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Edited Transcript of ALQ.AX earnings conference call or presentation 27-May-20 10:59am GMT

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Full Year 2020 ALS Ltd Earnings Call MILTON , QLD Jul 17, 2020 (Thomson StreetEvents) -- Edited Transcript of ALS Ltd earnings conference call or presentation Wednesday, May 27, 2020 at 10:59:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Luis Damasceno ALS Limited - CFO * Raj Naran ALS Limited - MD, CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Alexander George Philip Karpos Goldman Sachs Group, Inc., Research Division - Equity Analyst * Ben Brownette CLSA Limited, Research Division - Research Analyst * James Byrne Citigroup Inc., Research Division - VP & Analyst * James Redfern BofA Merrill Lynch, Research Division - VP * John Purtell Macquarie Research - Analyst * Michael R. Aspinall Jefferies LLC, Research Division - Equity Associate * Nathan Reilly UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials * Paul Butler Crédit Suisse AG, Research Division - Director * Peter Drew;Carter Bar Securities;Director * Rohan Sundram MST Marquee - Gaming and Contractors Analyst * Wei-Weng Chen JPMorgan Chase & Co, Research Division - Research Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Welcome, everybody, to the ALS Limited FY '20 Results Call. (Operator Instructions) I'll now hand over to our first speaker, Raj Naran, Managing Director and CEO. -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [2] -------------------------------------------------------------------------------- Good morning, and thank you for your attendance today on the call. I hope this call finds you, your family and colleagues safe and healthy. With me is our Chief Financial Officer, Luis Damasceno; and our Head of Investor Relations, Simon Star. I will present the highlights of our full year 2020 financial performance as well as provide an overview of all operating business streams. Luis will then provide commentary on our financials, an update on our capital management as well as discuss other financial matters. The call will be then open to questions. I will take the ASX release and investor presentation of our full year results released today to the market as being read. And I will only refer to individual slides as appropriate during my commentary. Please note that the financial results are presented in both pre and post AASB. Our commentary will refer to financials pre-AASB. So results comparisons will be on a like-by-like basis. Slide 3 highlights our proactive response to COVID-19 with a clear commitment and priority for the health and safety of our staff and clients. As noted on Slide 5, we are pleased to announce and underlying net profit after-tax of $188.8 million. This is within our guidance range of $185 million to $195 million, provided to the market in November 2019. The result is 4.3% higher than the prior corresponding period. The company also delivered an earnings per share of $0.391, an increase of 4 point -- 5.4% compared to the prior corresponding period. The directors also declared a final dividend of $0.061 per share. The dividend reflects the prudent capital management strategy of the company while also demonstrating its strong liquidity position. Our CFO will provide more details during his commentary. This is a solid result for ALS that positions the company well to manage through these uncertain economic times. The company continues to make strong progress towards 2022 target, a 50% total contribution from our noncyclical businesses. For the full year 2020, this was 51% contribution from our noncyclical business. I want to take a moment and thank our staff and the management team for the delivery of this result. Slide 5 and 6 demonstrate an overall revenue growth of 10% with a 5.1% organic growth across all businesses compared to the prior corresponding period. This result was primarily driven by strong organic growth across all regions in the life sciences and the industrial divisions, combined with some acquisitions growth, including contribution from ARJ, a Mexico based pharmaceutical laboratory acquired in August 2019 and Aquimisa, the Iberian-based food testing business acquired at the end of December 2019. The Commodities division grew revenue by 0.6%, driven by Inspection and Coal. Geochemistry sample volumes were down 9% for the full year compared to the prior corresponding period, with a 1.2% reduction in geochemistry revenue. On Slide 17, Life Sciences delivered a 13% revenue growth to 93 -- $939.2 million. The division achieved a 5.9% organic growth in revenue. Underlying EBIT grew by 15.7% to $143.9 million, while the margin continued to expand to 15.3%, an improvement of 35 basis points compared to fiscal year '19. Note, that this division was on track to deliver a margin improvement of 50 basis points before the impact of COVID-19 in February and March. All regions contributed to this result, which was driven by an investment in greenfield opportunities, combined with a focus on business development, productivity, and client service improvements, leading to growth in market share. The U.S.A., under a new management team, continues to drive productivity improvements, new business wins and saw underlying EBIT margin expansion of 420 basis points compared to the prior corresponding period. The Environmental business saw a revenue increase of 9.5%, of which 8.1% was organic growth, driven by strong growth in Australia, Latin America, Northern Europe and the USA. Life Sciences continues to leverage its hub-and-spoke model to manage its cost base across all businesses and geographies, with an ongoing focus on productivity improvements and efficiencies from innovation, including data analytics from ALS' proprietary production management platform and method standardization. On Slide 21, the Commodities business delivered a 3.5% revenue growth to $642.2 million. The division achieved [0.6%] organic growth in revenue. The business also delivered $162.5 million of underlying EBIT despite headwinds in Geochemistry. This division saw a reduction in net -- underlying EBIT of 3.1% with subdued equity funding for juniors in fiscal year '20 impacting Geochemistry. On Slide 26, the Industrial division grew underlying EBIT by 13.1% and delivered a 17.6% increase in revenue at a margin of 9.7%, a decline of 38 basis points, primarily due to the impact of COVID-19 in February and March. For the Asset Care business, the organic revenue growth of 17.6% was driven by an increase in maintenance-related revenue in Australia and greenfield investments in the USA. Tribology saw revenue growth of 12.9%, supported by strong oil and gas and mining production environment in Australia and expansion of service offerings in the USA, leading to new contract wins. Slide 15 illustrates the company's continued focus and commitment to technology and innovation across all businesses. Technology and innovation are a key focus to our strategic road map. And as illustrated on this slide, there are numerous examples of positive work being done within all divisions at ALS in this space. I will now turn the call over to our CFO, Luis Damasceno. -------------------------------------------------------------------------------- Luis Damasceno, ALS Limited - CFO [3] -------------------------------------------------------------------------------- Thanks, Raj, and thank you, everyone, for joining the call today. As Raj mentioned, ALS continued to make strong progress in fiscal year 2020. Besides having strong revenue growth, successfully execute on acquisitions in the Life Science business and delivering them in effect within our guidance, we are also able to continue to reinforce our financial position. We have a year with an excellent cash generation, which coupled with the disciplined capital management, positions us well to enter the fiscal year 2021. I want to start my presentation by highlight some points on the financial summary on Slide 9. The fiscal year 2020, the company delivered revenue from continued operations of $1.832 billion, an increase of 10% over previous corresponding period. From this total growth, 5.1% was organic, 1.9%, a result of scope change based on the net impact of acquisitions and divestments and 3% was linked to FX. The underlying EBIT from continued operations of $297.9 million was up 6% from fiscal year 2019 and driven primarily by additional contributions from the Life Science division. The underlying EBITDA margin from continuing operations was 16.3% down from 16.9% in 2019. This decline can be explained by the margin reduction in Commodities, driven by unfavorable market dynamics throughout the year and by the impact of COVID-19 in the Life Science and Industrial divisions during the last quarter of the year. It's important to emphasize that until January 2020, both divisions were on track to deliver the expected margin improvements in the fiscal year 2020. The underlying tax expense from continuing operations was $74 million, represents an underlying effective tax rate of 28%, which is up from 27% in 2019. This increase was primarily driven by the change to the [hybrid interest deductibility rules] in Australia. And the underlying EPS from continuing operations was $0.391, up 5.4% from the previous corresponding period. I'd like also to highlight a few items in the bridge from the underlying results to the (inaudible) results. First, I will touch on the $15.5 million in restructuring one-off costs down from the $17.6 million required in the last year. This is mainly spring from the execution of start-ups and the new acquisitions, which are important elements of the company's growth strategy. You can find that detailed breakdown of this cost on Slide 34 of the presentation. Secondly, I want to bring up a net gain of $54.1 million, mainly driven by the sale of the environmental business in China, reflecting the (inaudible) divestments and other business closes. And finally, the total non-cash expense of $90 million, linked to the goodwill impairments of the Industrial division and the Latin America Life Science business, primarily due to the