SGS 2013 Full Year Results Presentation

CONTENT
 FINANCIAL HIGHLIGHTS
2013 Highlights
Revenue Analysis
Operating Income Analysis

BUSINESS OVERVIEW

FINANCIAL HIGHLIGHTS

Cash Flows
Currency Analysis
Second half 2013

 BUSINESS OVERVIEW

Financial community – 21 January 2014

2

Not updated


2013 HIGHLIGHTS


3

HIGHLIGHTS
 Revenue growth of 6.5% to CHF 5.8 billion (constant currency)
 4.7% (historical rates)
 Organic revenue growth of 4.4% (constant currency)
 Adjusted Operating income(1) up 6.9% (constant currency) to
CHF 977 million, resulting in a margin of 16.8%
 Restructuring costs net of tax of CHF 23 million
 Net Income for the year of CHF 600 million
 Basic EPS of CHF 78.43 per share, up 9.7%
 Free Cash Flow CHF 591 million, up 43.4%
 Proposed dividend to shareholders of CHF 65 per share


1)

Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs

4

CHF million

2013
December

Revenue
Change in %

2012
December
Pro-forma (2)

2012
December
Restated(3)

5,830

Adjusted Operating Income (1)
Change in %
Adjusted Operating Income Margin (1)

5,473
6.5 %

5,569
4.7 %

977

913
6.9 %

931
4.9 %

16.7 %

16.7 %

16.8 %

Operating Income (EBIT)
Change in %

912

816
11.8 %

834
9.4 %

Adjusted Net Income (1)
Change in %

652

606
7.6 %

617
5.7 %

Net Income
Change in %

600

533
12.6 %

545
10.1 %

79.51
69.95

81.06
71.52

Adjusted Basic EPS (1) (CHF)
Basic EPS (CHF)

1)
2)

85.27
78.43

3) Restated for IAS 19 / IFRS 11
Constant currency and restated for IAS 19 / IFRS 11

5

SERVICE PORTFOLIO
REVENUE

GIS
AUTO 4.7%
5.2%

AGRI
6.5%

ENVI
5.6%

MIN
13.6%

ADJUSTED
OPERATING INCOME (1)
AUTO
6.7%

GIS
7.0%

AGRI
6.7%
MIN
12.6%

ENVI
3.5%

IND
11.0%

IND
16.5%
OGC
19.6%

OGC
15.8%
SSC
7.5%

SSC
6.9%

LIFE
2.8%
CTS
17.9%

LIFE
3.5%

CTS
26.4%

REVENUE REGION

ASIA PACIFIC
29.0%

EUROPE /
AFRICA /
MIDDLE EAST
46.2%

AMERICAS
24.8%


1)


6

Not updated


REVENUE ANALYSIS


7

REVENUE GROWTH COMPOSITION
4.4%

2.1%

0.0%

(1.8)%

4.7%

117
(95)

239

5,830
Constant currency growth:

