial materials deliver strong organic revenue growth, although margins were compressed across both the coal and the oil and lubricant segments, with minor adverse mix and efficiency issues. The next slide is probably where most of you will skip straight to. provides a clear picture of geochemistry performance in half, including the positive momentum we have seen in sample volumes in a stronger market. During the half, sample flow volumes recovered strongly with overall low double-digit year-on-year increase in sample flows to the end of H126. This is still being driven by majors and mid-sized resource companies. We saw increased volumes across more regions with strongest growth in Australia, Middle East, and Africa. North America has lacked somewhat. However, this follows the normal seasonal patterns as we move into the traditional mineral exploration field system in the northern hemisphere. Exploration activity is being supported by high commodity prices, the accelerating energy transition, and the expanding need for critical minerals. An emerging structural tailwind is increased interest in resource nationalism as governments move to secure domestic supply chains and incentivize local mineral extraction and processing. ALS has a continuous focus on business development, which continues to reinforce our leadership position in the market. Our client mix continues to skew towards major, despite an uptick in juniors and intermediate financing. I would note from our interactions with our customers that there's a potential lengthening of the time between raising capital and deploying these against historical norms. Our commodity mix reflects the recent uptick in gold activity and is consistent with global macro trends linked to electrification, battery metals, and rare earth. I'll next talk to the margin profile of mineral business, which is benefiting from both operating leverage and disciplined cost management. In this slide, the chart at the top left shows the various factors impacting the margin progression from H125 to the reported H136 margin of 31.3%. Volume and mixed benefits added approximately 230 basis points, but were largely offset by historical price discounting impacting of 120 basis points, negative impact from metallurgy consulting and engineering of 80 basis points, and similar effects of 20 basis points impact. We were pleased to be able to maintain the minerals margin above 31% once more. Our resilience through the mining cycles position ALS to capitalize on positive growth conditions, increasing market share opportunity, and expanding services. Looking ahead, the pricing environment within geochemistry is expected to improve through the second half of fiscal year 26, positioning ALS to capitalize on any sustained uplift in mineral exploration activity. On the right hand of this slide, you can see our focus on diversifying the revenue stream within minerals outside of the traditional exploration testing, with new service offerings and further downstream offerings now representing a quarter of minerals revenue. High-performance methods continue to see increased uptake, with a three-year revenue CAGR of 20%. We continue to develop, enhance, and refine new HPMs, and we are optimistic about the opportunities these unique ALS methodologies continue to provide clients. Metallurgy three-year CAGR was slightly negative and reflects the softer market conditions in the last three halves. As referred to earlier, the outlook is being more positive than in Q1. Further downstream, Mindsight remained on an accelerated trajectory with a three-year revenue CAGR of 20%. So in summary, we have maintained minerals margins above 31% with clear operating leverage as conditions improve during the half that give us confidence heading into the second half of the year. Now let's turn to industrial materials. That is another area that is showing healthy organic growth. Industrial materials continue to build momentum across all its business lines. Overall, these divisions grew organically by 12.2% in H1. Industrial materials is benefiting from organic investments in both expansion of existing sites and greenfield operations in both oil and lubricants and assay and inspection businesses. Assay and inspections grew revenue organically by 17.6% and saw margin improvements as volume improves in UK, China, and the Chilean markets. Oil and lubricants also deliver an impressive 13.7% organic revenue growth. benefiting from its ability to support key global clients' relationship while investing in footprint expansion. And finally, coal saw some slight margin erosion through adverse mix and a higher occupancy cost as a result of last year's sales and leaseback. Organic revenue growth remains solid at 6.2%. So now we will move from commodities to life sciences that is the other engine of our portfolio. Life Sciences remains a key growth platform for ALS and continues to deliver solid progress. During the half, Life Sciences recorded total revenue growth of 12.8%. Organic growth was 4%. Acquisition-related growth was 3.5%. And FX delivered a positive 5.3% tailwind, again, from stronger European currencies. The underlying EBIT margin was 15.1%, improving by 74 