"One other aspect of this metric could be that ALQ is moving a...

"One other aspect of this metric could be that ALQ is moving a bit more into the grey hair area, or consulting, which would be more wage intensive."

Nope, sorry... I still don't buy it.

The fact is that whatever they are doing, it is highly margin dilutive.

And I am almost convinced, because the margin erosion has occurred over an extended time frame (EBIT margins are today, at some 11%, at the same sorts of levels they were in 2003 and 2004, before they had a Life Science business, whose EBIT margins are around 17%/18%.

So in 2003/4 your margins were X%, and then you spent hundreds of millions of dollars to acquire a business (outside of minerals testing), whose margins are almost double X% (and remember that this supposedly stable- and high-margin non-minerals business is today double the size of your minerals business), and yet today your overall group margins are still at X%, then I think it is fair to say that something is not right here.

Personally, I don't believe its a function of what they are doing that is impacting margins, but it is due to what they are, in fact, NOT doing. And that is, closely monitoring businesses expenses and actively controlling them.

Like many services providers to the mining industry over, I think the commodity boom made them complacent.


"Their ROA and ROE up until two years ago hasn't suggested that they were losing their competitive edge? There may be more work being done outside the lab."

I disagree.

I think that Underlying Returns have been masked by the commodity boom, but now that the tide has gone out returns are today less than half of what they where before the boom.


ALQ's ROA (EBIT/ASSETS:
2003: 13.3%
2004: 14.7%
2005: 13.8%
2006: 14.8%
2007: 15.9%
2008: 18.2%
2009: 20.6%
2010: 13.6%
2011: 18.0%
2012: 20.4%
2013: 20.0%
2014: 9.5%
2015: 7.3% (after adding back asset write-downs)
2016: 6.0% (after adding back asset write-downs)



ALQ's ROE (NPAT/EQUITY):
2003: 9.4%
2004: 10.8%
2005: 17.1%
2006: 17.2%
2007: 17.9%
2008: 21.5%
2009: 20.6%
2010: 13.6%
2011: 18.0%
2012: 24.3%
2013: 23.9%
2014: 11.2%
2015: 7.3% (after adding back asset write-downs)
2016: 5.6% (after adding back asset write-downs)


The fact is that around $1.3 bn of acquisitions have been made over the past decade or so, of which $600m has subsequently been written off over the past two years.

For context, that's $1.20 per share of shareholder value that has been torched (or, for more context, around one-third of the company's value today).

Or, put another way, around $900m of capital was raised from shareholders over the past decade; two-thirds of that has been destroyed.

(And that might not be the end of it yet: if the asset base continues to generate a return of 6%, which is below the cost of capital, it is likely that further write-downs loom.)

And this isn't the fault of "the commodity cycle"; it's because of poor capital allocation discipline.

Looks to me like board oversight has gone AWOL.