impact of COVID-19 pandemic. It's important to note that specific sensitivity disclosures linked to the potential impairment of those 2 businesses that were already presented in 2018 and 2019 annual reports. Regarding the Latin America Life Science business, the ongoing impact from the pandemic has been compounded by the significant devaluation of key currencies. The continued socioeconomic issues and the likely prolonged impact of COVID-19 in the region. In the Industrial division, the COVID-19 impact was amplified by the negative outlook of the Oil & Gas [factors,] an important component in the Asset Care business in the USA. In addition to these considerations and estimates future cash flows, a higher risk profile was reflected an increase of the discount rate applied to both cash generation units, leading to the impairment now reflected. The company declared final dividend of $0.061 per share and a total of $0.176 per share for the full year. I'll make additional remarks regarding the dividend later in the presentation. I'll now turn to Slide 10, where we present an overview of the full year's cash flow covering all operations, both continuing and discontinuing. The company continues to deliver solid conversion of EBITDA to cash from operations. Thanks to the execution of a coordinative cash improvement strategy and to determinate focus on capital management. In 2020, we achieved an EBITDA cash conversion of 97.1%, the highest in recent years, despite the challenge faced in Q4 associated to COVID-19. The main highlights of this year cash flow are the following: First, a $50 million increase of cash generation from operations compared to fiscal year 2019. It's also important to mention that the strong cash generation enabled us to invest in maintenance and growth CapEx and the systems that will support the sustainable growth of the business. The total CapEx for the fiscal year 2020 was $121 million, represents 6.6% of the company's revenue compared to 6.5% in 2019. In Slide 11, you can find the breakdown of the 2020 CapEx among the different businesses. Now looking to the investing and financing activities. I'd like to highlight a few key points. First, to emphasize the investment of $190 million in the acquisitions of ARJ and Aquimisa. Both acquisitions are performing very well and in line with our expectations. Second, it's important to note a net proceeds of $66.9 million from the divestment of the Environmental business in China. Also, the total payment of $112 million in dividends and the $22 million of on market share buybacks, which were executed in the first half of the year. And finally, I'd like to touch on the borrowing movement of $349.7 million, which was largely driven by a prudent and the precautionary decision of drawing down more than $245 million from our bank facilities to meet the obligations of the USPP tranche during December 2020. Now moving to Slide 12 on the debt metrics. The March 2020 numbers reflect the company's focus on working capital management and disciplined approach in [deployed capital.] At the end of fiscal year 2020, the leverage ratio was 2.1x underlying EBITDA. Gearing ratio was 42%, and the EBITDA interest cover at 11.0. I'll make additional comments on liquidity and leverage ratio in a moment, but I first want to go over a few items in this slide. First, referring to the debt denomination present in the pie chart at the bottom left of the page, it's important to note the significant improvement compared to last year's debt profile [by currency.] At the close of 2020, the company has a much better alignment between debt profile and the mix of cash generation and the net assets in different permits reducing risk profile. Now looking at the debt maturity profile in the lower right part of the slide. As I have already mentioned, we have drawn over $245 million from our bank facilities borrowed in U.S. dollars and deposit the same amount in U.S. dollars -- in a U.S. dollar term (inaudible) account. Although such action has a net 0 impact on our liquidity at the close of the fiscal year, it explains the reduction of undrawn facilities from $393 million in September 2019, from $92 million in March 2020. The further increase of the bank facilities by $200 million, which was mentioned earlier, although finalized by the end of March were only executed in May. And therefore, not reflect in this slide. Finally, we continue to monitor the USPP markets, and we will seek to refine the trench due for repayment in December 2020. Yes, the market is open and operate at a reasonable perform levels now. But in case of any significant deterioration, which may materialize over the coming months, we have sufficient liquidity commutes obligation. Move on to Slide 13. I want to make a few comments concerning capital management. First, I want to emphasize the company's balance sheet remains strong and position us well for facing the current challenging environment and also for future growth. In response to the significant market uncertainty, we have been taking preemptive actions to strengthen our balance sheet and the liquidity positions. First, we're proactively managing our cost base by assurance that the company fully benefits from the hub-and-spoke operational model in its key business and by timely reducing costs where needed. Additionally, we leverage our cost structure profile, which -- with variable costs comprising more than 85% of ALS' total costs. Secondly, we continue to execute the working capital improvement plan launched in the first part of the fiscal year 2020, which yielded excellent results this year leading us to reach underlying EBITDA to cash conversion of over 97%. And finally, we adjust our capital allocation strategy, balancing immediate focus and liquidity preservation with the maintenance of capabilities to continue to execute our growth strategy. All these actions led us to enter the fiscal year 2021 in a good position, succeeding in reduced leverage ratio from 2.1 in March to 2.0 by the end of April. In addition, the increase in our base facilities by $200 million, already executed in May, will allow the company to enter 2021 with a total liquidity over $650 million, sufficient to finance our operations and to repay the USPP tranche during December. Considering these elements, the company set a final dividend of $0.061 per share, and it totaled $0.176 per share for the full year, represents 45% of underlying net profit after tax from continuing operations. The dividend to be paid on 6th of July 2020, [and frankly, which is] 7%. Although the final dividend for the full year represents a departure from the company's costs, of a [50%] to [60%] as a ratio of underlying costs. It's consistent to the prudent capital management strategy defined to face these unprecedented times. At this point, I will hand back to Raj, who will go over additional aspects of the business performance. Thank you. -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [4] -------------------------------------------------------------------------------- Thank you, Luis. I would like to provide a recap of our divisional performance as we wrap up here. For the Life Sciences, the division delivered a strong organic growth of 5.9% and an acquisition growth of 3.3%. There was positive contribution from ARJ and Aquimisa acquisitions. The division had a margin expansion of 35 basis points, on track to achieve the 50 basis points target until the impact of COVID-19. All regions delivered organic growth and margin improvement for the second consecutive year. For Commodities, the division had positive organic growth in revenue despite headwinds in Geochemistry. Geochemistry had a reduction of 9% in sample flows versus the prior corresponding period. Due to a lack of junior exploration, which resulted in a reduction of organic growth by 1%. The impact was partially offset by price and mix of work. Prior to the impact of COVID-19, the business saw increasing sample volumes into fiscal year '21, as can be seen on the trend on Slide 23. Slide 24 demonstrates some recent improvement in equity financing for junior and intermediate finance as well as improvement in drilling activity. These are all key lead indicators of Geochemistry sample flow volumes. The Coal investigation is complete and test to the police. Process improvements and automation within the business and now also almost complete. For Industrial, this division had a good fiscal year '20 performance, but the Asset Care market will be challenging in fiscal year '21 as clients help maintenance spend and the award of new contracts. The current focus in this division is on cost rationalization and markets less impacted by COVID-19. In closing, Slides 28, 31 and 32 demonstrate the alignment of our strategic priorities to our full year performance and our ability to manage the business through this pandemic. For the full year, the company had revenue growth of 10% and the fiscal year '20 impact was in line with guidance. February and March performance was impacted by this -- by COVID-19. The final dividend payment demonstrates a prudent capital management strategy of the company, while also demonstrating its strong liquidity position. Our management acted quickly to increase liquidity to $650 million and align its cost base to client demand. The company's operations have been resilient during COVID-19 pandemic due to its diversified portfolio of businesses and geographies as many were deemed as essential businesses and remained operational. There was a 9% increase in total revenue in April of fiscal year '21 versus the prior corresponding period during the period of economic shutdowns. In the last few weeks, several economies have started to relax restrictions, although it is too early to tell the impact on campo volumes within ALS. Long-term growth is driven by maintaining capacity, focus on innovation, including the launch of new COVID-19 tests, disciplined bolt-on acquisition strategy and structural market growth drivers, including an outsourcing trend in the industry. Impairments of Latin America Life Sciences business and the industrial division are conservative and driven by current circumstances, the