Half Year 2019 ALS Ltd Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Siraj Ahmed - Citigroup - Analyst : Hi, it's Siraj from Citigroup. Just on the -- maybe just starting with the commodities division. It looks like your geochem samples are trending down. I mean, you are citing stronger growth. If we could just talk to what you're seeing from a trend perspective.

Question: Siraj Ahmed - Citigroup - Analyst : I mean -- so what was the mix of pricing and benefit in the first half?

Question: Siraj Ahmed - Citigroup - Analyst : Okay. Then just, Raj, as a -- just on the second -- or just on your guidance, what have you assumed for your volume growth in commodities? (multiple speakers)

Question: Siraj Ahmed - Citigroup - Analyst : Yes, in the second half.

Question: Siraj Ahmed - Citigroup - Analyst : All right, great. And one thing that we have noticed is -- and obviously commodity prices are off. The mining equity raisings data seems to be weak, of late. Are you -- just concerned whether that's -- whether that's reflecting lower exploration activity, going forward? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. NOVEMBER 20, 2018 / 4:00AM, ALQ.AX - Half Year 2019 ALS Ltd Earnings Call

Question: Siraj Ahmed - Citigroup - Analyst : All right, great. Just two questions on life sciences. I mean, strong revenue growth there; what was the constant currency organic growth in life sciences? If you do have it.

Question: Siraj Ahmed - Citigroup - Analyst : Okay, okay. And just the margin improvement guidance of 50 to 100 basis points for the full year: I mean, if you can just give us a bridge, where that's coming from? Is it the cost improvement, as you said? Or is it -- if you just talk to the improvement in that, because we have been expecting those margins to improve. So I just wondered if you could give some further color, please.

Question: Siraj Ahmed - Citigroup - Analyst : All right, thanks. That's it for me. Thanks.

Question: James Redfern - BofA Merrill Lynch - Analyst : James Redfern here from Merrill Lynch. Just want to -- quick few questions, please. The first one: the cash conversion in the first half -- I missed that. Can you please confirm what that was?

Question: James Redfern - BofA Merrill Lynch - Analyst : Yes, okay. So 64% in the first half, but it was 94% for the full-year FY18, wasn't it?

Question: James Redfern - BofA Merrill Lynch - Analyst : Yes, okay. Thank you. And just can you remind me --

Question: James Redfern - BofA Merrill Lynch - Analyst : Okay, thank you. And then just going back to life science in terms of the recovery in the US. I mean, what do we need to see for these [product] to be restarted to get revenue growth and margin improvement in the US life sciences business? Because this has been kind of dragging on for about 12 months now. So just wondering, what do we need to see? Like, what needs to happen?

Question: James Redfern - BofA Merrill Lynch - Analyst : Okay, okay. And then just in terms of acquisitions, $17 million in the first half. And then there's going to be $60 million to $70 million opportunities presented to the Board in the second half. Does that mean that those -- that will be completed in the second half? Or I guess what I'm trying to get at -- what's the guidance for full-year acquisitions? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. NOVEMBER 20, 2018 / 4:00AM, ALQ.AX - Half Year 2019 ALS Ltd Earnings Call

Question: James Redfern - BofA Merrill Lynch - Analyst : Okay, okay. Okay, Raj, thanks a lot. That was all.

Question: Craig Wong-Pan - Deutsche Bank - Analyst : Craig Wong-Pan here from Deutsche Bank. Just on your commodities margins, I was wondering: is there much room for improvement here, given the (technical difficulty) price increases?

Question: Craig Wong-Pan - Deutsche Bank - Analyst : Okay. And maybe this is one to take off-line with Richard. But in the past, when I have looked at your various commodities segments and times that by your contribution margin, I can typically get to your underlying EBIT number. But for this result, it seemed like there was more earnings there. I was wondering, has there been a reclassification of that contribution margin, or between different parts of the commodities business?

Question: Craig Wong-Pan - Deutsche Bank - Analyst : Yes, so within commodities, if I just times the revenue there by the margin which you've given in the slide pack, you can get to your underlying EBIT number historically. But in this case, it's different. I was just wondering, has there been any reclassification between those segments and commodities? Or any kind of (multiple speakers)

Question: Craig Wong-Pan - Deutsche Bank - Analyst : Changed? Okay (multiple speakers)

Question: Craig Wong-Pan - Deutsche Bank - Analyst : (multiple speakers) Okay. Next question is, on your D&A, in this period it seems like it was quite a low proportion of CapEx. Can you give any commentary on what we should expect for D&A going forward?

