ALS Limited (ALQ) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the ALS Limited H1 '24 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 thank you for joining today's call to review our half year 2024 results. I would like to start by thanking our dedicated and talented employees and management team for their continued support and collaboration underpinning our strong results today. At ALS, we remain guided by our vision to be the global leader in the discipline of scientific analysis in pursuit of a better world for all. Our focus on sustainability drives the strength of our core business and ensures that our financial performance is aligned with our strategic objectives for fiscal year '27. Our strong industry positioning in Minerals and Environmental enables us to continue supporting the needs of our clients and to achieve the performance goals in our 5-year strategic plan. As highlighted in our plan, the growth agenda is strongly supported by megatrends, such as the clean energy technology transition, increased outsourcing from our clients, increased regulations and enforcement from authorities and increased demand for sustainability-linked services. We continue to confirm the tailwinds that these megatrends provide to our business. I would like to highlight the main achievements of our company's performance in the first half of the fiscal year '24 that are helping us stay on track with our disciplined and strategic growth agenda. First, by capturing industry megatrends in our Environmental business, we have continued to deliver high single-digit organic growth and record margins. The Environmental business presents a strong strategic organic growth pipeline complemented by high-quality acquisitions opportunity in key geographies and end market exposures. Second, we have strengthened our leading position in Minerals and deliver stable margins despite the slowdown in exploration spending. Our market leadership and long-term growth and profitability is driven by our world-class hub-and-spoke model, excellent client service offering, increased uptake and penetration of our high-performance testing methods and the acceleration of our mine site operation service offering. The global electrifications continue to drive revenue growth in our Minerals Group. We have maintained market leadership in our Minerals division with exposure to the green metals upside opportunity. ALS has become an enabler of the global energy transition, with battery metals representing more than 40% of the total mix tested in our labs, and these proportions continue to grow. The Minerals performance has also been supported by a high demand for metallurgy activities related to battery technology and critical metals, with new project wins, market share growth and continued expansion of testing services. The third and most important takeaway from our presentation today is that we continue to deliver value for our shareholders. We have demonstrated impressive operational resilience, and with our strong margin durability in minerals and margin expansion in the Environmental business, we have maintained overall industry-leading margins. We also continue to deliver value for our shareholders by maintaining a balanced capital allocation strategy and a healthy balance sheet. We have continued executing our inorganic strategy in a highly volatile global economic environment, tightening our governance process and ensuring that acquisitions are made with a clear strategic purpose. Our focus is to continue maximizing the company's return on capital employed. Before turning to our financial performance, I would like to iterate another key objective in our strategic plan. We continue to deliver value for our shareholders by maintaining our focus on people, enabling a solid culture of innovation and collaboration, with a high level of employee engagement and client interaction. At ALS, we are incredibly proud of our safety culture, and this is shown by the industry-leading performance that the company presents in this regard. This half year, we saw good financial performance from the group. Our business delivered overall revenue growth of 7.4%, with low single-digit organic growth despite the global economic backdrop and the high interest rates environment. Despite these challenges, the company continued to deliver industry-leading margins above our EBIT floor margin of 19%. This was supported by the strong performance of our leading environmental business and the resilient performance of the Minerals division. The company maintains its focus on managing inflation through strong price governance and discipline, leveraging a global procurement approach. We have accelerated execution of internal efficiencies, driven by collaboration and a new approach to share innovation across all businesses. Our cash generation and the balance sheet remains strong, supporting our