6.5%

5,569

Revenues
1
December 12

Organic

Acquisitions

Disposals

Currency
impact

Revenues
December 13
1) Restated

for IFRS 11

8

LOCAL CURRENCY GROWTH BY BUSINESS

AGRI
MIN

3.8%
(7.8)%

(5.2)%

2.6%

OGC
LIFE

9.4%
0.1%

2.2%
11.2%

SSC

3.9%

IND

2.1%
(0.3)%

0.2%

4.1%
8.3%

3.3%

3.0%
10.4%

GIS

1.0%

11.4%

11.1%

Acquisition

11.1%

2.1%

4.4%
Organic


0.8% 12.0%

6.2%

AUTO

TOTAL

10.3%

0.9%

2.1%

CTS

ENVI

5.5%

1.7%

6.5%
Disposal
Prior year restated for IFRS 11

9

REVENUE GROWTH AND HEADCOUNT
CHANGE BY REGION
Δ in EOP headcount

Group Headcount
Europe / Africa &
Middle East

1.3%

1.7%

3.0%

Δ

2013
2012
December December
81,948

79,208

2,740

Organic Business Growth

1,542

Acquisitions

1,198

Disposals
6.0%

Americas

4.5%

-

10.5%

Increase in Group Headcount

Asia / Pacific

0.8%

8.2%

9.0%

By Region

2,740

Headcount Headcount Revenues
Δ
Δ%
Δ%

Europe / Africa / Middle East

Organic


0.9 %

3.0 %

260

1.4 %

10.5 %

Asia / Pacific

2,188

7.8 %

9.0 %

TOTAL

2.1%

4.4%

292

Americas

TOTAL GROUP

2,740

3.5%

6.5%

6.5%

Acquisition

Disposal


10

Not updated


OPERATING INCOME ANALYSIS


11

ADJUSTED OPERATING INCOME(1) GROWTH
4.8%

2.1%

0.0%

(2.0)%

4.9%

20
(18)

44

Constant currency growth:

977

6.9%

931

Op. Income
2
December 12

Organic
1)
2)

Acquisitions

Disposals

Currency
impact

Op. Income
December 13

Restated for IAS 19 / IFRS 11

12

HISTORICAL RESTATED MARGINS
Adjusted EBITDA MARGIN(1)

DEC 09

DEC 10

Adjusted OPERATING MARGIN(1)

DEC 11

DEC 12

DEC 13

DEC 09

25.0%

DEC 13

17.3%

17.6%

16.8%

16.7%

16.8%

10.0%

10.0%

DEC 12

15.0%

15.0%

DEC 11

20.0%

20.0%

DEC 10

5.0%

5.0%

21.8%

22.2%


21.2%

21.2%

21.5%

1)

and prior years restated for IAS 19 / IFRS 11

13

ADJUSTED OPERATING MARGIN(1) BY BUSINESS

30.0%

1)
2)

24.8%
21.0%

GIS

22.0%
AUTO

ENV

10.6%

11.2%

IND

11.2%

18.3%
2

10.3%

18.3%
December 12


SSC

24.8%

CTS

LIFE

8.5%

13.1%
OGC

18.7%

MIN

AGRI

5.0%

16.5%

10.0%

13.2%

13.5%

15.0%

15.6%

17.1%

20.0%

21.6%

24.8%

25.0%

December 13


14

RESTRUCTURING COSTS
RESTRUCTURING
BY BUSINESS

ENVI
7.0%

AUTO AGRI
0.6% 0.6%

RESTRUCTURING
2013 BY REGION

MIN
9.7%
OGC
2.7%

ASIA PACIFIC
10.9%

AMERICAS
4.8%

LIFE
18.7%

IND
47.1%
CTS
10.6%
SSC
3.0%


EUROPE /
AFRICA /
MIDDLE EAST
84.3%

15

CASH FLOW
CHF million
PROFIT FOR THE PERIOD
Depreciation, amortisation and impairment
Share based payments
Tax
Other
Non-cash items
(Increase)/decrease in working capital
Taxes paid
OPERATING CASH FLOW
Net (purchase) / sale of fixed assets
Acquisition of businesses
Other from investing activities
CASH FLOW FROM INVESTING ACTIVITIES
Dividend paid to equity holders of SGS SA
Dividend paid to non-controlling interests
Net cash received/(paid) on treasury shares
Interest paid
Net flows on interest rate swaps
Increase/(decrease) in borrowings
CASH FLOW FROM FINANCING ACTIVITIES
Currency translations
(DECREASE) IN CASH AND CASH EQUIVALENTS

Dec 13

Dec 121

638

579

298
5
236
13
552
(29)
(213)
948
(333)
(108)
16
(425)
(444)
(27)
4
(46)
2
(5)
(516)
(13)
(6)

280
14
214
(7)
501
(73)
(209)
798
(376)
(182)
1
(557)
(497)
(24)
76
(46)
37
(12)
(466)
(5)
(230)
1)