Question: Craig Wong-Pan - Deutsche Bank - Analyst : Yes, okay. And then just one last question. You mentioned acquisitions that you're going to be presenting to the Board. Does your guidance assume any of those convert in the second half? I mean, is there much contribution from those acquisitions embedded in your guidance?

Question: Craig Wong-Pan - Deutsche Bank - Analyst : Okay, great. Thanks for (multiple speakers).

Question: Rohan Sundram - MST Marquee - Analyst : It's Rohan Sundram from MST. Thanks for the time. Just a couple of questions on life sciences. Firstly, was ALcontrol profitable this half? And do you still believe it can contribute around $8 million to $10 million EBITDA this year?

Question: Rohan Sundram - MST Marquee - Analyst : Okay. Thanks, Raj. And just finally, do you still believe that life sciences EBIT margins of 17% to 18% is realistic by FY 20? And if so, what do you see are the key drivers of that? Is it the business optimization also?

Question: Rohan Sundram - MST Marquee - Analyst : That's fine. Thanks, Raj. Cheers.

Question: John Purtell - Macquarie Research - Analyst : John Purtell here from Macquarie. Just a couple of questions, Raj. In terms of pricing for commodities there, you mentioned, if I heard correctly, 7% to 8% uplift. Previously you talked to 2% to 3% as your annual pricing increase. So can you just comment on what's driven the stronger pricing realization there? And is part of that also mix? Obviously, you were sort of moving slightly to more greenfield, which generally has higher margins and pricing.

Question: John Purtell - Macquarie Research - Analyst : Okay. So, when we talk about the pricing strategy, it sounds like there is a more deliberate focus to push that a bit harder as we get deeper into this cycle. I suppose it was a -- 12, 18 months ago, you were still dealing with some price reductions from the prior downcycle. This is a bit of catch-up, if you like, for this upcycle.

Question: John Purtell - Macquarie Research - Analyst : Thank you. Just last question in terms of your guidance, and you mentioned the 55/45 historic skew, historically. More recently it's been a little less skewed than that. Are you able to comment on what core assumptions, if there's anything unusual driving that? Typically are you assuming an average shutdown period through Christmas?

Question: John Purtell - Macquarie Research - Analyst : Got it. Thank you.

Question: Nathan Reilly - UBS - Analyst : It's Nathan Reilly here from UBS. Raj, just a couple of questions on your US life sciences business. You've called out some of the competitive pressures you're seeing in that business. Can you just remind us how big your US life sciences business is in terms of turnover? And then if you wouldn't mind just running us through some of the price and volume trends you're seeing in that business, please?

Question: Nathan Reilly - UBS - Analyst : Okay, thanks. Then finally just also on life sciences, it looks like you've called out an FY19 revenue target there in your food business, saying you are on track to achieve $200 million in revenue in FY19. But as far as I can tell, that looks like a very strong skew to the second half. Can you just give me a little bit more color around that second-half performance, in terms of what's the underpinning the strength of that number in terms of revenues? Whether that's supported by recent acquisitions and just -- I'm just trying to get a guide on whether that's a good indication of run rate into FY21 and FY (multiple speakers)

Question: Nathan Reilly - UBS - Analyst : Okay. Thanks.

Question: Alex Karpos - Goldman Sachs - Analyst : This is Alex Karpos from Goldman. Just a couple quick questions. First of all, on industrials: you talked about asset care margins still being under pressure. When should we expect this -- margins to improve for the business segment? And any puts and takes we should be watching out for?

Question: Alex Karpos - Goldman Sachs - Analyst : Got it. And then turning to commodities, you touched on CapEx a little bit, how it's up 17% year-over-year in the half, and a little bit on turnaround times in the release. How do you look at capacity on the lab side, on the commodities side? And how much should we expect to be invested in the second half?

Question: Alex Karpos - Goldman Sachs - Analyst : Got it, thanks.