continued growth journey. Moving to Slide 13. Our Minerals business has successfully demonstrated its resilience to cyclicality. Our Mineral business is positioned to provide the mining market with a unique holistic service, leveraging our 3 key pillars and operating model, which is described in Slide 12. This approach has not only been highly successful for the company in helping build its current market leadership position, but it also supports our longer-term growth path. Our Minerals division have a track record of market share gain, delivering strong, consistent and sustainable growth. As we see on the bottom right side of the slide, we are experiencing double-digit solid CAGR growth rates in key areas, such as mine site services, high-performance methods and metallurgy since our business has diversified. This has consolidated the business resilience as evident in these results with a very modest organic revenue decline considered against the double-digit drop in sample volume, and overall margins remaining above 33%. Contrast this to the declining markets almost 10 years ago, when market margins troughed at around 20%. And it is clear that our downstream growth and innovation journey is ensuring reduced cyclicality and earnings resilience. As we mentioned in our last presentations, the Mineral business is being reshaped as the mining market is entering a long-run, demand-driven cycle. The market for metals and minerals that enables electric vehicles, energy storage and other energy transition technologies has doubled in size over the past 5 years, and this trend is expected to continue in the long run. While the pace of the transition is still being shaped, the pull on demand is expected to support stable demand growth. To be able to serve these markets, we are repositioning our Minerals division, leveraging, as mentioned before, our unique operating model into metallurgy, mine site production and consulting and data analytics. ALS has a track record of building leading testing businesses, as we can see in Slide 17. ALS strategically looks for scale in testing markets and identifies niche opportunities where we can build a clear and distinct value-added proposition for our clients. The organic growth and margin improvement above industry standards for our environmental business demonstrates this ability. In other words, we know how to build sustainable leading businesses. Our Environmental business is now equal in size to our Mineral business and is now the second-largest provider of environmental testing services globally, delivering this service at market-leading margins. The Environmental business has industry-leading margins reflecting of a strong client added value proposition, innovation and operational excellence. The Food & Pharma division, as also shown in this chart, is in the early stages of development. We are starting to build the necessary scale needed in the end markets, where we understand how to add strategic value and differentiate from our peers. The Food & Pharma division had strong underlying tailwinds to underpin organic growth, having showed a 5-year CAGR of 24%. Before I conclude my section, I will give a current update on the Nuvisan investment. Since acquiring our 49% interest in Nuvisan in 2021, we have made some operational improvements in conjunction with our partner, but the business has encountered significant challenges. At the time of acquisition, Nuvisan represented great potential value for our pharmaceutical clients, providing a fully integrated offer from drug discovery through to clinical trials and then to quality control batch testing. The macroeconomic environment for Nuvisan has been difficult over the last 2 years, with a significant pullback of investments and funding into global pharmaceutical research and development markets. While the long-term outlook for these markets remain strong, these near-term trends have a significant detrimental impact on Nuvisan, particularly the drug discovery business. The underperformance of the Nuvisan business has the attention of the management, and we are critically evaluating the current investment opportunity and considering all potential ownerships options. We remain proactively engaged with the Nuvisan business, exploring a pathway to success that would diversify the client base through business development opportunities and achieve cost savings through strategies to rightsize the business. As a management team, we are aware of the importance of a disciplined and balanced approach to growth, while maintaining a strict capital allocation framework. Nevertheless, we are evaluating the business to ensure we make the best decision for our investors. We expect to reach a decision in early calendar 2024. I'd like now to hand over the presentation to Luis, who will take you through the financial performance of the business during the half year period.

