ALS Limited (ALQ) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the ALS Limited FY '23 Results Briefing Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Malcolm Deane, CEO and Managing Director. Please go ahead.

Thank you. Good morning and good afternoon to everyone. Thank you for joining today's call. It is an honor to have been chosen as a permanent CEO and Managing Director of ALS. I feel privileged to continue leading the company on its strategic journey. Thanks to the Board for trusting me and the management team and the entire ALS workforce for their support. I am also grateful for the continued support of my family. My wife, Josefina, and my 4 kids, parents and siblings. Throughout my career, I have enabled growth across geographies and services, helping rapidly increase market share through expansion in multiple businesses. Most recently, as Chief Strategy Officer, I was part of the leadership team that developed our new strategic plan released to the market in September of last year. Having been part of the team that developed the strategic plan, I am confident in my understanding of the drivers identified in the plan and how ALS will deliver on them. We will take a few minutes now to look at our recent performance, specifically at how we led the industry growth and performance and are already delivering on our strategic plan. Then we will discuss what we must do to build upon our long-term strategy to realize the 2027 vision. This past year, we saw strong operational performance for the group. This was another exceptional year for ALS, and I will start by highlighting some of the key operational achievements that showcase the strength of ALS. First, ALS continues to do its part in creating a more sustainable world and obtained Board approval for our road map to net 0 by 2050, which will be released as part of the sustainability report. Second, ALS has been the industry leader in safety for many years. And once again, in fiscal year '23, we maintained world-class results. Finally, as a large global employer, we have made meaningful progress towards enhancing opportunities for our people in a culture that embraces diversity, equity and inclusion. We will continue to build on this important goal. In addition to our strong operational performance, we delivered industry-leading growth and profitability. Our business has continued to deliver industry-leading revenue growth. Overall growth was 19.5%, with organic growth climbing to 10.8%. This equated to revenue of $2.4 billion. ALS continued to grow and expand margins, delivering an underlying EBIT of $491 million, representing a market-leading margin of 20.3%. Underlying NPAT grew by 23.4% to $320 million. ALS had a strong performance in an incredibly challenging environment. We did this despite inflationary headwinds, tough economic conditions in Europe, labor market disruptions, restricted monetary policies and large economies close off to the world. Our cash generation and the balance sheet remains strong, supporting our continued growth journey. We have delivered on growth and profitability, which helps us keep us on track to deliver on our fiscal year '27 financial objectives. These record high figures represent meaningful progress towards realizing our fiscal year '27 vision and achieving our goals. We achieve this by focusing our growth on key end markets, both organically and through disciplined acquisitions, ensuring that our growth is aligned with industry megatrends. We also grew the business underlying performance with Environmental and Commodities expanding margins in the period. We expect margin to remain at industry-leading levels and above our minimum floor of 19%. At the bottom of the screen, we see that operating margins, cash generation and return on capital have all remained above the minimum targets. We are on track with our existing strategic plan and continue to build on the journey to achieve our 2027 vision. We are focused on making decisions that position the company for long-term success to become the TIC company of choice for current and future clients. Our focus areas includes capturing the growth opportunity presented for the TIC market. We will do this by rebalancing our portfolio and supporting end market growth in core activities. The company is also focused on continuing its sustainability journey, doing our best to support the global effort to make the world more livable for all while developing services to meet our clients' needs related to sustainability. Robust innovation and applied solution will allow the company to capture the green metals upside, positioning ALS as the indisputable leader in the geochemistry market. All of these efforts will be done with a strong focus on further developing our culture of innovation and collaboration. Now we will look more closely at the 6 objectives that will help us reach our 2027 vision. We have a strong growth agenda, and we are on a clear course to deliver on our M&A strategy. Growth is a major part of our strategy. The objective is to grow revenue to $3.3 billion by 2027 with over $0.5 billion in acquired growth over the 5-year strategic plan. ALS has been developing a solid process to ensure we capture the opportunities needed to expand