ALS LIMITED — AGM Information 2015

Jul 29, 2015

Nerolie Withnall Chairman ALS Limited

Annual General Meeting 11am on 30 July 2015

Ladies & Gentlemen, I will now make some brief comments as Chairman.

Before I give an overview of performance, I’d like to mention some of the year’s acquisition highlights.

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During the year, the Company continued its strategy of business expansion and diversification in testing services, with the Company undertaking strategic acquisitions in a number of industry sectors and geographies. These were:

• Ellington & Associates and DSI Thru Tubing - technical services to the oil and gas industry in North America;

• Kingmoor Technical Services - a food testing company in the United Kingdom; and

• Hunter Water Laboratory Services - a water analysis laboratory in Australia.

In April this year, the Company acquired ControlVet, a leading food laboratory group based in Portugal.

This strategic acquisition opened up new markets to our rapidly growing Food and Pharmaceutical business, with accredited laboratories in Portugal, Spain, Poland and Madeira. This will bring increased geographical coverage to the group, and also some new technical services to the Life Sciences Division’s growing portfolio.

Now I'd like to give you an overview of the past years' results.

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The Company produced an underlying net profit after tax of $135 million for the year ended 31 March 2015. This net profit excluded impairment charges, amortisation of acquired intangibles, restructuring and related costs and acquisition costs.

The result was delivered in very challenging global market conditions and was 21% behind the underlying result from continuing operations of the previous year.

Revenue from continuing operations was $1.42 billion, an increase of $38 million on the previous year.

The statutory result was a net loss after tax of $174.5 million for the 2015 financial year. The loss was due to non-cash impairment charges of $290.6 million after tax, primarily against the Company’s oil and gas investments.

Overall, the result represented a solid outcome in current market conditions and demonstrates that the Group’s focus on its cost base, maximising market share and continuing to execute its long-term strategies of market sector and geographical diversification is working.

Markets for our services remain challenging in an environment of low commodity prices. This brings a strong cost focus from most clients and therefore pricing pressure in our businesses.

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A final dividend of 10 cents per share, franked to 25 percent, was paid on the 1[st] of July this year. This brought the total dividend paid for the year to 21 cents per share, franked to average 17.1 percent, representing a full year payout of 62 per cent of underlying net profit after tax.

The Company’s dividend reinvestment plan was in operation for the final dividend at a zero discount to market price.

DRP shares were allocated at $6.05 per share.

Shares allocated to DRP participants were bought on-market, therefore having no dilutive effect to existing shareholders.

I wish to make a few comments about the Company’s likely future approach to dividend payout ratios. ALS has traditionally paid out approximately 70% of earnings per share in dividends. The majority of the funding for the growth of the Company has therefore come from divesting non-core assets, renounceable rights issues, and of course borrowings.

A decade ago, 58% of our taxable came from Australian operations allowing us to frank dividends at 100%. Last year our Australian operations generated 22% of taxable earnings meaning that the dividends last year were only franked at an average of 17%. As the Company continues to grow, more and more of our earnings will come from overseas operations, further impacting our ability to frank dividends.

In this context the Board continues to review the capital structure of the Company weighing up the overall value to shareholders of ways in which earnings are used. These include paying dividends, reducing debt, funding acquisitions and potentially buying back shares on market.

It is important to get this balance right in order to drive the best financial outcome, total shareholder return, for all shareholders. Whilst the capital structure review is ongoing, I wish to flag that in future there is likely to be a lower dividend payout ratio. However, we do note that franking credits are more valuable in the hands of shareholders and therefore any dividend should at the very least allow distribution of 100% of the franking credits.

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Safety is a core value of the Company. Over the past year, the Company achieved a lost time injury frequency rate of 2 - which is well below the average of 3.3 for the Top 100 ASX companies.

Another measure of safety performance – the severity rate - which measures harm associated with incidents and any ensuing days off work, decreased from 9.5 last year to 9.2 this year.

The continued focus on safety management systems has seen the Group’s Industrial business in Western Australia recognised by their client Alcoa for their safety record of 2,421 days injury free – a fantastic achievement I’m sure you will agree.

The Group employs a diverse range of people across its global operations, offering a variety of careers and opportunities.

Of the 11,700 employees globally, two thirds are employed outside Australia.

With many new staff coming on board from acquisitions, we have ongoing programs to ensure new employees understand and live the ALS Core Values of Honesty and Integrity, Exceeding client expectations, Belief in our ability, Hard work, Doing it Better, Celebrating Success and Safety as a Priority.

We have genuine diversity in our workforce, with approximately 40 per cent female employees. Following an extensive review of top ASX-listed companies’ diversity programs, we believe that the right strategy, policies and key performance indicators are in place to generate progress in this area.

A copy of the Company’s Diversity Policy is available for viewing on the Corporate Governance section of our website.