Thanks, Malcolm, and good morning, everyone. I will now present the highlights of our H1 FY '24 financial performance. Start on Slide 24. The group delivered resilient results amid the challenging economic environment. The total revenue from continuing operations reached $1.3 billion, a 7.4% increase in over PCP, of which 0.7% was organic, 3.1% from acquisitions and 3.5% from positive FX impact. Excluding the minority investment in Nuvisan, the organic growth was 2.4%. The organic growth results from a strong and increasing demand for environmental services, high demand for critical minerals and the high-performance testing, partially offset by the temporary slowdown in mining exploration and the limited funding for new product development in the pharmaceutical business. The group delivered a market-leading operating margin with underlying EBIT of $245 million and underlying NPAT of $158 million, exceeding the guidance provided in the last AGM. The group's underlying EBITDA margin in H1 contracted by 126 basis points at constant currency to 19.1%, reflecting the underperformance in the Food & Pharmaceutical business, partially offset by the strong margin improvement in environmental and resilient geochemistry performance. Excluding Nuvisan, the group underlying EBITDA margin was 20.3%. I will address later in this presentation the performance of each division. I'll move now to Slide 27, where we present the key highlights of our capital management. We continue to preserve a solid balance sheet, well positioned to continue to support our organic and inorganic growth ambitions. This strong position springs from the disciplined and proactive approach in capital management. We have closed H1 with a strong liquidity level of $486 million, solid leverage ratio of 2x, an interest cover ratio of 15.1x. In October 2023, the group secured a USD 224 million private placements with 5-year bullet maturity issued in 3 currency and with weighted average cost of 5.65%. This new facility provides additional liquidity to the group to execute on its growth strategy and eliminates any potential refinance risk in the short term. With this new placements, the total group liquidity will increase to $580 million. The total cost of debt, we raise to 4.05%, and the debt maturity increased to 5.3 years. We continue to preserve a solid debt profile as well, mitigating risks associated with interest rate exposure in the current economic environment and preserving a natural hedge aligning debt currency mix with profile of cash generated in each parents. Post the USPP insurance, 80% of the debt are fixed with an average cost of 3.74% and weighted average maturity of 8 years. In H1, the group generated $236 million of cash flow before CapEx, up $10 million from H1 FY '23, and with improved EBITDA cash conversion rate of 82%, which puts us on track to deliver cash conversion above 9% for the full year. The strong level of cash generation has allowed the group to continue to finance the investments in organic and inorganic growth opportunities. In the half, we invested $85 million operational CapEx represented 6.6% of the group's revenue, having approximately 2/3 of the total CapEx allocated to growth initiatives. The strong balance sheet enabled the group to continue to execute its acquisition strategy. In H1, we completed 6 acquisitions for a total consideration of $77 million, adding $36 million revenue in a full year run rate base and continue to expand our geographic presence in services in the life science business. We entered the second half with a pipeline of opportunities support of our growth ambitions. Based on the resilient performance in H1 and the group's solid financial position, the Board has declared the interest dividend of $0.196 per share, partially franked to 20%, representing a payout ratio of 59.9% of the H1 underlying NPATs. The existing $100 million share buyback program remains in place as a capital management tool, so the Board has determined not to offer a dividend reinvestment plan. I move now to Slide 33 to cover our Commodities division, which delivered solid results amid a soft environment of mining exploration. The division delivered total revenue of $545 million, an increase of 0.4% in constant currency, with an organic decline of 0.4%. This moderate reduction in organic growth was underpinned by strong price management, supportive base metals demand and value-added services. All business with the Commodity division, with the exception of geochemistry, delivered a strong organic growth and improved the margin. The division underlying EBIT reached $161 million, with the EBITDA margin of 29.6%, a slight reduction of 18 basis points versus PCP. And in fact, an increase of 13 basis points if you consider in a constant currency. These are good performance considering the current environment, which was characterized by subdued sample volumes in our Geochemistry business. The Geochemistry business continued to expand its leadership position, being able to partially offset the 13% decline in sample flow in the period, delivering organic revenue decline of 5.8% and maintaining margin above 33%. These results were attained by good price discipline, increasing uptake of premium value-added services, strong cost management, continued investment in innovations such as high-performance methods and accelerated growth in the downstream activities. Metallurgy achieved strong revenue growth of 24.5%, driven by strong mining sector activity in energy and battery-related metals, new project wins and market share gains. The pipeline of projects remains solid, particularly in the battery-related metals space. The Inspection business delivered impressive organic revenue growth of 14% due to the strengthening of global commodities trading activities. Our Oil & Lubricant business, formerly know as Tribology, delivered strong organic revenue growth of 10% and significant margin improvement as we continue to implement its margin improvement plan. And finally, our core business that represents approximately only 1.5% of the group's EBIT had a strong organic revenue growth and a margin improvement due to the volume recovered in the period. I'm moving now to Slide 34 to cover the Life Science business. Life Science continued to grow its growth momentum, reaching a total revenue of $739 million in H1, with the total growth of 12.7%, of which 1.7% was organic and 4.5% from acquisitions. Ex Nuvisan, the Life Science division grew 5% organic, driven by the good performance of the Environmental business. The division delivered an EBITDA of $110 million with EBITDA margin of 14.9%, a reduction of 201 basis points from prior periods due to tough economic conditions, geopolitical conflicts and the restrictive monetary policy, reducing new product development in the pharma business. Underlying margin on constant currency base, excluding Nuvisan, was 16.4%, down 117 basis points less PCP, reflect a strong margin improvement in Environmental offset by weakness in the Food & Pharmaceutical business. The Environmental business delivered a robust growth of 11.7% in constant currency, with organic growth of 8.5%. With solid platform already established, it was able to leverage its global footprint and scale, successfully execute price management and improving margin. Our Environmental business is one of the global leaders in a large, growing and fragmented market, greatly benefited from sustainability mega trend. ALS has a unique opportunity to continue to grow organically and execute its acquisition strategy in this space. The Food & Pharma business is still in the process of creating a global network with a density of operations in key regions, continue to face challenges imposed by the current economic and geopolitical environment. Our Food business grew 13.4% on a constant currency base, with organic growth of 3.1% and is expected to improve volume and margin in the second half. The Pharmaceutical business with organic decline of 16% was impacted by the reduced level of funding for new drug development and by the existing economic environment. Excluding Nuvisan, the organic revenue decline was 7.7%. As Malcolm mentioned, our minority investment in Nuvisan is under strategic review, following a period of underperformance since last year. Now I will hand it back to Malcolm, who will go over additional aspects of the group's strategic priorities, and it's now to look for FY '24.