services in critical geographies. We have been developing a pipeline in key geographies that has helped us deliver a record high number of acquisitions. As shown on the right side of the slide, these acquisitions have been made in all 3 key geographies in both Life Sciences and Commodities. The pipeline of opportunities is strong. Ensuring we remain disciplined in our acquisitions will continue to be a focus for me and my team. Our M&A focus will help us achieve our strong growth agenda, and this will benefit our portfolio. The second objective that will help us achieve our strategic vision is rebalancing our portfolio by improving the diversity of earnings through organic and scope growth. We highly value improving the diversity profile of our earnings. Our objective is to continue to expand the earnings contribution from our Life Sciences business. Look at the left side of the screen. The focus here is on portfolio revenue contribution. We have identified strong growth potential within the Life Sciences portfolio, particularly with our Environmental and Pharmaceutical services. But we also see strategic opportunities to expand our Food business offering. We expect to continue developing and expanding ALS service offering in the Commodities business. Innovation is a key enabler for this growth opportunity. Sustainability will also help us achieve our strategic vision. We must fulfill a greater role in helping build a better world. It is vital that we do our part as good corporate citizens. We want to make sure every decision and action we take is aligned with our goal of helping build a better world for all. We are constantly striving to improve the ways we work to have a direct positive impact on our people, the communities we serve and our planet. We believe that doing so will also create long-term value and sustainable growth for our business. We are very proud of what ALS has achieved so far from a sustainability perspective, and we remain confident in achieving the bold goals we have set for the future. We will help meet our sustainability goals by meeting our clients' growth demand for sustainability services. The global sustainability agenda is advancing rapidly, creating new trends and testing opportunities. ALS is in an excellent position to continue capturing these evolving opportunities. The fourth objective is maintaining and expanding our market leadership in the Geochemistry business, which plays a vital role in our portfolio. The Geochemistry business has evolved rapidly in recent years, and we remain the leading and most trusted provider in the industry. The mining industry is undergoing a major transformation following the rapid acceleration of global decarbonization. This global race towards net 0 will require more mining capital expenditure, not less. Base metals associated with battery storage and electrification are at the heart of the clean energy transformation. Demand will continue to increase for the world to meet its net 0 ambitions. Our business has the largest geochemistry market share, which is critical in supporting this agenda. The fifth objective to help us achieve our strategic vision is focusing on our people and building an ALS culture that delivers results for all stakeholders. This is top of mind for me and an area of great focus for the organization. People are what drives this business. During my time at ALS, the diversity, knowledge, expertise and drive of our people have stood out to me. People drive culture, and it starts at the top. My job is ensuring our people are engaged, motivated, excited, passionate and productive. I plan to invest in our people and their development, providing them more opportunities to improve their capabilities. This will help us ensure we are providing the very best clients' outcomes. We plan to make this happen by building an industry-leading succession pipeline focusing on diversity, equity and inclusion. This will help the company leverage diverse thinking and develop our leaders with support from the best possible processes and systems. Our people-focused culture will help us deliver results to our stakeholders and ensure we achieve our 2027 objectives. Finally, we will continue fostering our culture of innovation. ALS will continue to embrace innovation in everything we do as it is highly valued by clients and our own people. Innovation for ALS is a journey we've been for many years. We are recognized as an industry leader in innovation. First, if we look to the left side of the screen, we see that the Geochemistry business has been an early adopter of innovation, which has assisted in our market share growth and help us attract and keep clients. Innovation supports our mining clients as resource discovery continue to increase in difficulty. Second, on the right side of the screen, we can see how our environmental business has a similar standing, we are a leader in client data management solutions and provide our environmental clients with a world-class B2B digital experience. In pursuing these 6 objectives, I assure you that the executive team and the organization are fully aligned. I will now hand the presentation over to Luis Damasceno, ALS CFO, who will take you through our numbers in more detail.

