What an absolutely horrible result. Operating Earnings Before...

What an absolutely horrible result.

Operating Earnings Before Tax are today at a level that they were last at almost a decade ago.

And that's despite the company spending an astonishing $1.3bn on acquisitions since then.

What on earth has happened, it has to be asked, to the value of all the businesses that were bought as part of that aggressive multi-year acquisition spree?

It's all very well to blame the external environment on the company's woes, but based on the fact that the company's profits are still the same as they were before $1.3bn of shareholders funds were deployed to acquisitions alone, this strongly suggests that the acquisition discipline has been woeful.

Despite this, it appears seems the board is hell-bent on continuing down this acquisition path. Despite how value-destructive it looks to have been.


And then there's the question about the operational management of the business: while Revenues have been maintained at near-record highs for the past 4 or 5 years, ostensibly due to acquisitions, Employee Expenses have roared ahead, up by one-third in the past four years alone.

As a result, Employee Expenses as a % of Revenue (ALQ's largest single expense item) has undergone an inexorable upward march for as long as I have cared to go back (2005), rising from the mid 20% levels, to 50% today:

EMPLOYEE EXPENSES-TO-REVENUE

SH04: 24.9%
MH05: 27.8%
SH05: 27.5%
MH06: 29.4%
SH06: 28.8%
MH07: 27.7%
SH07: 29.1%
MH08: 30.4%
SH08: 31.0%
MH09: 33.0%
SH09: 33.2%
MH10: 37.1%
SH10: 36.9%
MH11: 36.9%
SH11: 36.7%
MH12: 41.3%
SH12: 39.6%
MH13: 41.4%
SH13: 45.4%
MH14: 46.9%
SH14: 48.3%
MH15: 47.2%
SH15: 49.0%
MH16: 50.5%


So from both a capital management as well as cost management, it strikes me that there is a distinct lack of focus, as borne out by the financial facts.

At one stage I thought that this was quite an investment grade company.

Today, given the apparent disregard for shareholder value generation, I wouldn't invest my money in it.