impact from COVID-19 and market dynamics. The company's key priorities are employee health and safety, business resilience, margin protection and liquidity management. In summary, ALS is well positioned for future growth with support of long-term market trends, including further outsourcing of testing services and increased testing in some areas as the global economy emerges from the pandemic. ALS has the capacity to capitalize on opportunities for innovation by developing new products, such as recently launched COVID-19 human and surface testing services and continuing its bolt-on acquisition strategy in a highly disciplined manner. The ALS management team has managed the business through challenging cycles before and has acted quickly to align its cost base to client demand. ALS is currently focused on business resilience through this market downturn and expects to emerge in a strong position targeting increased market share and maintaining its strong capability in people, capacity, supply chain and client service standards. A further update on operational trends will be provided at the group's annual general meeting in late July, following the completion of our first quarter fiscal year '21. Thank you for your time and attention. The call is now open for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question comes from James Byrne with Citi. -------------------------------------------------------------------------------- James Byrne, Citigroup Inc., Research Division - VP & Analyst [2] -------------------------------------------------------------------------------- I have a few questions on capital management and your balance sheet. The first is just a very simple quick one. Your gearing target of 45%, how hard of a target is that for you? And would you -- if conditions stay subdued, would you allow yourselves to relax that target temporarily? -------------------------------------------------------------------------------- Luis Damasceno, ALS Limited - CFO [3] -------------------------------------------------------------------------------- Yes, there might be analysis that this target may be reached during the year. It's important to mention that this target is not part of any covenants that we have with our banks. They are based on the coverage -- leverage ratio and the interest coverage. But we are monitoring, of course, the progress and we're focused completely on the leverage ratio. This is the main point here to make sure that we have not enough liquidity, but we have the leverage ratio within the limits of our covenants in order to not have any kind of a situation that would reach those covenants with the banks. -------------------------------------------------------------------------------- James Byrne, Citigroup Inc., Research Division - VP & Analyst [4] -------------------------------------------------------------------------------- Okay. So I look at your balance sheet, and there's gearing, which is at -- pretty much at your targets, your maturities of $650 million over the next 18 months or so which is equal to the amount of liquidity that you have of $650 million. So naturally, I'm drawn having a look at your cash results. So if I look at your FY '20 operating cash flow to track the CapEx, the interest, the tax, your free cash flow to equity was completely paid out in the form of the dividends. And the result was effectively a surplus of $4 million. So with any surplus of cash that you managed to generate in FY '21, your options are clearly do you want to consider degearing that balance sheet, you want to continue paying a dividend. You've mentioned here in your presentation that you're still considering acquisitions. I look at this business, and I think you can pick one of those options, at best two, but not all 3. So what has to give here, do you think, to keep the story going that you've successfully done over the last few years? Or do you think my logic is flawed? And if so, why? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [5] -------------------------------------------------------------------------------- James, I'll take that. I mean, I think your analysis is fair. I mean, I think as far as we enter fiscal year '20, I mean, I think there is significant uncertainty as we go through this pandemic. And as far as ALS goes, we've taken a very conservative position until we see how the economy and the markets stabilize. I mean I think our growth story or -- and our continued growth of the company will be there, but we -- it needs to be there once we see stability in markets and really see how businesses and markets recover from the pandemic, it's too early to tell at this point in time. I mean we've really only had 8 to 10 weeks of information since from the beginning of the pandemic. -------------------------------------------------------------------------------- James Byrne, Citigroup Inc., Research Division - VP & Analyst [6] -------------------------------------------------------------------------------- Yes. So when you think about your risk management, I guess, like the kind of trading conditions that you've had financial year-to-date, if I was to get a bit cute and think about annualizing that you still think -- like are you still going to be comfortable going to see our lenders in September for a 6-month look back, like if your balance sheet is still going to be resilient enough at that kind of outlook? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [7] -------------------------------------------------------------------------------- Yes. I think taking the outlook and extrapolating it is probably not the way to look at it. I mean I think from our perspective, we will see how things settle. I mean we have a view on how things will play out this financial year, and we'll just wait and see and see how we trade for the first quarter and provide commentary and see if our view is correct? -------------------------------------------------------------------------------- Luis Damasceno, ALS Limited - CFO [8] -------------------------------------------------------------------------------- Just want to reinforce one more point, James. We have not liquidity, as I mentioned, to COVID, the tranche of the USPP in December, and we will seek to refinance. And at this point, the USPP market is open, is operating. There was a spike in the [coupons] in March. A lot of volatility in the market is was reduced now in May. So we have a much better condition in the volatility and [coupon] levels. And we don't see at this point any significant challenge to refinance the USPP in December. I think that, that's an important point to emphasize here and make clear for the people on the call. -------------------------------------------------------------------------------- James Byrne, Citigroup Inc., Research Division - VP & Analyst [9] -------------------------------------------------------------------------------- Yes. I guess the last thing, like the last piece of that puzzle there is just around costs. I think you mentioned it on the presentation, but I missed it. Can you just clarify for me the extent of cost out that you're looking for in FY '21 for both OpEx and CapEx? And then also for the dividends, whether you would consider turning on the DRP? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [10] -------------------------------------------------------------------------------- Yes. So I think we've not provided commentary on the cost that we are expecting. I mean I think from an ALS perspective, as I mentioned in my closing comments, the company has gone through cycles and downturns, historically. I mean the company knows what to do. We're taking all the necessary actions. And really, our cost-outs are in line with what we've seen in sample flows. So whilst we have -- whilst we're managing the business according to our sample flows, we're not providing externally cost-out targets because if we see the businesses recover, we need to support them accordingly. Or vice versa, if we see things continue to deteriorate, then we will manage the business accordingly. -------------------------------------------------------------------------------- James Byrne, Citigroup Inc., Research Division - VP & Analyst [11] -------------------------------------------------------------------------------- Okay. And the DRP? -------------------------------------------------------------------------------- Luis Damasceno, ALS Limited - CFO [12] -------------------------------------------------------------------------------- The DRP. So the DRP is still on hold. As long as we have -- as long as the share buyback program is active, the DRP is on hold. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Next question comes from Paul Butler from Crédit Suisse. -------------------------------------------------------------------------------- Paul Butler, Crédit Suisse AG, Research Division - Director [14] -------------------------------------------------------------------------------- Congrats on the solid result for FY '20. I just had a question on the 9% revenue decline that you've seen in April. I'm just wondering if you can elaborate on the composition of that in terms of volume and price and also what you're seeing in the various segments. Because looking at the Geochem sample flow chart that you provide on Page 23, it looks like in the last couple of weeks of April, the volumes were down by around 30%. So I'm just wondering if your that overall 9% decline in revenue in April has been more significant in the Commodities business versus Life Sciences. -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [15] -------------------------------------------------------------------------------- So, Paul, I appreciate your questions. I mean, I think from an ALS perspective, I mean, we have 350 offices in 65 countries. And really, the impact to the businesses is varied across the globe as different countries have taken different views in terms of managing the virus. So I think from our perspective, I mean, at a high level, we saw a 9% decline. I mean I think where we saw the greatest impact was probably the Asset Care business where things were just shut down because that business where people have to go on-site to do inspections and they have to travel. That was probably the biggest impact to business. And really, for Geochemistry, what we saw was initial sample decline because a lot of countries just shut down a lot of the operations. What we've seen subsequent to that is as countries ease their restrictions, we've seen many of our businesses, including our Geochemistry business start coming back online. So I think that in terms of the impact overall, it's more by country than it really is purely by business stream. Although I think it's fair to say as a general comment the Asset Care business across the board had the single largest impact. -------------------------------------------------------------------------------- Paul Butler, Crédit Suisse AG, Research Division - Director [16] -------------------------------------------------------------------------------- Okay. And in terms of volume versus price in that the composition to get to that 9% decline? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [17] -------------------------------------------------------------------------------- Yes. No, it's -- I mean that's too early for us to tell at this point, Paul. I think we want to look at the data and the trends coming out of the first quarter, to really get a feel for what we are seeing because, again, April was just a -- it's a single month, and we typically look at that level of detail after -- on a quarterly basis. -------------------------------------------------------------------------------- Paul Butler, Crédit Suisse AG, Research Division - Director [18] -------------------------------------------------------------------------------- Okay. And do you have the revenue figure for March, just to get a sense of what the trend has been through that period? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [19] -------------------------------------------------------------------------------- Yes. So typically, we don't provide revenue by month. I mean we -- I think it's fair to say is -- what we saw is we actually saw the business overall have an impact in revenue towards the end of February. And really, that's when the pandemic started. And I mean, just based on how the pandemic spread across the world, you can at least get a feel for what businesses were initially impacted. And we saw continued impact to the business in March. And again, I think the biggest impacts to the business in terms of revenue declines and sample volume declines will be April and May. -------------------------------------------------------------------------------- Paul Butler, Crédit Suisse AG, Research Division - Director [20] -------------------------------------------------------------------------------- Okay. And then just another one on consolidation opportunities. I think it's probably likely that this tragic situation with COVID-19 is likely to provide some more consolidation opportunities. So how do you see that developing? And any areas of particular focus? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [21] -------------------------------------------------------------------------------- Yes. So we have not changed our growth strategy and our acquisition strategy. So whilst we will be extremely disciplined through this pandemic in terms of potential acquisitions, we continue to be active. I think there will be unique opportunities that will present themselves. And I think strategically, we look to continue acquisitions and bolt-on acquisitions in our noncyclical part of our business, which is predominantly a Life Sciences business, in particular, Food & Pharma as well as potential opportunities in the Tribology business. I think there will be some unique opportunities that will present themselves. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- The next question comes from Alex Karpos from Goldman Sachs. -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [23] -------------------------------------------------------------------------------- Just hoping, first, if we could dive into pricing a little bit more and maybe by the 2 segments. So firstly, on Commodities. I think you mentioned price being a positive kind of lever in the period when volumes were declining, I think you all surprised, I guess, my expectations in terms of your ability to hold on to that price stickiness as the volumes have been a bit soft over the past 6 months. I guess, how did pricing progress over the half? And how is it tracking FY '21 year-to-date? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [24] -------------------------------------------------------------------------------- Yes. So thanks, Alex. I'll add a little bit backwards. I mean, it's too early to tell. As I mentioned to Paul earlier, it's too early to tell what -- how pricing is tracking for FY '21. I mean I think from an ALS perspective, we've always held a market-leading position in the Geochemistry business predominantly based on our technical expertise and some of the more higher-end technical methods that have been developed within the organization. So what we did see is we did see continued price improvement through the second half of fiscal year '20, in line with what we saw in the first half. And as it relates to fiscal year '21, it's just too early to tell in terms of our clients and in terms of their procurement practices at this point. -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [25] -------------------------------------------------------------------------------- Got it. So those prices held up through the period at the end of the half where volumes declined significantly? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [26] -------------------------------------------------------------------------------- Yes, they did. -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [27] -------------------------------------------------------------------------------- Got it. And then similarly on Life Sciences, you've done a good job of improving the margins in this business, but we're coming off a period just a few years ago when U.S. Environmental pricing was a bit of a headwind for you all. And it seems like that stabilized and that's been a big part of, obviously, the margin improvement. Have those trends held up over the half? Or did you see kind of pricing get hit in line with the decline in U.S. sample plus? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [28] -------------------------------------------------------------------------------- Yes. No. I think the trends held up for us through the year. I mean I think that the second half was slightly subdued, if you compare it to the second half of last year of fiscal year '19. But pricing is holding up. I mean, I think what we've seen with that USA Environmental business is the new management team is very, very focused. They've got a 3-pronged approach. One is improving efficiencies and productivities in the business to drive our cost base down to help improve the margin, they've got a very strong external focus on business development to gain market share, and they're also introducing new technology and automation into that USA business that, again, will help improve margin overall. So I think it's really a 3-phased approach. In terms of overall pricing in the USA market, what we've seen through the year is at least price stability. Now what happens after the pandemic, it would be -- we will see after 3 or 6 months. But I think we have seen price stability with that business. -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [29] -------------------------------------------------------------------------------- And one quick one. Just on the Coal side, any material share loss or volume declines as a result of the investigation, or has the customer base held on pretty well? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [30] -------------------------------------------------------------------------------- Okay. Sorry, can you repeat that again, Alex? -------------------------------------------------------------------------------- Alexander George Philip Karpos, Goldman Sachs Group, Inc., Research Division - Equity Analyst [31] -------------------------------------------------------------------------------- Any share loss or kind of material customer losses as a result of the investigation on the Coal quality side? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [32] -------------------------------------------------------------------------------- No. I mean we've not seen -- I mean what we've seen last year is that coal business continued to grow. We've not seen any material contracts terminated with the business, in particular, and it really is that superintending business and we're not seeing a material impact overall to the business. -------------------------------------------------------------------------------- Operator [33] -------------------------------------------------------------------------------- The next question comes from Ben Brownette from CLSA. . -------------------------------------------------------------------------------- Ben Brownette, CLSA Limited, Research Division - Research Analyst [34] -------------------------------------------------------------------------------- Raj, just wondering when you made the decision through April to readjust the workforce and then you're seeing what you've seen in April or May. Do you think that you were too aggressive or conservative? And to what extent have you potentially started hiring some of those people back with respect to the sort of greater than 15% stand-downs and what you've seen in April and May? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [35] -------------------------------------------------------------------------------- Yes. So -- and I appreciate your question, Ben. I mean, I think from -- again, from an ALS perspective, we run that hub-and-spoke model, which really gives us the ability to scale up, scale down in a very timely manner. What we've seen is with adjusting our cost base, which includes our workforce, many of them were stood down, meaning that they were not permanently made redundant and really stood down and as work volumes start coming back, we will start bringing people back. I think for April, I think we adjusted our cost base well. And I think as we see work volumes start coming back, we'll start bringing our workforce back. And just as a reminder, many of our businesses after having a short-term impact, meaning 1 or 2 weeks of just hard shutdowns, were deemed to be essential businesses. So many of them were remained operational, whilst there were reduced sample volumes, but they did remain operational. So I think, again, as volumes start coming, like, we will bring our workforce back. And again, we'll provide more clarity on that at the AGM in July. -------------------------------------------------------------------------------- Ben Brownette, CLSA Limited, Research Division - Research Analyst [36] -------------------------------------------------------------------------------- Okay. And then just with respect to how the businesses have been operating, notwithstanding the essential service. Obviously, a lot of other businesses have had some difficulty with social distancing and maybe additional hygiene and controls and checks within the business, how has that impacted -- how has that impacted your labs? And have you noticed any loss of productivity or efficiency with respect to adapting to this new world of not going near anyone, et cetera? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [37] -------------------------------------------------------------------------------- I think from that perspective, I mean, again, it's my personal view, but I think ALS was probably the most proactive when it came to managing COVID-19. We had COVID-19 task force, everybody met on a weekly basis. We reacted proactively to all government and local regulations or guidelines, where from a facility standpoint, we implemented social distancing, the work at home and continued focus on disinfecting, cleaning, even having a drop-off for our samples, et cetera. From our perspective, what we did from an operational standpoint, which is really the laboratories, which they're doing social distancing and having people work from home is great than you work in an office. When you work in a laboratory environment, what we did there is with the laboratories started operating at 24 hours a day and had smaller work groups to allow, smaller work pods and allow social distancing within the laboratories. We're retrofitting most of our facilities to continue to focus on the guidelines provided with COVID-19, regardless of what governments do. So we're doing daily temperature checks at all of our locations around the globe. We're providing cloth masks to all of our employees around the world, whether it is a mandatory or not, we're providing it as a recommendation that people should wear them, some of our jurisdictions, people wear masks on-site. So I think we're -- and what's promising. So I guess, the statistics are the best. Whilst we've had -- we've got a global workforce of over 15,000 employees, so we've had 14 cases of COVID-19 and we're pleased to report none of those cases happened within our laboratories. They all were off-site, and we've had 0 transmission within any of our businesses, which tells us all the precautionary measures and the continued safety measures we've taken within our business are working. And as a company, we have no plan to lift any of those measures that we've put into our business. -------------------------------------------------------------------------------- Ben Brownette, CLSA Limited, Research Division - Research Analyst [38] -------------------------------------------------------------------------------- And just one last one. Is your expectation in geochem that as soon as the government-mandated restrictions in mining, which we're sort of seeing most of at the moment that the drilling and testing recommences pretty quickly? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [39] -------------------------------------------------------------------------------- I mean, I think that is the expectation. I mean, I think what we'll see with most of the businesses is we're not -- my view is basically a gradual improvement across the board with most of our businesses. I don't think we're going to see just this massive incremental improvement for business. But I do believe as we progress through this fiscal year, month-by-month, we'll see continued improvement. And we'll continue -- and it will be across the board with all of our businesses, including Geochemistry. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- The next question comes from John Purtell from Macquarie. -------------------------------------------------------------------------------- John Purtell, Macquarie Research - Analyst [41] -------------------------------------------------------------------------------- Look, I just have a couple of questions for Luis to start. In terms of CapEx, your expectation for fiscal '21, I think your prior announcement mentioned that you're targeting CapEx to be 1/3 of fiscal '20 levels as a percent of sales. So just wanted to confirm that would appear to imply a significant reduction in CapEx for this year? -------------------------------------------------------------------------------- Luis Damasceno, ALS Limited - CFO [42] -------------------------------------------------------------------------------- That's correct, John. As we mentioned, we have a very disciplined capital allocation process. Of course, there is certainty that we have this year leads us to pull that CapEx for the year. Just to have an idea, about 2/3 of CapEx that we have every year is related to maintenance, and 1/3 growth. So we'll be pulling back the CapEx initiative for growth and be more selective in the growth capacity that we have, is to guarantee that we have long-term growth in the business but also manage better ties to the CapEx side on the maintenance. And we believe that this level is sustainable for this year, and so we have better visibility of the economic outlook. So that's the direction that we have right now. We're targeting 2.5%, around 2.5% of revenues as CapEx for the year. -------------------------------------------------------------------------------- John Purtell, Macquarie Research - Analyst [43] -------------------------------------------------------------------------------- And a second follow-up there. Just in terms of what cash flow looked like in April? I think you made your comment was before that the gearing was 2.0 in April. So just the cash flow in April and it's probably hard to predict, but your expectations for cash conversion in fiscal '21. -------------------------------------------------------------------------------- Luis Damasceno, ALS Limited - CFO [44] -------------------------------------------------------------------------------- It's difficult to project '21. I can tell you the trend that we have in the last 2 months. And the mark-to-market despite the impact of COVID-19, we have -- we saw disruption not only on our client side because many times they have a chance to contact the client to make collections, but some level of disruption as well on off-site for a couple of weeks. We saw DSO raising by 2 days. And in April, we kept at the same level of DSO of March. And this is somehow possible by the very strong drive that we had in the company last year to generate cash. So I believe that's in a scenario that we have revenues not growing substantially. In the next few months, we should be able to manage cash in a good way and maintain the liquidity. -------------------------------------------------------------------------------- John Purtell, Macquarie Research - Analyst [45] -------------------------------------------------------------------------------- And a final question, if I can. Raj, you've mentioned several economies, obviously, relaxing restrictions. I mean which economies are you particularly focused on there that have sort of impacted the most during the lockdown? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [46] -------------------------------------------------------------------------------- Yes. I mean I think what we've seen during the lockdown, I mean, we know Latin America, the lockdowns were very hard and we also believe there will be prolonged impact of COVID-19 and the current situation in Brazil is just tragic. But we are seeing a lot of economies come back. I mean there are parts of our business that never saw a decline period. If you look at Northern Europe, the business in that region, there were no shutdowns. They were -- they exercised social distancing and better hygiene, et cetera, nothing closed, and the businesses continued to operate, in fact, in some cases, we saw a little bit of growth in those businesses. So I mean, I think everywhere -- everybody is trying to get back to the new normal. Asia, we're seeing it's sort of stop/start, and I think that will be common across the board. You look at Southern Europe and things are starting to improve there. They're starting to come back and, again, living the new normal, we're seeing the same thing, hopefully, in the U.K. In the USA, it's really based by state in terms of how things are coming back. But you are seeing just activity and business activity starting to tick up. But there are some regions still that will experience a prolonged impact of COVID-19. And I think Hong Kong will be one, I think Latin America will be the other. And then we'll see what happens as everyone sort of goes back and forgets about practicing social distancing and good health hygiene. So we are -- I mean, I think everybody is expecting cases to increase. But -- and again, cases will increase because testing is increasing, too. So -- but again, I think it will be a bit of a stop/start and then a gradual improvement in the overall businesses. -------------------------------------------------------------------------------- Operator [47] -------------------------------------------------------------------------------- The next question comes from Nathan Reilly from UBS. -------------------------------------------------------------------------------- Nathan