Thanks, Luis. The medium to long-term outlook for both Life Sciences and Commodities remains very supportive. Our group remains well positioned to execute on our fiscal year '27 objectives to capture sustainable structural growth opportunities. We will continue focusing our efforts on the strategic priorities described during our presentation. This includes growing our minerals position to capture the upside of clean energy technologies and continuing to develop our Environmental business to better position our company for the sustainability agenda, while building our operating model for the Food & Pharma divisions to replicate our success in Environmental and Minerals. Despite a challenging near-term market backdrop, we still foresee a positive outlook for the company. In fiscal year '24, we expect to deliver an underlying NPAT of between $310 million to $325 million. At a group level, this is supported by delivering modest organic revenue growth, achieving margin improvement within the Life Sciences portfolio in the second half, delivering cash conversion above 90% and ROCE greater than 20% and a disciplined acquisition agenda. More specifically, our Commodities division will benefit from further market share gains across the full vertical value chain. In particular, the Geochemistry business continued to see increased demand for our market-leading unique high-performance methods testing and value-added services. We expect our service offering and market share growth to support margins above 30%. Within Life Sciences, our core Environmental business continued to perform well across all geographies, supported by market share growth in key geographies and increasing demand for emerging contaminant testing. The business has also been able to successfully leverage its scale to achieve good pricing outcomes. We expect the business to conclude the year with mid- to high single-digit organic growth and margin expansion. Both our Food & Pharmaceutical business, excluding Nuvisan, remain focused on further expanding their platform and delivering margin improvement into the second half of this year. We expect the Food business to close the fiscal year with mid- to high single-digit organic growth and margin improvements. While the Pharmaceutical business excluding Nuvisan will show volume and margin improvements in H2 with total year -- with low single-digit negative organic growth. Our strategy remains clear with a defined investment focus to capitalize on sustainability links, mega trends and Life Sciences growth. We will also continue to maintain our market leadership in the Minerals division, remaining leverage to the green metals demand associated with the global energy transition. And lastly, our commitment to our people is unwavering as we continue to support a culture of inclusion, innovation and collaboration. As evidenced in these half year results, our business has continued to demonstrate its resilient and balanced operating model, which has enabled our 3 key achievements of the year-to-date: industry-leading growth on margin in our Environmental business; leading position in Minerals delivering market share growth and resilient margins; and continued delivery of value for our shareholders. To finalize, as also reported today, the company is undergoing a management transition. In this regard, Luis has decided to step down from the company to pursue new professional challenges and to attend to personal matters. I want to thank you, Luis, for your support and the great service of the company. In line with our succession planning, we have begun a process to identify the best candidate for this role, considering people both externally and internally. During this transition process, Michael Williams, who is with us in this call, Group Finance Director, who has worked with us for more than 20 years, will assume the role of acting CFO from January 19, 2024, and together with the rest of the finance team, will be working closely with Luis to ensure a seamless transition.