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Your Company’s social responsibility extends well beyond business and financial targets. ALS believes strongly in being a positive influence in the community and encourages all its employees across the globe to contribute to their local communities.

ALS businesses around the world have continued their involvement in community and charitable work, with major recipients including children’s charities, community health services, cancer research and other health related charities.

The Company’s Remuneration Report is set out on pages 38 to 51 of the Annual Report.

The Report sets out what the Board believes is a very balanced and measured set of remuneration outcomes that align with the performance of the Company and the role and contribution of our executives.

For the year ended March 2015, fixed remuneration and short term incentive maximum quantums were reviewed at moderate levels for the executives to ensure market based remuneration was maintained.

Challenging economic conditions in the last two years have resulted in executives forfeiting a significant proportion of benefits at risk, under both short term and long term incentive plans

For the long term incentive plan, relevant performance hurdles for the three year period ended March this year were not met and thus there will be no benefit for executive participants this year.

Non-executive directors’ fees were not increased during the 2015 financial year and will be unchanged for the 2016 financial year.

The remuneration outcomes for the 2015 financial year again demonstrate that there is a close alignment of shareholders’ interests and executive incentive rewards, with executives only rewarded for actual achievement.

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As indicated at last years’ AGM, the Board has undertaken a rigorous process to seek appropriately qualified board candidates to replace Ray Hill and Bruce Brown who are retiring from the Board following today’s meeting.

That process was carried out during 2014 by a Board committee which I chaired, and had the assistance and advice of a highly-regarded external consultant.

In the first instance we identified that with the departure of the 2 long-serving directors, we needed to recruit 2 business people, who were based in Australia, and had global executive experience at a high level, preferably in the mineral resources and/or the oil and gas fields where we derive much of our company’s revenue.

After a long process we identified, and agreed to appoint, 2 excellent candidates. Charlie Sartain joined us in February this year and Bruce Phillips is being proposed at today’s meeting and, if supported by the shareholders, will join the board on 1 August. These 2 gentlemen fulfilled all of the search criteria and I believe will add great strength and depth of experience to the board.

In relation to moves within the investment community to encourage more women on to ASX boards - generally, I support those moves.

Although we had several women candidates identified as having some of the requirements we were seeking, there was simply not one available with the background and experience of the two we chose. As chairman of the company I was not prepared to propose a lesser qualified person on the sole grounds of diversity.

We are of course aiming to increase the number of women on the board and I have no doubt that we will do so in time.

Resolutions will be proposed later in this meeting seeking your support for the election of Charlie Sartain and Bruce Phillips as non-executive directors. The Board strongly supports their election and we trust they have your support as well.

As mentioned, both Ray Hill and Bruce Brown will be retiring from the Board following today’s meeting.

I wish to acknowledge the contributions that both Ray and Bruce have made over the past 10 to 12 years as non-executive directors of ALS.

Ray was appointed to the Board of ALS (then known as Campbell Brothers) in October 2003.

Bruce had been with the company for some 30 years before retiring as CEO in August 2005 and was appointed a non-executive director in October 2005.

Twelve years ago, the Company had annual revenue of $359 million, with net profit of just on $15 million, a presence in 20 countries and over 2,300 employees.

Today the Company’s operations span the globe, with annual revenue of $1.5 billion, an underlying net profit of $135 million, a presence in over 65 countries and close to 12,000 employees.

Ray was a member of the Audit & Compliance Committee and Bruce was a member of the Remuneration Committee.

You have both provided invaluable advice and support to the Board, making strong contributions in all facets of the Company’s operations.

Gentlemen, on behalf of the Board, management and the shareholders, I would like to thank you both for your long service and contribution as directors of the Company and Bruce, for your lifelong service to the company and wish you all the very best on your retirement from the Board.

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In his address, Greg Kilmister will discuss the current structure of our businesses, the markets in which we operate, and most importantly the high level strategies that are in place to do the best we can today without putting future opportunities for growth at risk. We are seeing substantial swings on almost a daily basis in commodity prices, exchange rates and investor sentiment around supply and demand of commodities. In that environment it is a challenge to forecast accurately future financial performance when small swings in work volumes and hence revenue flows have a substantial impact on our reported profits.

However, our practice has been to provide half year guidance at our AGM and that is my intention today. Whilst we are seeing growth in our Life Sciences, Tribology, and Mineral Inspection businesses, and flat operating conditions in our Minerals business, we have seen declines in our Coal, Oil & Gas and Asset Care businesses. The Board expects first half underlying after tax profit to be in the range of $60 to $65 million, compared with $67.7 million in the first half last year.

This guidance assumes no material change in market activity levels and no material adverse events in the Group’s business activities for the remainder of the first half of the 2016 financial year.

Finally, I would like to say thank you to all of you, our shareholders, for your ongoing support; to Greg and his management team for their continuing hard work and dedication in carrying out our strategies in a challenging environment; and to my fellow directors for their support over the past year. I will now hand over to Greg. Thank you.