Thanks, Malcolm, and good morning, everyone. I will now present the highlights of our FY '23 financial performance, starting on Slide 18. The group delivered a solid financial performance with a record high underlying revenue and EBIT and market-leading revenue growth and margin. The total revenue from continuing operations reached $2.4 billion, a 19.5% increase versus FY '22, of which 10.8% was organic and 7.5% from acquisitions. Both Life Science and Commodity divisions exceeded the FY '27 planned average growth rates. Our Commodity division showed a robust organic growth of 18%, which was substantial contribution from the Geochemistry and Metallurgy business. The Life Science division delivered solid 5.2% organic growth, driven by the Environmental business, and a scope growth of 10.7% with investments primarily in the Food and Pharmaceutical segments. Since last fiscal year, we have successfully executed 13 acquisitions, mainly in the Food and Pharmaceutical segments, with a total annual revenue run rate of $115 million, of which $64 million is expected to be reflected in FY '24. Despite the market-leading revenue growth, the group also improved its margin. We closed FY '23 with underlying EBIT from continuing operations of $491 million, an increase of 22% over last year. In addition, the group's EBIT margin expanded to 20.3%, a 38 basis points increase versus FY '22. The underlying effects, including the contribution of the Asset Care business divested last February, reached $324.4 million, exceeding our guidance provided in March. This strong performance was primarily driven by our Commodities division and by Environmental business, both delivering strong organic growth and margin improvement in the period. These are solid results, especially considering the current environment underpinned by economic uncertainty, geopolitical instability and high inflation. I'm moving now to Slide 20, where we present the key highlights of our capital management. The group continues to preserve a solid balance sheet that supports our growth ambitions and reflects the disciplined and proactive approach of the company's capital management. We closed the year with a strong liquidity level of $423 million, a leverage ratio of 1.8x and an improved EBITDA interest cover of 16.4x. In May 2023, the group secured an additional bank facility of approximately $150 million, which provides more flexibility to finance our growth and eliminates any potential refinance risk of the $128 million debt facility maturing now in October 2023. The group has a solid debt profile and is well positioned to face the current economic environment. Its current mix is aligned with our operational cash flow, creating natural hedging and reducing FX risks. We also are well positioned regarding interest rate exposure as 80% of our drawn debt is fixed with an average cost of 2.9% and an average maturity of 8.1 years. In FY '23, the group generated $551 million of cash flow before CapEx, up $110 million from FY '22, and with an excellent EBITDA cash conversion rate of 97%. These are significant achievements, especially considering the working capital requirements linked to our double-digit organic growth. The strong level of cash generation has allowed the group to continue to finance the investments in organic and inorganic growth opportunities. In FY '23, we invested $146 million in operational CapEx, representing 6% of the group's revenue, having 2/3 of the total CapEx allocated to growth initiatives. The strong balance sheet was a solid foundation for the group to continue to execute its acquisition strategy. In FY '23, we invested over $230 million in new acquisitions, focusing on expanding the Pharmaceutical and Food business network and on building advanced data analytics capabilities in the Geochemistry business. We also started to execute our portfolio rebalancing plan, divested the Asset Care business, which generated a cash inflow of approximately $80 million. Based on the strong performance in FY '23 and the business solid financial position, the group declared a final dividend of $0.194 per share, partially franked to 10%. Together with the interim dividend of $0.203 per share, the total partially franked dividend for the year will be $0.397 per share, up 21% compared to FY '22, and represents a payout ratio of 60% of the underlying net profit after tax from continuing operations. The existing $100 million share buyback program remains active, so the Board has determined not to offer the Dividend Reinvestment Plan. I move now to Slide 25 to cover the business review of our 2 divisions. Starting with Life Science. Life Science continued its growth momentum, reaching a total revenue of $1.3 billion with a total growth of 17.1%, of which 5.2% was organic and 10.7% from acquisitions. The total EBIT increased 6.2% to $207 million, with a margin of 15.5%, a reduction of 159 basis points from prior period due to difficult economic conditions, geopolitical conflicts, high inflationary environment and the performance of the NUVISAN minority investments. Excluding NUVISAN, the margin was 16.7%, a contraction of 61 basis points over FY '22. The Environmental business, our largest business in Life Science, delivered a strong organic growth of 7%. And with a solid platform already established, it was able to leverage the global footprint and scale and successfully managed the current headwinds, improving margin by 52 basis points. Our Environmental business is one of the global leaders in a large, growing and fragmented market, greatly benefiting from the sustainability megatrends. ALS has a unique opportunity to grow organically and execute its acquisition strategy in this space. The Food and Pharma business still in the process of creating a global network with density of operations in key regions were more exposed to the challenge imposed by the current environment. The Pharmaceutical business, excluding the minority investments in NUVISAN, had a solid organic growth of 9.6% and a relatively limited market contraction, demonstrating its resilience. We're partnering as a minority shareholder with the NUVISAN management team to continue to drive revenue growth and improve underlying profitability. A margin improvement plan is being executed with those in mind. Our Food business growth and margin were impacted by the global economic uncertainty, which curbed revenue from new product development. I'm now moving to Slide 29 to cover Commodities division, which had another year of solid organic growth and margin improvement. The division delivered strong results, reaching $1.1 billion in revenue, a 22.6% growth over last year, and an underlying EBIT of $330 million. The EBIT margin was 30.4%, up 155 basis points over FY '22. The Geochemistry business continued to expand its leadership position, delivering organic revenue growth of 20%, supported by increasing demand for base metals, particularly those linked to future clean technologies. The growing demand for premium analytical services and our ability to deliver added value services driven by innovation supported market share growth and profitability in this business. This dynamic is visible in the growing rate of our Geochemistry revenue as a percentage of the global exploration spending and its organic revenue growth outpacing sample volume growth in recent years. In today's world, mining clients prioritize high-performance analytical testing methods and the quality data to optimize their exploration process. ALS stands out as a top provider of reliable geochemical data in these environments. We have a global laboratory management system, industry-leading method sensitivity and the largest and most widely distributed network of dedicated geochemist locations, making us the most trusted in the field. Now moving to Metallurgy. Metallurgy had an outstanding year, achieving organic revenue growth of 28.3%. This growth was mainly driven by the robust mining sector activity in energy and battery-related metals and further supported by solid commodity prices from traditional revenue source. Inspection business delivered solid organic revenue growth of 11.5%, driven by global commodity trading activities and managing costs effectively, also improving margins. Our Tribology business revenue grew 7.5% organic with limited margin contraction. Labor [ softening shots ] impacted the business and increased its operating costs but margin improved significantly in the last quarter of the year. With that, now I hand back to Malcolm, who will go over additional aspects of the group's strategic priorities and its outlook for FY '24.

