ALS LIMITED — Earnings Release 2014

May 26, 2014

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asx/media release

27 May 2014

ALS FY2014 result in line with guidance

Final dividend 20 cents per share

ALS Limited ( ASX Code: ALQ ) today announced an underlying net profit after tax (attributable to equity holders of the Company, and excluding amortisation of acquired intangibles, restructuring and related costs, divestment losses and acquisition costs) of $171.9 million for the year ended 31 March 2014.

The result was delivered in difficult global market conditions and was 27.9% behind the underlying result from continuing operations of the previous year.

Revenue of $1,503 million was up 3.3% on the $1,455 million recorded from continuing operations in FY2013.

Net profit after tax excluding divestment losses and amortisation of intangibles was $163.1 million – within the guidance range provided to the market on 27 February 2014.

FY2014 statutory net profit after tax (including divestment losses and amortisation of intangibles) attributable to equity holders of the Company was $154.4 million. A full reconciliation from underlying net profit after tax to statutory net profit after tax is provided in the attached appendix.

Dividend

Directors have declared a final partly franked (50%) dividend for the year of 20 cents per share (2013: 27 cents partly franked) bringing the total partly franked (50%) dividend for the year to 39 cents per share (2013: 48 cents partly franked). The Record Date for entitlement to the dividend will be 13 June 2014. The Company’s dividend reinvestment plan (DRP) will operate for the final 2014 dividend with the DRP issue price to be at a 5.0% discount to the volume weighted average price of ALQ shares over the 5 trading days following the last DRP Election Date. The last date to sign up for the DRP is close of business on 16 June 2014 (Election Date). The dividend will include conduit foreign income of 10 cents per share.

The growing proportion of the Company’s earnings being sourced outside Australia will result in future dividends being franked at a lower percentage. Directors expect the interim dividend for FY2015 to be franked to no more than 15%. Subsequent dividends will be franked at the maximum level possible. Current indications are that the final dividend for FY2015 will be franked in the range of 30% to 40%.

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Overview of FY2014 Result

The Chairman, Nerolie Withnall said the result represented a sound financial performance in difficult economic conditions, adding that markets for the Group’s services were challenging; in an environment of falling commodity prices, a difficult funding environment for Junior Explorers, and a strong cost focus from most clients. Mrs Withnall also noted that whilst it is disappointing to report a 28% downturn in underlying net profit for the year, ALS has performed better than almost all of its peers in the global testing and inspection market and the Board of Directors is positive about the company's prospects in the medium and longer term.

“Geochemical sample flows in ALS Minerals were down by approximately one-third compared with FY2013, with Africa and the Americas the most affected”.

“Contribution margins for the geochemical business remained in the target range as the business benefited from the cost flexibility provided by its hub and spoke model. All other divisions recorded revenue increases compared with FY2013. ALS Industrial returned solid organic revenue gains in both of its business lines, whilst ALS Life Sciences and ALS Energy benefited from the impact of acquisitions over the past twelve months”.

The Group’s underlying financial performance by division for the year to 31 March 2014 is summarised as follows:

summarised as follows:
Financial Results In millions of AUD ALS Minerals ALS Life Sciences ALS Energy ALS Industrial Reward Distribution Total segments	Revenue*	Underlying EBIT
	FY14 FY13 + / - 425.9 608.4 -30% 527.3 454.4 16% 247.9 105.0 136% 182.9 168.6 8% 119.4 119.2 0%	FY14 FY13 + / - 102.1 212.3 -52% 94.4 90.3 5% 53.5 32.6 64% 26.4 30.7 -14% 2.7 0.9 200%
	1,503.4 1,455.6 3%	279.1 366.8 -24%
Net financing costs Foreign exchange gains Other corporate expenses Income tax expense Net profit attributable to minority interests	(26.8) (19.6) 3.5 4.6 (19.8) (20.8) (61.9) (89.5) (2.2) (3.2)
Underlying ** net profit after tax	171.9 238.3 -28%

* from continuing operations

** attributable to equity holders of the Company, and excluding amortisation of acquired intangibles, restructuring and related costs, divestment losses and acquisition costs

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Commenting on the full year result, Managing Director, Greg Kilmister said that FY2014 had been a challenging year for all of ALS’ businesses as the resources sector declined further into the cyclical downturn and all industries took a cautious approach to expenditure.

“Businesses across all sectors remained challenged; there was a consistent global focus by all market sectors on reducing costs; and the Australian dollar remained stubbornly strong compared to most expectations”.

“However, we not only dealt with the reality of current markets, we made further significant progress toward our long-term strategy of building businesses around testing, and diversifying both our market sectors and geographies, most notably with the acquisition of oil and gas services provider Reservoir Group in August 2013”.

“We also made substantial progress in repositioning our businesses from not just focusing on testing but to taking a more holistic view of data management and value, as well as packaging a more complete set of technical services to better meet the future needs and operating models of our clients in ever changing markets.”