Thank you, Malcolm. And I just want to say a few words. It has been a privilege to serve as ALS CFO for the last 5 years. With our collective efforts and hard work, I believe we have successfully established ALS as a leading player in the test inspection and certification industry. Our financial position is strong, marked by disciplined capital allocation, critical enablers for sustainable growth. And I'm confident that ALS is well-positioned for continued success on the [ yard and the ship ], and my successor will inherit a solid platform to build an even brighter future for the company. As you mentioned, I'm already working with Michael Williams, the Group Finance Director. We have been worked together for the last 5 years, who will assume the role of acting CFO in my spot. I'm also fully committed to facilitate a seamless transition during this period and will be available after my departure to provide additional support to my successor's onboarding process. I just want to close by thanking my ALS colleagues and especially my team. I'm deeply grateful for the collaboration, support and shared achievements. I think with that, we can move to the Q&A part of the call.

Thank you. So we are now ready to take your questions on the call.

[Operator Instructions] Your first question comes from John Purtell with Macquarie.

Luis, congrats on what you've achieved over the last 5 years and all the best going forward. Just had a couple of questions, if I could. Just starting with Geochem there. You've referenced a sort of sequential improvement towards the end of the period, and that's really reflective of sort of market share increase rather than the market itself. So I suppose the question is kind of how do you assess sort of the state of the market at the moment. And obviously, you've referenced the high-performance categories, but are there any particular call-outs in terms of commodities or end markets where you're taking that share increase?

Thanks, John. So I can start with the answer. We've seen the peak of the trough of sample volume decline in May or June. And since then, as you can see on the presentation, the volume has improved. The growth that we see in the business and the opportunities are still in line with what we discussed early this year. We have an uptake of high-performance methods by major companies. And we see a good momentum of ALS growing market share in the mine site production. So those 2 will be the 2 big drivers for the growth of the company and the sustainable earnings that we have discussed during the call.

And just a second question is on Pharma. You've obviously highlighted an expectation of improvement in second half margins. What's driving that? And presuming that relates to base Pharma, because I think on Nuvisan, you sort of said improvement in margins ex Nuvisan there, so what's driving that improvement in Pharma margins? And you've also referenced some operational improvements there for Nuvisan. Should we expect those to flow through in the second half such that we have a better second half than the first for Nuvisan?

Thanks, John. So I will start with the first part of the question, and Luis will help us with the second. We are seeing a recovery on the Pharma business across all regions. We are speaking about the underlying Pharmaceutical business, John, as you rightly said, specifically in the Americas and in the U.S.A., having volumes improvements since Q2 flowing to Q3 and Q4. And that trend is also consistent in European testing business that we have. So those will be the 2 drivers for the underlying pharmaceutical improvement on the second half. And Luis can answer on the Nuvisan question.

In Nuvisan, we don't see a significant change in performance in the short term, John. I think that the challenge there is really related to kind of structural drivers, particularly in the lack of funding for drug developments in this space of research and development. We have been -- worked with them over the last months, and as Malcolm mentioned, we are about to embark in a full review of strategy, operational model and so on. And I think that by the end of this year, beginning of next year, we'd be in a position to have a firm view not only which are the potential opportunities that we have with Nuvisan in the future, considering the market position that they have and the structural drivers, but the ability really to turn around and make that company at a profit level that we can operate. So we're going to have a better visibility of that in the next few months.

Your next question comes from Rohan Sundram with MST Financial.

Luis, wishing you all the best, very sad to see you go, and congratulations as well. Question on the Geochem side of things, just following on from John's question. Are you able to confirm for us exactly when the sample flow trends turned negative? It looks like we're not far off, based on your previous disclosures and the charts you used to provide. And just based on that, should we soon expect to see further improvement in the year-on-year trend upon tracking these softer comps?

So thanks for the question. We have also provided the chart that you're referencing, I think it's in the appendix of the presentation, Slide 45. And there you will see the sample volume behavior. And we have also included the chart shows the sample volume compared with the exploration budgets. As I said during the call, we've seen the peak of the trough, May, June of this year. And since then, we've seen volume improvements across all geographies, but especially we've seen volumes improving in North America and Australia. And during the last part of the Q2, we've seen also improvement in some other areas like Latin America that is consistent with the exploration funding that we've seen that Latin America has been the leading region for the year. I don't know if that responded to your question or you have a follow-up.

Your next question comes from James Wilson with Jarden Australia.

Just one quick question for me around the Nuvisan option. Could you just give us a bit more color on what the main factors that will be influencing your decision are? I appreciate you talked to it a little bit earlier. Just looking to see what sort of metrics you might be tracking when assessing that option.

Thanks, James. So in line with what we discussed in May, the intention is to understand the strategic fit of a CRO company into the ALS portfolio, understand the value that we can bring to the clients in that space and if there's going to be enough synergies that we can cross leverage between our Pharmaceutical platform. Those are really the 3 drivers of the decision that ALS needs to take. We understand that there is a short-term market backdrop, but we understand as well that there's long-term opportunities in that market, but I would say that the drivers are those 3 strategic questions that I just explained.

Okay. Great. And just a follow-up on that. When you're talking sort of short term versus longer term, can you give us some sort of a time horizon on where you're expecting, I guess, Nuvisan to realize its value going forward in the longer term?