basis points. notwithstanding lower margins associated with the annualization of Wesley and revenue underperformance in select environmental markets that we'll discuss later. Environmental revenue growth was strongest in the largest EMEA and APAC regions, partially offset by challenging conditions in America, including the York integration. PFAS organic growth accelerated further during this half, greater than 25% to substantially outpace the broader portfolio. In food, strong growth in Europe supported 7% organic revenue growth, with an improved margin profile in most regions. And pharma recorded positive organic revenue and earnings growth. Nuwezan saw increased organic revenue and earnings contribution and very strong margin improvement, benefiting from the ongoing execution of the transformation program. So let's take a closer look at the performance of the core of the life sciences business. As I just mentioned, life sciences organic revenue growth was 4% in the half, excluding Novi San, Westling, and York. The legacy life sciences organic revenue growth was 4.3%. This result was achieved against a very strong comparable period, with pocket of market slowdown and operational challenges in some of Latin American markets. Looking at the chart at the bottom of this slide, In H1, we were pleased to generate strong margins growth from both life sciences as a whole and when excluding acquisitions, but the legacy margin also increased by a further 57 basis points. We are targeting continued improvement in life sciences margins, including through the ongoing integration and optimization of recent acquisition. Consistent with our value creation framework, we are focused on delivering the expected minimum 15% return on capital in the medium term. Nubis and performance reflected successful transformation benefit with positive revenue growth and substantial margin improvement of 475 basis points. Westlink in Europe again performed positively with revenue and earnings exceeding the original targets. And York in the northeast of the United States has faced market-specific challenges, short of expectations, but still deliver positive events and cash. These issues are well understood, and we are in the process of being rectified. So overall, another solid positive result with clear evidence that integration and transformation plans are progressing. And with that, I will hand over to the star of the day, Stuart, that will take you through the financials in more detail.

Thanks Malcolm, not sure if that intro was warranted, but anyway let's move on and good morning, or good afternoon everyone. In short, ALS had a strong half with substantial uplift in both revenue and earnings. Underlying NPAT grew an impressive 17.2% to $178.4 million, led by a strong commodities performance and improved contributions from all business units. Consistent with our guidance, underlying earnings margin improved incrementally by a further 20 points to 17.3%. The group has declared an interim half fund dividend of 19.4 cents per share, an increase of approximately 3% on the prior period. This represents a 55% payout ratio as a percentage of underlying NPAT on the basis that we want to preserve capital to deploy into further growth opportunities linked to our value creation framework as we move forward. Important to note a change that is pending for the full year FY26 results. We are changing the reporting treatment of greenfield losses and restructuring costs to be part of underlying results. Previously these have been taken below the line. Many of you have commented and to be honest we agree and feel now is the time to make this change. It is really about improving the visibility and accountability internally so that we report the same internally as we do externally. In the appendices to this slide deck, you will see the quantum of these costs for the first half of FY26 and full year of FY25. This topic will also be covered by Malcolm in the outlook perspective section later on. Malcolm has touched on the main call-outs here, so I'll move straight along to margins. The group margin increased by 31 basis points on a constant currency basis. with positive organic margin growth offset somewhat by the annualized impact of Westling acquisition and the corporate cost dilution. More on those shortly. The commodities margin was stable, declining by a mere one basis point at constant currency. As Malcolm has pointed out, the negative impact of temporary historical price discounting from FY25 was more than offset by operating leverage coming through from the more positive volumes. Life Sciences organic margin grew by an impressive 112 basis points. However, there was an impact from the dilution from the acquisitions of NuvaSAR New York and Westling, which entailed the overall outcome by approximately 40 basis points. There was minimal FX impact for the group, with only the impact being 11 basis points. All in all, a pleasing half as it relates to margin evolution at ALS. Moving to capital management. The group continues to deliver on the key objectives of our value creation framework. Growth, strong cash generation, shareholder returns and balance sheet strength. During the half, the