Thank you, Luis. We had an excellent start of our new strategic period and expect continued momentum. During this new fiscal year, we will continue focusing our efforts on supporting the growth agenda. Specifically, we will develop new lines of business linked to sustainability and continue building our inorganic pipeline to further expand our service offering in key geographies. We will strongly focus on the continued execution of our margin improvement plans. This will be supported by a strong focus in price management and a globalized approach to procurement and supply chain. The challenges identified in some of our businesses such as inflation, economic uncertainty and geopolitical instability continue in the background. However, ALS has demonstrated a resilient business model that allow us to operate successfully in a difficult and uncertain environment. Our strategic priorities for fiscal year '24 will support the growth agenda. The group is well positioned to capture the structural growth opportunities. Industry megatrends strongly support our business over the medium to long term. These megatrends includes outsourcing, increasing regulation, emerging contaminants and global decarbonization. Our strategy is well positioned to capture and benefit from these trends. More specifically, within Life Sciences, the Environmental business continue to trade very well, taking advantage of the sustainability megatrends and leveraging from the global scale to successfully manage inflation and improve margins. The underlying Pharmaceutical business maintains its growth momentum, with NUVISAN remains impacted by economic uncertainty. We continue our commitment to continue developing our Food and Pharmaceutical businesses, supported by our acquisition strategy. Our Commodities division is well positioned to effectively manage capacity, cost and pricing. In particular, the Geochemistry business has experienced increased demand for higher value-added services that will support our market share growth and profitability. ALS is well positioned to capture these growth opportunities. As described in this presentation, the entire team at ALS is dedicated and committed to the fiscal year '27 plan and its execution. Thank you for your time today and your continued interest in ALS. Now I would like to open the call for questions.