So that's part of the strategic review. We -- when I say long term, long term means that the market is looking positive in the next 3, 5 and 10 years, but that's general market data that I can provide to you. It's not specific to Nuvisan. So if you speak about -- sorry, the question is about Nuvisan itself, I think it's aligned with the strategic review that we need to assess and what's the impact and the benefit for the ALS portfolio and, most importantly, to the return to our shareholders.

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

Malcolm, Luis, congrats on the results. And thanks very much, Luis, for all your help and guidance over the past 5 years, and all the best. Just got a couple of questions. Just firstly, could you just provide a little bit more context on the Geochem business, sort of where it is, I guess, from a revenue perspective, a revenue growth perspective? I mean volumes have improved, and you've also got this revenue per sample sort of feature improvement. I'm just wondering, is the Geochem business back in revenue growth? Or is it still contracting?

So we -- what we are discussing right now as an outlook is -- and yes, that is in line with the half year results, we are putting a lot of attention on the margin resilience. And that is driven by the market opportunities that the 4 services that I think they are disclosed in Slide 13, that we see the CAGR growth in metallurgy. We see the very positive CAGR growth in high-performance methods and also in exploration for the last 5 years. So we are focusing on the business resilience and how we can be sure that this business is going to be less cyclical as we discussed in the previous meeting, Peter, throughout the years. In terms of volumes, the chart that we presented in the appendix shows where we are with volumes right now, but that's not something that we control. We control the operational opportunities that we have in the business and the margins that we can deliver and, hence, the return that we can generate to our shareholders.

Yes. I guess putting the question maybe a bit more clearly is as those -- that volume decline reduced through the half, was -- and you've also got revenue per sample growing from an uptake in the high-performing methods, I'm just wondering, was there a crossover point during the half where it actually was producing growth versus PCP?

So for the half year results, as we disclosed in the presentation, it has a small negative organic growth. But Luis, you want to complement?

No, no. Peter, we normally don't provide this information like in the quarter or monthly basis. But I think that one important element that we highlighted to hear during the presentation, until a few years ago, the main driver for Geochemistry was just the volume, sample volume. And this is not the half, we have seen that over the last 2 years, where there is a significant gap between sample flow variance and organic growth. And this now it's proving the dynamic that we have in terms of price impact in terms of mix, in terms of value that the clients put the data that would produce in Life Science and as well, the good performance in the strategy to penetrate in the mine site business. So when you look to the Geochemistry business even to see the future, we try to not only look to the volume now, but how those factors that are playing together and impacted the total revenue for the company. I think that, that is an important change compared to what we used to have in the company a few years back that was primarily driven by volume.

Just moving on to the comments on improvement in second half Life Sciences margin, just to clarify, you're referencing improvement versus the second half of fiscal '23, correct?

So what we have disclosed about Life Sciences is margin improvement for the year as a Life Sciences division.

Correct. And it has an improvement over prior comparable period as well.

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

My first question is just on the Geochemistry business. And just on the pricing, it looks like that implied pricing uplift is around 7%. It would just be great if you could talk through the drivers in terms of what is actual price increase versus what you're seeing from those value-added services or mix.

Thanks, Megan. So we are seeing price increase high single digit for the period. A portion of the price increase is connected to the high-performance methods and the uptake that we're seeing from majors especially, and that has been extending. Not all majors are using those methods, so that's a market opportunity for us as well. But as we also mentioned those, the price is connected with the data solutions. So if you go to Slide 12 on the presentation, you will see the operating model of the Minerals division, and we have 3. As we have been discussing, we have the hub-and-spoke model that collects our cost base, the client service approach and the value-added services. And in the value-added services, we include both the high-performance methods and the data solutions that we can provide.

That's great. And then just as a follow-on to that, I guess, just around sort of the longevity of that uplift from value-added services, and you sort of touched on it there, that a number of your major mining customers are not using those higher-value testing at the moment. How do we think about the evolution of that? Can you keep developing these higher-value tests? And just how we should think about that uplift going forward?

Thanks. So as we disclosed on Slide 13, the high-performance methods have a 38% CAGR during the last 3 years. They have almost doubled in size in the -- from a year-on-year. And as I said before, we are seeing more interest for more majors to take those methods, so there is a lot of runway for us to continue expanding the acceptance of the high-performance methods with our clients.