Reilly, UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials [48] -------------------------------------------------------------------------------- Just question around -- was more about just, Luis, could you just confirm that there is no covenant around [Dirham]. I appreciate you've got a target there. I just wanted to understand whether there is actually a covenant? -------------------------------------------------------------------------------- Luis Damasceno, ALS Limited - CFO [49] -------------------------------------------------------------------------------- Yes. The covenants we have are around the leverage ratio and the interest coverage multiple that we have. -------------------------------------------------------------------------------- Nathan Reilly, UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials [50] -------------------------------------------------------------------------------- Okay. And I guess the next question is just in relation to the leverage covenant waiver, which you've received for FY '21. I'm just curious to understand what the cost of that waiver is just in terms of additional finance charges? But also whether there are any additional conditions placed on that waiver? -------------------------------------------------------------------------------- Luis Damasceno, ALS Limited - CFO [51] -------------------------------------------------------------------------------- Yes, we had some costs, but as we took the $200 million expansion that we have mentioned, we had some costs, about $1.5 million, more or less, for the total cost on average. And there are some conditions that are imposed that are related to situations that we have a leverage ratio that's far beyond the level that we have today in order to make some investments in acquisitions and so on. So we don't believe that those kind of conditions will preclude us to manage the business in a way that needs to be managed, meaning with a lot of discipline in managing capital, drive liquidity collections. And I think that was a good outcome with the increase that we have in liquidity at this point. -------------------------------------------------------------------------------- Nathan Reilly, UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials [52] -------------------------------------------------------------------------------- Okay. Got it. And just to confirm, were there any conditions placed on your ability or your ability to pay out dividend, so a dividend ratio or payout ratio condition? -------------------------------------------------------------------------------- Luis Damasceno, ALS Limited - CFO [53] -------------------------------------------------------------------------------- No, there are condition that's more related to leverage ratio that was far below any kind of ceiling that was the term. -------------------------------------------------------------------------------- Nathan Reilly, UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials [54] -------------------------------------------------------------------------------- Okay. Conditions around share buybacks and acquisitions? -------------------------------------------------------------------------------- Luis Damasceno, ALS Limited - CFO [55] -------------------------------------------------------------------------------- Those conditions as well when we are far below the threshold that was defined. I mean the threshold defined -- let me out it this way, the threshold that we have defined with the banks, we would not reach the threshold even in normal conditions, pre-COVID-19, in order to make any kind of capital allocation decision. I think this is the best way to put that. -------------------------------------------------------------------------------- Nathan Reilly, UBS Investment Bank, Research Division - Executive Director & Research Analyst of Industrial Materials [56] -------------------------------------------------------------------------------- Okay. And just a final question is in relation to the impairment charges that you've realized. How much of that -- of those charges across the Life Sciences and Industrial business is actually related to the pandemic? Or I guess, how much of it is related to a reassessment, I guess, on the structural outlook for those business units? -------------------------------------------------------------------------------- Luis Damasceno, ALS Limited - CFO [57] -------------------------------------------------------------------------------- I think, as I said, I think that we have both components there. It's important to consider that those cash generation units, they were like in our greatest strength for the last 2 years. They were mentioned disclosure, in our financial sensitivity disclosures in 2018 and 2019. So both of them, they were, I would say, with a very, very small headroom to consider impairments. So the first impact, of course, immediate impact from COVID-19 that impacted both business, but different reasons. Life Sciences in Latin America was severely impacted (inaudible). And we also have a big impact related to the socioeconomic issues that we have in the region. I think in the short-term and within the medium term, we have to monitor that. And I think that this was compounded by a very severe devaluation in Brazil and in Peru as well and in Mexico. That was -- the range of devaluation for instance, Brazilian real versus the U.S. dollar was close to 40%. And when you do the calculation for impairment, you have to take the cash flow as it is today and project it for the future, considering that those level of exchange rates would be the ones that will be sustainable for the next month -- for the next years. So there was that impact as well. And the third, I think that the assumptions that we have in terms of risk in the region. We had to increase the discount rates given the unload that we have in the region right now related to COVID-19, socioeconomic issues and political issues in few countries in the region. And I think that was appropriate to up a notch -- up a little bit, increase a little bit the discount rates in order to reflect this risk in the region. In the case of Industrial division, that was really compounded by COVID-19 impact, subsequently impacted, as Raj mentioned, in April, we had the Inspection business that had to be on-site to do the work. And this creates additional question marks about the margin evolution for that business in the medium term. And also because part of the business that was really driving the growth in the U.S. related to the petrochemical market and the oil and gas market is now impacted by COVID-19 and by the weakness in oil and gas market. So these are the main drivers for the intent that we have those 2 business. -------------------------------------------------------------------------------- Operator [58] -------------------------------------------------------------------------------- The next question comes from James Redfern from Bank of America. -------------------------------------------------------------------------------- James Redfern, BofA Merrill Lynch, Research Division - VP [59] -------------------------------------------------------------------------------- Yes. Just a few quick questions, please, and apologies if these have already been asked. Is ALS still sticking with its guidance of roughly $100 million per year to be spent on acquisitions? That's the first one. -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [60] -------------------------------------------------------------------------------- Yes. So I think as we go through this current economy, I mean, I think we've been very, very disciplined in terms of deploying CapEx and capital for the acquisition. So whilst we have targets, I think the targets are all on hold right now until we understand what the economy is going to look like coming out of this pandemic. And we've also indicated that if there are opportunities we are in a position to capitalize on. So I think it's premature to say we're going to spend $100 million on acquisitions in fiscal year '21. -------------------------------------------------------------------------------- James Redfern, BofA Merrill Lynch, Research Division - VP [61] -------------------------------------------------------------------------------- Okay. And then just in terms of the sale of the Asset Care business within the Industrial division, is that sale process still ongoing? Or has that been suspended? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [62] -------------------------------------------------------------------------------- Yes. I mean, I think currently, our focus is really rationalizing that business to get its cost base right and to get that business to improve as the economy improves. So at this point, there is no sale process, James. -------------------------------------------------------------------------------- James Redfern, BofA Merrill Lynch, Research Division - VP [63] -------------------------------------------------------------------------------- Okay. And then just one last quick one. When we look at geochem in FY '21 and beyond, I mean should we assume that there's no more price increases to be realized in FY '21 and it is now really about oil sample volumes? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [64] -------------------------------------------------------------------------------- I think from our perspective, if we -- I mean, what we saw is leading up to COVID-19, we actually saw volumes -- sample volumes in Geochemistry starting to improve. And that's shown on that -- on Slide 23. I think from our perspective, we believe -- I mean, typically, our pricing strategy has been as we continue to run-up the cycle, we'll continue to introduce more technical products, which are more expensive and look at price increases. So depending on the recovery, I think the pricing strategy will adjust itself accordingly. Again, it's very early to provide commentary on that at this point. I think what we want to see is just overall business recovery. -------------------------------------------------------------------------------- Operator [65] -------------------------------------------------------------------------------- The next question comes from Wei-Weng Chen from JPMorgan. . -------------------------------------------------------------------------------- Wei-Weng Chen, JPMorgan Chase & Co, Research Division - Research Analyst [66] -------------------------------------------------------------------------------- Just a couple of questions from me. So there's been a bit of talk about lockdowns. So ALS is of the view that the majority of the impact on the business is due to physically not being able to work? Or is there sort of an impact also from customers pulling back on spend? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [67] -------------------------------------------------------------------------------- So it's yes and yes. I think it's a combination of countries locking down and not allowing businesses to open. And even in regions where the lockdowns have been removed or where businesses are being able to operate, it's all at reduced volumes. I mean everybody is being very cautious, clients taking samples, having access to sites are limited. So I think it's -- it is a combination of a variety of different dynamics that end up impacting sample flows and revenues. -------------------------------------------------------------------------------- Wei-Weng Chen, JPMorgan Chase & Co, Research Division - Research Analyst [68] -------------------------------------------------------------------------------- Okay. Great. And then just on, I guess, the opportunity around the COVID-19 testing rollout, can you maybe speak to that opportunity? Is there anything that, I guess, can be extended, I guess, beyond the pandemic once COVID passes? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [69] -------------------------------------------------------------------------------- Yes. So really, what ALS has done is we're really repurposing a lot of our businesses to benefit from not only COVID-19 testing but also on virus testing in general. So we developed the technology, the expertise for human testing in COVID-19. In Portugal, in Europe, we're seeing that business grow and we're seeing sample volumes grow in that region. We're also starting to build our own kits for COVID-19 testing as well as swab testing kits. Swab testing has been cascaded on a global basis. So we're developing swab testing in Australia, in Asia, through the rest of Europe, the U.K. all the way through Northern, Southern and Central Europe. The USA just started -- just got validated for swab testing, Mexico, Brazil, Colombia and Chile are all bringing the swab testing online. And it's not just swab testing but also building a program around doing environmental monitoring, so we would actually go onto a plane, cruise office and the environmental mapping along with hotspot side and provide recurring testing on just not only COVID-19, but there's a variety of viruses that can be tested. And our food testing business now is -- has developed virus testing. So I do think there's some unique opportunities presented for ALS that ALS is currently capitalizing on. And I think, there we'll provide, again, more commentary around that at the AGM in terms of the benefits and what we've seen come out of there. But yes, we are taking advantage of the current situation and building some opportunities for ALS. -------------------------------------------------------------------------------- Wei-Weng Chen, JPMorgan Chase & Co, Research Division - Research Analyst [70] -------------------------------------------------------------------------------- Yes. And just to confirm, it is a longer-term opportunity rather than just this year and now? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [71] -------------------------------------------------------------------------------- Yes. No. I think the human testing side of it is a short- to medium-term opportunity. I think virus testing, the environmental swabbing testing is going to be a long-term market for that, and that's really where our focus is, is really to capitalize on that market because I do think the new normal is around making sure that workplaces, again, cruise lines, airlines, mainly factories, et cetera, are all safe, and there's a lot of testing to be done there. -------------------------------------------------------------------------------- Wei-Weng Chen, JPMorgan Chase & Co, Research Division - Research Analyst [72] -------------------------------------------------------------------------------- Yes. Great. And then just my last one. I'm not sure if I've missed it earlier, but just on the acquisition front. Just wondering if you're planning on funding any acquisitions through existing liquidity? -------------------------------------------------------------------------------- Luis Damasceno, ALS Limited - CFO [73] -------------------------------------------------------------------------------- I can take that. I think that plan, to be clear, in terms of principle, I would just want to reflect that acquisitions are still open to be made. Now we might have opportunities for us this year as a result of the pandemic. But this can be done respecting the principles that we have that we have to keep a strong balance sheet. That's a very important point should be emphasized. So if you keep, in the next 3 months, a strong balance sheet as we have today, and we're working in that direction is the discipline in allocating capital. And we see that there is an opportunity to make a bolt-on acquisition, small acquisition that will help us in our growth story, that's going to be done. But the high art in the short-term is to keep a strong balance sheet and keep liquidity. I think that, that's an important element that should be emphasized. -------------------------------------------------------------------------------- Operator [74] -------------------------------------------------------------------------------- The next question comes from Michael Aspinall from Jefferies. -------------------------------------------------------------------------------- Michael R. Aspinall, Jefferies LLC, Research Division - Equity Associate [75] -------------------------------------------------------------------------------- Raj and Luis, 2 for me. I'll just go back to the 9% drop in revenue in April. You completed a few acquisitions towards the end of last year. Do you have a sense of what that number looks like on an organic basis? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [76] -------------------------------------------------------------------------------- At this point, Michael, no. I mean I think once we look -- we'll look at the data on a quarterly basis and provide visibility into that. -------------------------------------------------------------------------------- Michael R. Aspinall, Jefferies LLC, Research Division - Equity Associate [77] -------------------------------------------------------------------------------- Okay. I mean just looking at the revenue contribution, if you just annualize, take everything without any seasonality, it looks closer to that kind of 15%, which you reduced employees by. So can you just provide any commentary around how we should compare the 9% drop in revenue in April and the 15% reduction in employee numbers? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [78] -------------------------------------------------------------------------------- I think -- I mean, I think, Michael, I mean, I think we kind of don't calculate something that for us is just normal business practice. I mean, again, with that hub-and-spoke model, as soon as we see a drop in sample volumes, the business reacts very quickly in terms of adjusting its cost base. And we have real-time data to tell us what's going on within the businesses, how to adjust our cost base. So I think it is a little bit premature to try to tie in a 15% drop in GC management to 9% drop in revenue because, again, from our perspective, we always sort of adjust the business very quickly and then sort of bring -- readjust the business once we know what sample flows look like. So at this point, I think it's -- again, it's premature for us to try to connect those 2 dots. -------------------------------------------------------------------------------- Michael R. Aspinall, Jefferies LLC, Research Division - Equity Associate [79] -------------------------------------------------------------------------------- Okay. And some parts of the Environmental business have a bit more exposure to economic activities and others. Can you just talk about which of the areas of that business would be least or most impacted by a slower economic growth environment? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [80] -------------------------------------------------------------------------------- Yes. So I think with the Environmental business, I mean, Latin America -- I mean, I think as you look at all of this, you look at the Americas, Latin America, USA, Canada will be impacted by slow economic growth. I mean, again, it's the same across the board. We're seeing Australia. We're starting to see some recovery or faster recovery coming out of Australia. We're seeing a stop/start in Asia. Southern Europe was a shutdown. We got deemed-essential so they came back, but that's a gradual start. So again, it's really based on -- most of our Environmental business is around compliance and driven by regulation. So if governments lift their restrictions on that for a short term, you'll see a decline there, but we're seeing governments now enforcing regulations and requiring compliance. So we'll see our businesses overall come back online. -------------------------------------------------------------------------------- Michael R. Aspinall, Jefferies LLC, Research Division - Equity Associate [81] -------------------------------------------------------------------------------- Okay. And I mean, you're pretty close with some of the companies in your acquisition pipeline. Would you expect any of those businesses to have challenges that may see them as motivated to transact? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [82] -------------------------------------------------------------------------------- Yes. I mean, I think a lot of the businesses, where -- I mean, up until January or February, we had a very full acquisition pipeline because the business was performing very well. And that pipeline remains full. I mean we continue to keep dialogue with potential opportunities and potential targets. I think everybody is waiting to see how things settle over the next few months. I mean there's a handful of companies that will get into cash flow and liquidity issues. If they -- I think my view is all companies, ALS and potential acquisitions, if we were in a good strong liquidity position before the pandemic, will continue and we'll manage ourselves well. The same thing with potential acquisitions for companies that were in a good position and will continue to remain there. The companies that were on the edge are going to be highly exposed. And I think there'll be some opportunities there to potentially have a transaction, provided the fundamentals of the business remain the same. So we'd have to have a good look at it at the appropriate time. -------------------------------------------------------------------------------- Michael R. Aspinall, Jefferies LLC, Research Division - Equity Associate [83] -------------------------------------------------------------------------------- And a lot of these discussions around acquisitions have been based on your current balance sheet and liquidity that's available. But the kind of trading multiple that you reported from a supportive shareholder base would imply that you have significant capacity to fund an acquisition by equity if it was a really good opportunity and an accretive opportunity. How do you think about that situation? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [84] -------------------------------------------------------------------------------- Yes. Go ahead, Luis. He's going to talk about this. -------------------------------------------------------------------------------- Luis Damasceno, ALS Limited - CFO [85] -------------------------------------------------------------------------------- I think that we have to evaluate a kind of opportunity that you might have ahead of us. I know that -- of course, we know that the markets are open in Australia very actively by the way. But we have to understand which kind of target that would be a strategic fit for us, that would be justified for capital raising. I think that I could summarize our behavior here approaching through this. We evaluate and are careful about time right now. Just 3 months ago, we had it normalized. And now we have the pandemic and there is a huge level of unknown for the future. So the first reaction is really to protecting the company, adjust the cost base, [reinforce] the liquidity, be in a position of strength to weather the storm that we have ahead of us. And if by doing that, I think that we'll be in a much better position to capture opportunities and even acquisitions, and we'll try to fund in different manner that particular opportunity. It's too early to tell that at this point, I would say, no, no. -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [86] -------------------------------------------------------------------------------- And, I think, Michael, I mean, yes, I mean, I think, again, if the opportunity is there, the company clearly is in a position to -- and I believe the company will be supported in making that transaction happen, but it's early days for us. -------------------------------------------------------------------------------- Operator [87] -------------------------------------------------------------------------------- The next question comes from Peter Drew from Carter Bar Securities. -------------------------------------------------------------------------------- Peter Drew;Carter Bar Securities;Director, [88] -------------------------------------------------------------------------------- Yes. Raj, just digging a bit deeper into the sort of the impairment in the Latin American business. And it sounds like there's sort of more challenges beyond COVID-19 in that region. Could you just sort of provide a bit more color on how that -- well, firstly, how much of the Americas revenue base is generated in Latin America? And then secondly, maybe how it performed through FY '20. Just so I can get a bit of a better understanding of the sort of order of magnitude of revenue decline there, please. -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [89] -------------------------------------------------------------------------------- Yes. So Peter, most of those questions you asked, we don't provide revenue breakdown by region. I mean I think what we've said is the 3 Life Sciences regions; the Americas, EMEA and APAC all probably all equal in size based on the size of Life Sciences. I mean I think for Latin America, I mean, what I can say is that there's been political unrest, I mean socioeconomic issues and there ongoing pre-COVID-19. So I think those will continue. I think COVID-19 sort of masked all of those. And all those countries had different challenges to deal with. I think, based on just actions that can and can't be taken in Latin America for the prevention of COVID-19 or mitigation of it, we expect to see a prolonged impact of COVID-19. We also expect the socioeconomic issues to continue for a while. And again, Luis called out the fact that the devaluation of -- in particular, the 3 countries that would be the most impacted for us is Brazil, Peru, Mexico, we've seen significant devaluation there. So I think our approach to the impairment was conservative and reasonable because, again, the business itself as we're performing well. It's been a growth driver for the Life Sciences business, and the expectation is when that economy recovers, that business will perform well, but it's really we've got those 3 factors that I talked about that are impacting the business, and we do believe it will be a little bit of a prolonged impact. -------------------------------------------------------------------------------- Peter Drew;Carter Bar Securities;Director, [90] -------------------------------------------------------------------------------- Okay. And just a last one for me. Just wondering whether you could just tell me what sort of EBITDA margins the ARJ and Aquimisa acquisitions generate, please? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [91] -------------------------------------------------------------------------------- So both Aquimisa and ARJ have been margin accretive. So -- and that was on strategy for us because we've indicated that the acquisitions that we bring on board would not have a margin erosion for us. So I think it's -- I mean you can see what the overall margin is of Life Sciences and ARJ and Aquimisa are accretive to those margins. So at a minimum, they're not dragging our margins down. -------------------------------------------------------------------------------- Peter Drew;Carter Bar Securities;Director, [92] -------------------------------------------------------------------------------- And just in terms of the earn-out targets that they have over the next 2 years, do they relate to revenue or profit? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [93] -------------------------------------------------------------------------------- So they're a combination of revenue and maintaining and growing margins. So they're all financially driven earn-out targets. -------------------------------------------------------------------------------- Operator [94] -------------------------------------------------------------------------------- The final question comes from Rohan Sundram from MST. -------------------------------------------------------------------------------- Rohan Sundram, MST Marquee - Gaming and Contractors Analyst [95] -------------------------------------------------------------------------------- Raj and Luis. Just one question for me, conscious of time. Raj, I take all your comments on board, and I know it's very difficult to predict. But are you able to say whether you feel that you've seen the worst or what you're seeing now is the worst? Taking on board that there will be prolonged impacts, how do you feel about that at the moment? -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [96] -------------------------------------------------------------------------------- I think, Rohan, from where I sit in the business, I mean I believe that we saw impact of COVID-19 in February, March and with the biggest impact coming in April and May. And I do -- and there are early signs of economies recovering. There are early signs of sample volume coming back. But again, those are early signs. So again, I believe that recovery or slow recovery is probably more Q2 and Q3 related. But from our perspective, and it's probably not how I'm feeling, is probably how I'm hoping is that Q1 will be the worst that we've seen, and we will start seeing recovery through the rest of this fiscal year. -------------------------------------------------------------------------------- Operator [97] -------------------------------------------------------------------------------- There are no further questions at this time. I'll now hand it back over to Mr. Naran for his closing remarks. . -------------------------------------------------------------------------------- Raj Naran, ALS Limited - MD, CEO & Director [98] -------------------------------------------------------------------------------- All right. Folks, thank you very much for your time today. As always, if anyone has any additional questions or would like just some one-on-one meetings, please reach out to Simon Starr. I appreciate everyone's time today. Luis, I appreciate your time as well. And I hope everybody continues to stay safe and healthy. Thank you. -------------------------------------------------------------------------------- Operator [99] -------------------------------------------------------------------------------- That concludes the ALS Limited FY '20 Results Call. Thank you once again for joining us today and for your interest in ALS. We wish you a pleasant day.