[Operator Instructions] Your first question comes from Rohan Sundram from MST Financial.

Just a focus on Geochem, if you don't mind. How would you describe the outlook for sample flow into FY '24, if you're able to share? And also, how would you describe the outlook for price increases? And how are you feeling about capacity in the labs at the moment, given that the trends have come off a little bit?

Thank you very much. Overall, the sample volume growth did slow down towards the end of fiscal year '23. And we ended with an organic growth of low single digit -- sorry, low double digit. But this is reflective of the disruption caused by restricted monetary policy and equity market volatility, which it turns to make it difficult for junior miners to access capital. While the volumes were down, we are still seeing a large volume of quotations compared with last year and maintaining a good quarter of acceptance rate. Over the last 5 years, we have continued to see our organic revenue growth outpace volume growth with the relationship between sample volume growth and profitability becoming less important as we consolidate available capacities. Luis, do you want to add anything to that?

No, I think that to cover the key points, so 1 element that probably is new or we see a trend now. In the past, we'll look for drivers like price, volume and this additional event of premium services and the price that we can charge for premium service is also another element in the mix here that we have to look at.

And on capacity, do you still feel that there is -- do you feel that the capacity is about right now that the market has called off a little bit? Or do you still feel that there is scope to increase capacity opportunistically?

So we are seeing a margin to improve capacity. However, the capacity investments in the last 2 years give us a good head space to continue tapping the demands of the market. And as mentioned by Luis, we are very much focusing in our innovation, and that will allow to increase capacity of the innovation and the new methods are deployed globally in the business.

Your next question comes from John Purtell from Macquarie.

Just to maybe just pick up on Rohan's question there. So that sort of -- that Slide 32 where within Geochem, you're highlighting price and mix there, and sort of value-add services. Luis said a 15% uplift from volumes. I mean do you think you can sustain that type of price mix value add into '24?

John, thank you for your question. I'll address this one. What we have seen is that this disconnection between volume and organic growth has been sustained by the additional service or value-added services that we have. It has become a little bit harder to get minerals from the ground, and with the challenges that the mining companies are facing in terms of environmental compliance, the low detection levels that we have in the specialized tests, high-end tests has provided for us more revenue per sample. So that dynamic, I think, that is still there and probably accelerating over the next months and the next few years. Of course, it's difficult to forecast the sample volume flow for the next few months, but this dynamic, I think, that will persist there and do accelerate.

And just a second question in terms of outlook for Life Sciences. Are you expecting growth in Life Sciences earnings in the year ahead? And also, does that include NUVISAN there or not? Your comments around a profitability improvement plan?

I think that the outlook that we presented is clear in terms of what we are expecting in each of the businesses, and the Environmental business is our largest Life Sciences division. We have been performing well across all geographies, and we are managing inflation and headwinds. The Pharmaceutical underlying business, I'd also mentioned there it's also experiencing growth momentum. And as mentioned before, NUVISAN remains impacted. So we are confident of the plants that we are developing specifically with the NUVISAN team. As mentioned by Luis, we are a minority shareholder. But we have a long-term strategic plan committed to continue growing that business geographically and any new services.

Your next question comes from Megan Kirby-Lewis from Barrenjoey.

My first question is just on NUVISAN. Just came to get some more color on exactly what's driving that underperformance there, that would be greatly appreciated. And particularly if you have any commentary on how the performance compared to the broader market would be great.

So the NUVISAN business, as mentioned throughout the presentation, is a business that is highly exposed to the volatility of the European conditions. It is primarily present in Germany, and that creates a different exposure to that business. That business, we are materially focusing on revenue growth and replacement of the revenue of the pharmaceutical companies that have the long-term contracts. So the focus for the business to improve the margin is really replacing that revenue and expanding geographically into other key geographies for the pharma business. Luis, do you want to complement with that?

No, I think that you covered the key points.

Great. And then just in terms of the pricing in the Life Sciences business, are you able to quantify the type of price increase that was put through in F '23 and how we should think about that for next year?

Megan, I'll take that one. it's difficult to have a global view of price increase in Life Science, given the fragmentation that we have in this business. But we have been implementing price increase throughout the year. Life science contracts normally have an annual review for each one of those contracts, and the increase might vary from region to region. But it would be fair to say that the price increase that we have pushed through, they are aligned with the inflation that we have in each one of the key markets.

Your next question comes from Nicholas Rawlinson from Jefferies.

Maybe one for Luis. On Slide 31, Geochem margins were 30% in FY '23. But could you please confirm what they were in 1H and 2H and perhaps the margin contraction half-on-half?

I think that's difficult to provide that comparison because that is a different seasonality in the business. Normally, H2, given the winter in the North Hemisphere, the impact that we have in Northern Europe and in Canada brings the margin, the profitability a little bit down. I would say that the margin evolution is too strong. Geochemistry is still delivering very good margin as we portrayed in here. But H1 and H2 probably is not a key element in terms of comparison, given the seasonality that we have to deal.

Okay. And could I just ask what proportion of capacity is [ laid ] in Geochem following the 20% expansion in FY '22?

