Sometimes I like to play a game with myself called 'Honest Market Announcements'.
All you do is replace the title of the announcement or situation with what really happened, in plain English.
As you can imagine there are occasionally some pretty good ones (usually unfit for publication) like when Treasury Wine Estates (ASX: TWE) raised prices and decreased discounting on its wine brands over the Christmas period last year.
Presented to the market as a 'TWE Update', the title had a lot in common with ALS Ltd's (ASX: ALQ) 'ALS interim result ahead of guidance' announced to the market yesterday.
The latter really should have read: 'Profit declines 33% instead of the expected 36%'.
However in management's defense the announcement is quite frank; the very second sentence outlines that profit was down 33% on the prior corresponding period.
Investors rejoiced at the news, sending shares in ALS up 18% yesterday to close at $5.18.
Overall, company revenue rose 3% although a changing 'revenue mix' resulted in substantially lower profit margins which were the main contributor to the poorer results.
Dividends were also slashed to 11c at 10% franking (down from 19c at 50%) as a result of the weaker results.
Although all businesses except for Minerals displayed revenue growth during the year, only ALS industrial actually delivered growing profits (up 21% from $13.7m to $16.6m). Lower volumes, reduced pricing and weaker margins appear to be the main culprits, although ALS expects some margin improvement in the second half.
While there is potential for improvement and ALS has ample excess capacity internationally, weak demand in the primary business of Life Sciences and Minerals is likely to weigh on profitability for the remainder of the year with management forecasting significant uncertainty in Q4 in particular.
Cost savings and restructuring initiatives are expected to provide incremental improvements towards the end of this financial year and early into FY16, but 'because of the ongoing volatility in end markets for the Company's services, we see it prudent not to provide full year guidance until markets settle into a more normal pattern'.
To my mind that sentence accurately sums up the risks facing the company and I again advise readers to consider alternative investments to ALS in the short term.