Just final one, just on Life Sciences, and it looks like the food margin declined as well as the underlying pharma, so just more detail on the driver there and what gives you confidence in the uplift for the second half.

I can take that, Malcolm. I think that when you look to the Life Science, we have to acknowledge the unique position that we have for environmental, very large footprint, already with a hub-spoke model implemented in a regional level, high level of expertise capabilities. When we look to the Food & Pharma, they are a business that is still being formed, with acquisitions that we did in the past and continue to do. In this kind of picture, they are more vulnerable to specific geopolitical challenges and the economic challenges that we face, so they have somehow lagged behind the environment in terms of margin. And during H1, we also did some kind of operational improvements and sometimes even restructure in certain parts of the Pharma business and Food business, and that we expect to see those results in H2.

[Operator Instructions] Your next question comes from Nicholas Rawlinson with Jefferies.

Maybe one for Luis. I'm just thinking back to the guidance you gave at the same time last year for $300 million to $320 million NPAT. And that was after delivering a higher first half of $164 million. I'm just trying to understand what gives you much more confidence this time around in the strong second half.

I think that it's pretty much the momentum that we're seeing across the business. As you saw, the Commodity business, with the exception of Nuvisan, have stronger growth and the margin improvement with the exception of Geochemistry, I'm sorry. And Geochemistry, even though with subdued sample volume is still benefiting from price and mix. And we don't see that dynamic being reduced in the second part of the year. Our clients, they are still demanding high-performance testing, continuing to face challenges to extract minerals on the ground and facing environmental regulation even more stricter in the future. So the drivers are there for incremental demand in geochemistry. In Life Sciences, Environmental has performed very well and continued very good momentum, not only in terms of revenue growth, but also margin improvements, reaching probably a record high margins now in H1. And the Food & Pharma business, as we have outlined, we have in H1 several operational improvements, performance improvement plan deployed and contributed to the deployment, too. And I think that will provide us again a margin improvement in the second half. So when you combine all those elements, I think that we are comfortable to provide the guidance that we provided now.

Okay. That's helpful. And just noting the $13 million spend on ERP in the half, could you give us some clarity on what the expected cost and duration of that program are?

Yes. We have initiated the ERP program, probably the phase that we are right now is where we're going to see the concentration of highest costs because we are building a blueprint for rollout in the organization. We are not going to do a big bank, not to increase the risk for the company implementing ERP. So we are deploying pilots in Australia and the U.S. that expect to go live in the next few months. And once we have that blueprint, we can roll out to other parts of the organization. I think that we are going to see probably similar costs in the next year and then reduce the cost in the years to follow, since we have already the blueprint already established and interfaced with our laboratory management system. And we can deploy this kind of model in the other countries.

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

Just two quick ones from me. You mentioned that you're looking at the ownership structure of Nuvisan. I suppose the most obvious options are you exercised the option, sort of, I suppose, either the put or the call is the current structure, certainly. Doesn't seem to be working. Are there any other options we should be thinking about that you can maybe put together for Nuvisan?

No, I think that -- thanks, Reinhardt, for the question. I think that you described -- those are the options that we have on the table, and we want to have a strategic review of that before we take the best decision for the company and to ensure the return to our shareholders.

Got it. Perfect. And gearing in the business seems to be normalizing a bit now. How should we be thinking about the optimal capital structure at this point? There's obviously still quite a bit of inorganic investment required until we get to 2027. So where do you want to see the balance sheet? What are the sort of the bookends that we should be thinking about that leverage figure?

Yes. Our view is -- did not change since we announced our strategic plan. And just as a reminder for everybody on the call, we believe that we can deploy around $200 million to $250 million in capital every year in M&A, and I think that we have a solid pipeline of opportunities to execute on that. And with leverage ratio ranging from 1.6 to 2.2, 2.3, almost a full turn below our bank covenants of 3.25, and that would be supported by cash flow, cash generation, cash conversion above 90%. And the leverage ratio managed that way. So I think that this is somehow an outline for the capital structure. We always -- now we have been trying to keep the liquidity very high to make sure that we capture opportunities to invest in not only in acquisitions but also in organic CapEx, if you will, for the growth of the business. And I don't see any significant change in that picture at least at the moment.

All the best of luck with your next opportunities, Luis.

Thank you so much.

There are no further questions at this time, and that does conclude our conference for today. Thank you for participating. You may now disconnect.