ALS Limited: Mining services bloodbath continues

ALS Minerals division sees EBIT fall 50%

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Published November 25, 2013 11:53 am AEDT

The bloodbath in the mining services continues as ALS Limited (ASX: ALQ) reported a 28% fall in net profit to $98 million, for the six months to the end of September 2013.

ALS is exposed to the downturn in the resources boom through its minerals testing and inspection division, with revenues for that business hitting their lowest level in more than a decade after falling 33%. Earnings before interest and tax (EBIT) for Minerals halved, and is now lower than the earnings the division achieved in 2008, although higher than the GFC-affected 2009 results. ALS says all of its Minerals geochemistry markets remain weak.

But it wasn't only the Minerals business that was affected. Energy and Life Sciences divisions also saw revenue growth go backwards, but thanks to new acquisitions revenues rose. Life Sciences saw revenues rise 21% to $272 million, while the Energy division saw revenues rise 70% to $53 million, thanks in part to the acquisitions of Reservoir Group in August 2013 and EarthData in July 2013. ALS has been diversifying its testing services out of the minerals markets and into other areas such as oil & gas, and food & pharmaceuticals.

Chief executive Greg Kilmister said the board would not provide full year guidance to March 2014, with the fourth quarter too difficult to forecast. The last quarter of the year is the off season for global mineral exploration, thanks to the Northern Hemisphere's winter season, but is also the peak season for oil & gas drilling in north America. Mr Kilmister said the December (third) quarter was likely to result in a net profit after tax of around $47 million, similar to the last two quarters.

ALS is suffering the fate many companies servicing the resources industry have experienced. Only last week, oil & gas services provider Worleyparsons (ASX: WOR) saw its shares hammered down 22%, after the company announced a significant downgrade to its earnings forecast. Monadelphous Group (ASX: MND) and Emeco Holdings (ASX: EHL) have seen their shares punished, falling 23% and 60% respectively, thanks to declining revenues for mining services companies, and an uncertain outlook.

Foolish takeaway

While ALS shares are down just 2.6% in lunchtime trading today, Foolish investors may want to give this entire sector a wide berth. There's no sign of an improvement on the horizon, and conditions are more likely to get worse before there's a pickup in demand.

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