group successfully completed a $370 million equity raise which reinforced the balance sheet and consequently has reduced leverage. Leverage as reported at the end of half one was 1.8 times. This result is at the lower end of the targeted range of 1.7 to 2.3, which we maintain, and well within lender covenants, as was EBITDA interest time cover at 10.2 times, an improvement of 0.3 times. Moving to capital expenditure, base capex through the half was 89 million, which represents 145% of depreciation and 5.4% of revenue. We continue to invest to support growth with two-thirds of the base capex spent for growth with the balance for maintenance spent. In addition, $68 million was invested into the major HubLab expansion projects announced as part of the equity raise. I'll talk more on this shortly. As mentioned already, the board has declared an interim dividend of $0.194 per share, partially franked to 30%. The dividend reinvestment plan, which was suspended for the equity raise, will recommence for the FY26 interim dividend at a nil discount. Moving now to cash. EBITDA cash conversion for the half was 88%. While slightly lower than the PCP, which to be fair was a record, this reflects a seasonally strong performance and continuous improvement in all facets of our working capital management. The chart on the right illustrates typical seasonality of this metric, with the first half always lower than the full year performance. Reflecting our continued focus on supply chain management, DSO improved to 51 days while DPO was consistent at 63 days. While it doesn't reflect in these numbers, we have also instigated a new program to repatriate cash held in the regions back to corporate. This has resulted in a reduction of what we would describe as surplus cash of approximately 60 million since March 2025. Ultimately, this should result in a lower net interest cost for the company. I'll now turn to leverage. As noted previously, leverage reduced to 1.8 times at the close of the half, largely due to the equity raise completed in May this year, and as referred to before, our sound working capital management. Our improved net debt position provides additional flexibility and scope to complete the HubLab update program, as well as providing capacity for targeted bolt-on M&A in due course. The focus for now remains on solid cash generation as the HubLab CapEx program continues and the completion of the integration of recent acquisitions continues. With leverage well within our targeted range, we have maintained the flexibility to keep investing for growth. Now let me touch briefly on the progress of the HubLab expansion. Just to recap, to protect and enable medium to longer term growth, A substantial, mainly brownfield, capital investment plan to our lab network was announced. This is at four of our key hub labs. In Lima, in Peru, it's geochemistry. The remainder are life sciences. So Sydney here in Sydney in Australia, Bangkok in Thailand, and Prague in the Czech Republic. This involves approximately $230 million of phase spend across five years from the current year to FY30. with approximately 70% will be invested by the end of FY28. During the first half, approximately $70 million was spent largely covering the acquisition of land in Lima, Bangkok, and Prague, as well as finalization of the design and permits for Sydney, with both Sydney and Lima now progressing quite well. At this stage, all four projects are on track. Construction has now commenced in all hub labs except Prague, which is expected to commence in the second half of FY27, as we've got to complete some demolition of the site we just acquired, and then the planning process in the Czech Republic does take some time. We're pleased with the pace and progress being made across our network, and we'll keep you updated on the status of these key investments. Now moving to debt. In May 2025, the group further extended its debt maturity profile through new revolving term debt facilities totaling US $250 million. The weighted average debt maturity is now 4.4 years and average cost of drawn debt is approximately 3.8%. The total underlying interest costs on borrowings and leases reduced to $37.6 million and a half. As guidance for the full year, underlying interest expense for the full year is expected to be approximately 69, between 69 and 71 million. Now moving to corporate costs. Corporate costs are in line with our expectations at approximately 2.3% of revenue in this first half. The increase in corporate costs versus the prior period reflects increased at-risk remuneration costs and additional support in data governance, innovation, automation and AI developments. The latter obviously having longer term benefits or expected longer term benefits for the company. Our quest for improvement of operating leverage of the corporate functions continues. Looking ahead for the rest of this year, corporate costs are expected to represent approximately 2.2% of revenue in FY26. As many of you know, during the half, both Malcolm and I have relocated our new operational headquarters to Madrid. The corporate head office in Brisbane still remains. And with that, I will pass to the real star of the show, Malcolm.