Well, we had a 20% -- effective 10% in last FY '23, followed '22. What's import to keep in mind, now, we operate the Geochemistry business with about 30% of idle capacity, just to be able to navigate through the different demand that the market presents to us. In FY '22 and FY '23, we increased the capacity, what we call physical capacity in terms of expanding the lab space that we have in hub labs. And if there is an increase -- a significant increase in demand, we should be able to fulfill that relatively quickly because it will take, besides people, acquisition of equipment that has a much shorter time frame to increase capacity when we compare to increase physical space in our labs. So we should be able to have a pretty good flexibility relatively quickly to respond to market demands, if you see a big pickup in this year.

Your next question comes from Jake Cakarnis from Jarden.

Just want to focus on the margin improvement plan envisaged, if I can. I think it was Luis earlier who said that it was about replacing the revenue in that business with the contract that's been lost. Can I just confirm that the margin improvement plan is orientated towards getting that business back to where you acquired it? Or is it beyond when you acquired that business as the recovery takes hold, please?

Thank you for your question. I think it's a staged margin improvement plan. Again, I think it's important to remember that NUVISAN, we are a minority shareholder, but as you well described, I think that the margin improvement plans will have -- it has 3 phases. The revenue replacement is key and center for us for the long term of the business. And then we are really looking forward to bring that business into the margins that we had when we acquired the business. But obviously, that is impacted by the macroeconomic conditions in Europe. And once we move through those 2 stages, clearly, we're looking forward to margin improvements in the medium and long term of NUVISAN.

Thanks for the context there. And then just finally, just on Geochem, can you talk to some of the competitor capacity and pricing pressures potentially as that competitor capacity comes back into market? Are you seeing that the market is remaining rational, even though it looks like the volume -- sampling volume rate deteriorated through the second half of fiscal '23, please?

I think we can speak about ALS and what we see in our business and we've seen some runway to continue exercising our pricing opportunities in the market based on the high added volume task and the geographic footprints that we have. And that is something that we are continuing seeing as we started this year. Luis, do you want to complement anything?

No, I think that covers everything.

Your next question comes from Reinhardt van der Walt from Bank of America.

Malcolm, congratulations on your appointment. I've just got a couple of quick questions on Life Sciences, specifically the acquisition strategy. Can you just give us a feel for the investment criteria that you normally apply to some of these bolt-ons? Maybe if you could, in terms of margin multiple that you're looking to pay and deal ticket size, please?

Yes. Thank you very much, and thanks for the congratulations. So ALS been developing this M&A strategy, and we like to play to our strengths and we know what is the strategy that we need to take in key geographies and services. And we're going to stick to that plan that we developed 5 years ago and were successful and the new strategic plan is also contemplating the rate and type of acquisitions we're looking for. We definitely understand that a big component of the growth of the business, it's inorganic, and we're going to remain extremely active and focused. And we had -- as I mentioned during my presentation that we have a very strong pipeline. I think we -- even when we are very focused in bolt-on acquisitions, we're open to some other strategic opportunities that may come to the market in the next couple of years. But again, as I said at the beginning, playing to the strengths of ALS and understanding that those bold-on acquisition has been a material component of the inorganic growth of the business. Luis?

Just complementing the point regarding the price or the multiples that we pay. We continue to exercise the principle that we normally do not pay any multiple that's higher than for what we trade, and we have been able to execute that so far. In terms of return, the target return is around 15%, internal rate of return after tax. That's the kind of criteria that you use for bolt-on acquisitions, targeting key opportunities in different geographies.

Yes. Got it. And -- I mean that $180 million spend in FY '23, is that a good indication of investment that's going to be required if you want to hit that FY '27 target?

Yes. We have -- now when we put together our strategic plan, we are estimating that we could be deploying around $200 million, $250 million of capital every year in order to fulfill ambitions for external growth. And -- where in the first year, the level of cash generation that we have supports this view. So we are comfortable that, that should be materialized.

Got it. And so that -- sorry, $200 million, $250 million in Life Sciences specifically or?

No, no. That's for the group as a whole. And although Life Science has the bulk of the capital allocated to acquisitions, we still have acquisitions contemplated in the Commodity division as well during this strategy.

As you've seen, we made some acquisitions in the last couple of months on Commodities, and we'll continue focusing also on that area.

Correct.

Yes. Got it. And sorry, if I can sneak in just 1 more. The 15% IRR target, I mean if -- I mean, obviously, the Geochem business is providing a lot of internal cash flows to fund those acquisitions at the moment. But if we do start to see maybe a little bit of a cooling in the cycle and you start to shift your funding mix a little bit more towards debt, obviously, cost of debt has increased and access has become a little bit more challenging, do you see any room for sort of adjusting that 15% IRR target going forward?