Divisional overview

Minerals

FY2014 presented an extremely challenging business environment for mining services providers. Divisional revenue fell 30% as retreating commodity prices, cost-focused miners and funding shortages combined to reduce the volume of available work by 35 percent globally, and over 40 percent in some regions. ALS Minerals responded to these conditions with a three point plan focussed on cost base management, service optimisation and strategic business development. A workforce reduction of 28 percent in the geochemistry business, consolidation of back offices, and closure/mothballing of operations all assisted to keep the division’s underlying contribution margin a healthy 24 percent.

The traditional seasonal fluctuations normally experienced by the ALS Geochemistry business stream were less pronounced in FY2014 as workflow volumes declined as the market continued to cycle down. Business contraction was significant across all regions with the Americas and Africa impacted the most. The Australia/Pacific region suffered less, with Europe and Russia being the least affected. The difference between regions largely reflects the global distribution of greenfield projects which were constrained by a lack of investor funding. A focus on cost efficiency resulted in the Geochemistry business maintaining its underlying EBIT margin above the 26% target range floor.

A decline in new mine development and feasibility studies impacted ALS Metallurgy. The broader service offering and higher fixed cost base of the Australian business led to it being impacted to a greater extent than North America. Signs of improved conditions were seen towards the end of the financial year, however flat conditions are expected throughout

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FY2015, although the business will benefit from a lower cost base and the newly opened Santiago metallurgical facility.

ALS Inspection experienced sound revenue growth and significantly improved contribution margins across both Europe and Africa during the year as the expansion and efficiency initiatives undertaken in prior years took effect. Despite very competitive market conditions the Inspection business returned a significantly improved financial performance for the year. Inspection revenue and operating profit increased 11.8% and 139.8% respectively compared to the previous year.

Outlook: Geochemistry sample flow is likely to be down in the first half of FY2015 compared with the previous corresponding period before recovering in the second half resulting in it being flat year on year. The metallurgy and inspection businesses are expected to generate improved margins in the year ahead. The division will continue to focus on cost base management, service optimisation and improved data management for clients.

Life Sciences

The division continued to grow during the year, benefitting from key investments made in entering new geographies and strengthening its leadership position in existing markets – in particular business development initiatives concentrating on key accounts produced a positive return. A strong strategic growth focus (both acquired and organic) is being placed on the food, pharmaceutical, and consumer products components of ALS Life Sciences. Key building blocks for these businesses have already been developed and are being implemented.

ALS Reliance, a Hong Kong-based consumer products testing business acquired in May 2013, demonstrated growth in FY2014. The Consumer Products sector remains an attractive growth opportunity for the ALS Life Sciences business in Asia.

Outlook: General market trends are positive but the economic environment continues to be very price-sensitive requiring the business to make the cost adjustments necessary to continue its growth in existing markets. The business is focused on performance (turnaround time and quality) and cost management coupled with a targeted business development campaign to deliver a strong result in FY2015. Service delivery to our clients remains a top priority for ALS Life Sciences.

Energy

FY2014 was a year of strategic augmentation for ALS Energy with the introduction during the year of a substantial suite of oil and gas service and product lines via the acquisitions of Reservoir Group, Earth Data, BMP Enterprises and DSI Thru-Tubing. When combined with ALS’ proven laboratory testing capabilities, the platform established by these acquisitions is expected to generate revenue synergies in the large but relatively fragmented oil and gas services market.

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Whilst coal prices are at four-year lows with little relief in sight, Australian production and export volumes remain at record levels. In the absence of any significant supply disruption or demand uptick, the market in FY2015 is expected to be affected by the continued austerity of producers, limiting growth in exploration activity and maintaining downward pressure on service prices. Oil & Gas prices are expected to remain more buoyant during the coming year.

Outlook: Global markets are expected to remain hungry for fossil energy and in need of innovative and cost effective solutions to improve the chances of discovery in tougher frontiers and quality management in a tightening regulatory framework. ALS Energy has assembled a first class set of assets focussed on production enhancement services and technologies that have the potential to drive considerable growth during FY2015. Technical services and products that provide cost advantages and enhanced productivity will command a disproportional share of market growth. ALS Energy is now positioned to provide this support to its clients and will be able to offer integrated service packages across the world.

Industrial

Both ALS Asset Care and ALS Tribology recorded increased revenue during FY2014, however underlying contribution margins were affected by a changing revenue mix and price pressures emanating from the Australian resource sector.

The Asset Care business experienced a challenging year as a result of weak market conditions in Australia. The business unit delivered revenues of $144.1m in FY2014, an increase of 6.2% on the previous year. The acquisition of Advanced Inspection Technologies (AIT) in Houston, Texas in October 2013 represented the first expansion of the Asset Care business outside Australia and provides both a platform for growth in North America and specialist capability in high fatigue weld inspection and materials consulting.

