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According to the Australian Department of Industry, Science, Energy and Resources, the fourth industrial revolution characterised by a fusion of advanced automation, machine-to-machine and human-to-machine communication, artificial intelligence and machine learning (ML), sensor technology and data analytics, is transforming how businesses operate. The Australian government’s Industry 4.0 initiatives are there to build and promote an environment where the businesses can thrive, explore new models and adopt new technologies.
The environment in Australia is quite supportive of the industrial sector. With the earnings season going on, let’s look at a fairly good performance of Reliance Worldwide Corporation and ALS Limited for the first half of the financial year 2020.
Reliance Worldwide Corporation (ASX: RWC)
Reliance Worldwide Corporation is engaged in designing and manufacturing of thermostatic water control and mixing valves for customers across plumbing, healthcare, construction, and heating industries worldwide.
First Half FY2020 Results
On 24 February 2020, the Company announced its financial results for the first half (six months ended 31 December 2019) of financial year 2020 (H1 FY20), posting 5% growth in reported Net Sales to $ 569 million over the prior corresponding period (pcp) on the back of favourable currency translation. Region wise, Americas reported sales growth of 7%, and underlying like-for-like growth of 4.2%; UK core plumbing and heating sales were up 3% in a market down 6% amid Brexit and election uncertainties; and Asia Pacific sales remained stable in spite of 22% drop in Australian housing commencements.
The Reported Net Profit after Tax (NPAT) amounted to $ 50.1 million while the Adjusted NPAT of $ 63.7 million reflected adjustments for certain tax items and accounting treatments.
Cash Flow and Dividend Head Higher
There was a 163% increase over pcp in Cashflow from Operating Activities to $ 112.8 million. The Company also informed that the business is on track to deliver annual John Guest integration synergies on a run -rate basis of at least $ 30 million by end of FY20. The interim dividend also increased by 13% to 4.5 cents per share for the period.
Company Performs Despite Headwinds
RWC Managing Director Heath Sharp also said that the concerned period has been strong in terms of operations with weaker conditions in two of the Company’s key markets being EMEA and Asia Pacific. In the Americas, Reliance’s performance can be partly explained by timing of some of the marketing and promotional activities.
Mr Sharp also added that the Company had taken a pro-active but difficult decision to actively manage its inventories and decrease manufactured volumes during the period due to lower sales activity than it had originally planned. Even though certain negative impact were recorded on the earnings due to this move, it assisted in achieving an exceptionally strong cash performance, with cash flow from operations up significantly.
At the backdrop of coronavirus outbreak, Reliance Worldwide Corporation also explained that it is conducting continuous evaluation of the impact on its supply chain and customers while a preliminary assessment has indicated manageable minimal short-term impact. The Company’s key suppliers restarted by 17 February 2020 after the Chinese New Year break, although the start-up has been slower than usual as many workers could not readily resume work. In addition, suppliers have also been facing shortages in purchased materials due to the delay in Chinese businesses restarting.
Outlook- Lower Profits
RWC has revised its FY2020 earnings guidance to incorporate impact of the first half financial performance. For FY2020, RWC expects Adjusted Net PAT to be in the range of $140 million to $150 million now as against $150 million to $165 million reported previously.
Stock Information: Reliance Worldwide Corporation has a market capitalisation of around $ 3.67 billion with ~ 790.09 million shares outstanding. On 25 February 2020, the RWC stock was trading at $ 3.460, up 1.17%, However on the day of the report release the stock tanked by 26.45%.
ALS Limited (ASX: ALQ)
ALS is a global Testing, Inspection & Certification company with a focus on broadening the business’ exposure into new sectors and geographies where the Company can establish a leading position.
ALS Coal Australian Superintending and Certification unit
On 24 February 2020, ALS announced to have appointed external advisors to conduct an independent, forensic investigation into the processes applied to the certification of coal samples by staff employed in the coal superintending and certification unit within the ALS Coal business stream.
Certain preliminary investigations had revealed discrepancies in some certificates of analysis issued from two of the laboratories within the Company’s coal superintending unit in Australia. Subsequently, 4 staff members of the coal superintending unit were suspended until the outcome of the ongoing investigation is finalised.
Acquisition of Aquimisa Group
On 3 January 2020, ALS announced to have acquired Europe-based leading food testing company, Aquimisa Group with operations across Spain and regional laboratories located in Portugal and Brazil. Besides, Aquimisa Group has annual revenues of more than EUR 20 million and the acquisition was funded from existing debt facilities within the Group.
Aquimisa offers chemical and microbiological food analyses, quality control and food safety consultancy services since its inception in 1994. The acquisition would expand the footprint of ALS Life Sciences business across Europe and generate synergies within the current ALS network. Furthermore, it would add new capabilities and service offerings for the existing and potential clients of the Company. ALS MD and CEO Raj Naran commented that the acquisition of Aquimisa aligns with the Company’s stated acquisition strategy focusing on food and pharmaceutical opportunities in key global markets. It also supports the company’s 2022 strategic plan of growing its non-cyclical businesses within the Group.
H1 FY20 Financial Results
The Company had released its financial results for the half year to 30 September 2019 (H1 FY20), posting underlying net profit after tax (NPAT) from continuing operations at $ 98.2 million, exceeding the guidance range of $ 90 million to $ 95 million provided to the market in July 2019 and reflecting a 5.3% increase in NPAT relative to the prior corresponding period (pcp).
Source: Investor Presentation Half Year Results FY2020
ALS reported 11.3% increase in the revenue from continuing operations to $ 919.1 million relative to pcp. Life Sciences business recorded an organic revenue growth of 10.2% while the Industrial organic revenue grew by 20.3%. The underlying EBIT margin expansion (pre-AASB 16 impact) of 15.8% increased by 73 basis points and the underlying basic earnings per share (eps) rose 6.3% to 20.3 cents during the half year.
This strong business performance can be attributed to strong organic growth witnessed in all regions and business divisions coupled with acquisition growth, including some initial contribution from acquisition of Mexican pharmaceutical laboratory, ARJ, in August 2019. Moreover, Inspection, Metallurgy and Coal contributed to 1.9% Commodities division revenue growth.
Source: Investor Presentation Half Year Results FY2020
Stock Information: ALS has a market cap of ~ $ 4.77 billion with ~ 482.43 million shares outstanding. On 25 February 2020, the ALQ stock was trading at $9.100 down 3.8%, continuing its downward pressure as the previous day also the stock witnessed selling -down 4.34%.