Yes, I think that we have to evaluate what's happening in the market. We have to keep in mind that even if there is a slowdown in Geochemistry, in terms of cash impact -- immediate cash impact, we can minimize that impact with the reduction of working capital. That is an important element. And the cost of debt is high, but we're also in a good position. In terms of total cost of debt, we have about 3.3% total cost of drawn debt. New debt of what will cost will come at a higher cost. But I think that will not have a significant impact in the approach that we have for acquisitions, considering the strength of our balance sheet.

Your next question comes from Nathan Reilly from UBS.

Just a quick follow-up question on NUVISAN. So you've highlighted a few times here that you're the minority investor or shareholder in that company. Can I just get an update on how you manage that investment? It does appear like it's a business that's slightly more affected by economic uncertainty. So I'm just curious to understand how you're managing that investment and how you're able to influence outcomes at that -- at NUVISAN.

Actually, NUVISAN, we are a minority shareholders. We manage that through traditional structures that we have for this type of JVs with shareholders' agreements and advisory boards, and we have a very active advisory board that we can have a say, but obviously, as a 49% shareholder and not a 51%. We are very focused on building a long partnership relationship with our partners in NUVISAN. We made a comment of the 49% because, obviously, we don't exercise direct management on the company. And I think that, that's an important fact to be pointed out.

Your next question comes from Peter Drew from Carter Bar Securities.

Just a couple of questions. First one for me on the Geochem. It looks like volumes are down, tracking down around 20%, sort of more recently. Just wondering, is that a sort of volume decline that you'd expect to continue through the balance of fiscal '24 based on what you can see? And just that decline, my understanding is that there were some big weather impacts in February that might have influenced some of that volume decline. So the first one, just on that, if you can comment on that, please?

Peter, I'll pick up on that. The volumes were down over the last quarter of the year, even though we're able to still continue with positive organic growth. It's very difficult to have a visibility for the FY '24, we're at the beginning of the year right now. And what I can see is -- our sense is that the impact on sample flow is really being driven by the volatility in the financial markets, not by demand. We still see a very, very strong demand in terms of mining activity, particularly in the what we call battery metals, copper, lithium, and so on. So the driver is there for growth as we have seen in the past. If there is a more stable environment, the volatility reduced in the market, we should see an immediate response in this business. And normally, sample flow comes to us within 2 to 3 months of incremental activity in the financial markets with capital [indiscernible]. So we are ready to do that. As I mentioned, we have available capacity. We have flexibility to capture those market opportunities. We have to see how this is going to play out in the next few months.

Luis, that's helpful. And then, I guess, the second one, just on Life Sciences. The margin decline in the second half was a bit stronger than what it was in the first half. I'm just wondering how you're tracking into this new year. I mean some of your competitors have sort of talked about price inflation tracking ahead of price improvements or increases to customers. And I'm just wondering do you feel like you've kind of aligned your prices to the extent that we won't see too much margin depreciation this year, please?

Yes. When you look at Life Science, in fact, we have to [indiscernible] a little bit the division. We have an Environmental business that represents roughly 70% of the Life Science business, 6% to 7% improved margins and delivered the organic growth -- stronger growth in FY '23. In fact, the H2 organic growth for the Environmental business was higher than H1. So there was an acceleration there with margin improvements. Why is that? Because given the scale and size of the Environmental business, we can have operational efficiency. In Environmental business today, we do have effective hub-spoke model deployed at the regional level. And this makes a big difference in our ability to manage inflation. The Pharmaceutical business, if you exclude the minority investment of NUVISAN, fairly stronger benefit growth as well, close to 10%, and with limited margin deterioration. And that this -- both in Pharmaceutical and in the Food business, the fact that are relatively new business to ALS, we're still investing in the network and establish the footprint and they are a little bit more exposed by the current economic conditions. We believe that we are implementing a number of initiatives in the group, in operational efficiency, procurement initiatives, price management and the price increase, and we believe that we could have a continuous improvement now for those 2 smaller business for FY '24 as soon as we see the situation stabilize a little bit in the financial markets.

Thank you. That is all the time we have for questions for today. That does conclude our conference. Thank you for participating. You may now disconnect.