ALS Tribology reported 15.8% global revenue growth. Underlying EBIT contribution increased and margins improved in North America as a result of disciplined cost management. The Australian business experienced a drop in margin as a result of mining sector cost-cutting. Additional market share was secured and sample volumes grew as a result of increased production in the mining sector. The acquisition of Oilcheck in Australia in October 2013 contributed to second half revenue growth.

Outlook: ALS Asset Care in Australia has recently been restructured along market segment lines to increase the focus on customer needs. AIT’s technical credentials have resulted in specialist asset care project work being secured in Australia. A pipeline of other potential projects has been developed with expectations of further success in FY2015. With the integration of Oilcheck concluding in March 2014, the acquisition is expected to make a solid EBIT contribution in FY2015 to ALS Tribology.

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Reward Distribution

Divisional revenue was flat year-on-year, with a weakening mining sector and lower demand for large value commercial equipment offset by growth in other categories and markets. The significant improvement in underlying EBIT contribution was achieved through higher trading margins, more efficient procurement processes and lower overall operating costs.

Reward’s import program was bolstered with new products and range extensions which proved to be an excellent addition to its client offering. The division’s range of own brands was well received by key customers and was a major contributor to profitability. The Hospitality Stores (cash & carry outlets) continued to trade well as a result of strong interest in commercial grade kitchen and homeware products.

-ENDS-

Further information: Greg Kilmister Managing Director ALS Limited +61 (7) 3367 7900

About ALS Limited

ALS is a global Testing, Inspection & Certification business. The company's strategy is to broaden its exposure into new sectors and geographies where it can take a leadership position.

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APPENDIX

2014 $m Underlying result(1) Acquisition costs Restructuring & related costs(1) Discontinued operations	Sub-total (2) Divestment losses Amortisation of intangibles	Statutory result
Revenue 1,503.4 - - -	1,503.4 - -	1,503.4
EBITDA(3) 339.0 (2.3) (9.1) -	327.6 (1.9) -	325.7
Depreciation & amortisation (76.2) - - -
	(76.2) - (7.0)	(83.2)
EBIT(3) 262.8 (2.3) (9.1) -	251.4 (1.9) (7.0)	242.5
Interest expense (26.8) - - -	(26.8) - -	(26.8)
Tax expense (61.9) 0.1 2.5 -	(59.3) 0.2 -	(59.1)
174.1 (2.2) (6.6) -	165.3 (1.7) (7.0)	156.6
Non-controlling interests (2.2) - - -
	(2.2) - -	(2.2)
Net profit after tax 171.9 (2.2) (6.6) -	163.1 (1.7) (7.0)	154.4
Basic EPS (cents) 45.3	43.0	40.7
Diluted EPS (cents) 45.3	43.0	40.7
2013 $m Underlying result(1) Acquisition costs Restructuring & related costs(1) Discontinued operations	Sub-total (2) Impairment net of divestment gain Amortisation of intangibles	Statutory result(4)
Revenue 1,455.6 - - 43.7	1,499.3 - -	1,499.3
EBITDA(3) 406.0 (1.8) (2.3) 4.1 Depreciation & amortisation (55.4) - - (0.3)	406.0 (10.4) - (55.7) - -	395.6 (55.7)
EBIT(3) 350.6 (1.8) (2.3) 3.8 Interest expense (19.6) - - - Tax expense (89.5) 0.5 0.5 (1.1)	350.3 (10.4) - (19.6) - - (89.6) (0.2) -	339.9 (19.6) (89.8)
241.5 (1.3) (1.8) 2.7 Non-controlling interests (3.2) - - -	241.1 (10.6) - (3.2) - -	230.5 (3.2)
Net profit after tax 238.3 (1.3) (1.8) 2.7	237.9 (10.6) -	227.3
Basic EPS (cents) 69.7 Diluted EPS (cents) 69.5	69.5 69.4	66.4 66.3

• (1) The terms Underlying Result and Restructuring & Related Costs are non-IFRS disclosures. They have been presented to assist in the assessment of the relative performance of the Group from year to year. The calculations thereof are based on non-IFRS information and are unaudited.

• (2) The sub-total column has been presented to assist in the assessment of the relative performance of the Group from year to year and represents the basis on which:

• a. FY2014 earnings guidance was provided to the market on 27 February 2014; and

• b. profit before unusual items was reported for FY2013.

• (3) EBITDA = EBIT plus depreciation and amortisation. EBIT = Earnings before interest and tax. The terms EBITDA and EBIT are non-IFRS disclosures. They have been presented to provide a measure of the Group’s performance before the impact of depreciation and amortisation (i.e. non-cash items) as well as that of interest and tax expenses. The calculations thereof are based on non-IFRS information and are unaudited.

• (4) FY2013 statutory result includes the results from operating activities of discontinued operations.

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