The gloom enveloping the resources servicing sector is showing no sign of lifting, this time with ALS warning the anticipated improvement in its markets has not occurred, while also suffering from problems bedding down a large acquisition.
The company has been caught out by the sanctions on dealings in Russia where it works with some foreign companies, security issues in Kurdistan as well as the need to evacuate staff in West Africa due to the ebola virus.
As a result, rather than the September half net profit of $74 million it flagged earlier, it now expects it will come in at $64 million - down a hefty 36 per cent from the $100.7 million earned in the same period last year.
In response, investors dumped its shares Monday, which dived 17 per cent to $5.77.
The initial forecast for the half was based on trading conditions improving after it booked a $30 million June quarter net profit. Instead, it has been hit by "continuing tight market conditions in all sectors", it said. ALS carries out laboratory testing services for the mining and energy sectors, along with similar services in food and related sectors globally.
"It remains difficult to predict trends in the demand for ALS services and pricing pressure is being experienced by all our business divisions," it warned. "This has resulted in the traditionally expected improvement in earnings during the northern summer being less than expected."
The group's managing director, Mr Greg Kilmister, said that while trading conditions have not improved, nor have they deteriorated further.
"Things are challenging. We have to change our operating model to better react to the changed trading environment," he said. "Technical services are being commoditised and many competitors are very priced focused."
In the minerals division, pricing pressure and a lower level of activity will see September half revenue slide 25 per cent, while in its life sciences unit higher volumes have been offset by a squeeze on prices, with average prices in environmental services in Australia alone down 10 per cent over the past 12 months.
In the industrial division, revenue is up 12 per cent with margins also rising by 170 basis points, it said. Energy division revenues have doubled but earnings will slide due to low volumes and prices in the coal sector along with structural changes in the oil and gas businesses.
"Anyone servicing the mining sector is going to face difficult conditions for at least the next two to three years," said Ross MacMillan, an analyst with Morningstar. "We can't see a sudden bounce back, so we see the sector languishing."
ALS is "at the pointy end of that" downturn, Mr MacMillan said, as miners cut exploration spending which needs laboratory services, due to the downturn in resource prices, which has made it hard for more companies to raise funds to conduct further exploration.
A year ago, ALS paid $US533 million for Reservoir Group, a specialist oil and gas industry service provider. ALS said it has encountered "internal issues" with the business.
"It doesn't understand its cost base," Mr Kilmister said, pointing out that this business had profited thanks to rising revenues which is no longer the case.