16

CAPITAL EXPENDITURE
CAPEX REGION

CAPEX
BUSINESS
AUTO
7.0%

ASIA PACIFIC
33.3%

GIS
6.4%

AGRI
4.2%

MIN
16.8%

ENVI
6.2%
EUROPE /
AFRICA /
MIDDLE EAST
46.0%

IND
9.0%
SSC
1.4%

OGC
19.0%

CTS
25.5%

AMERICAS
20.7%

LIFE
4.5%

ANNUAL CAPEX
CHF million

2008

2009

2010

2011

2012

2013

500

400

300

200

100
Capital Expenditure


Depreciation & amortisation

17

FOREIGN CURRENCY REVENUES 2013

EUR
27.7%

Other
27.9%

CLP
2.7%
BRL
2.9%
GBP
2.9%
TWD
2.9% CAD
4.1%


AVERAGE RATES
2013
2012
Change
EUR 1.2309
1.2055
2.1 %
USD 0.9272
0.9380
(1.1)%
CNY 0.1508
0.1487
1.4 %
AUD 0.8985
0.9712
(7.5)%
CAD 0.9009
0.9384
(4.0)%
TWD 0.0312
0.0317
(1.5)%
GBP 1.4501
1.4863
(2.4)%
BRL 0.4320
0.4819
(10.4)%
CLP 0.0019
0.0019
(2.7)%
HKD 0.1195
0.1209
(1.1)%

USD
13.2%

AUD
5.1%

CNY
10.6%

18

FOREIGN CURRENCY SENSITIVITY ANALYSIS
EURO

Revenues
Income
CNY
Revenues
Income


1.25

(41)
(4)

0
0

25
3

0.93

0.96

(31)
(3)

0
0

27
2

0.14

USD

1.23

0.89

Revenues
Income

1.20

0.15

0.16

(44)
(13)

0
0

38
11

19

SECOND HALF 2013


20

FINANCIAL HIGHLIGHTS (H2)
CHF million

2013
H2

Revenue
Change in %

2,978

2,813
5.9 %

2,922
1.9 %

539

503
7.2 %

523
3.1 %

17.9 %

17.9 %

Adjusted Operating Income (1)
Change in %
Adjusted Operating Income Margin (1)

18.1 %

2012
H2
Pro-forma (2)

2012
H2
Restated(3)

Operating Income (EBIT)
Change in %

501

445
12.6 %

465
7.7 %

Adjusted Net Income (1)
Change in %

365

334
9.3 %

347
5.2 %

Net income
Change in %

335

292
14.7 %

306
9.5 %


1)
2)

3) Restated for IAS 19 / IFRS 11
Constant currency and restated for IAS 19 / IFRS 11

21

REVENUE GROWTH COMPOSITION H2
3.8%

2.1%

0.0%

58

(4.0)%

1.9%

(109)

107

2,978

Constant currency growth: 5.9%

2,922

Revenues
H2 2012 1

Organic

Acquisitions Disposals

Currency
impact

Revenues
H2 2013
1) Restated

for IFRS 11

22

LOCAL CURRENCY GROWTH BY BUSINESS (H2)

AGRI
MIN

6.5%
(10.6)%

(7.4)%
8.7%

LIFE

7.2%

3.2%

OGC

9.4%

0.7%

(1.6)%

(1.6)%

CTS

10.9%

10.9%

SSC

3.2%

IND
ENVI

0.7%

(1.2)%

3.7%

7.0%

0.9%

0.5%

7.9%

2.6%

1.4%

AUTO

12.7%

GIS
TOTAL

12.0%
3.8%
Organic


2.1%
Acquisition

1.2%

13.9%
12.0%
5.9%

Disposal

23

ADJUSTED OPERATING MARGIN(1) BY
BUSINESS (H2)

1)
2)

19.7%

GIS

AUTO

22.0%

12.4%
ENV

IND

12.6%

19.9%
2

12.9%

12.3%
H2 - 2012


SSC

26.9%

CTS

LIFE

9.3%

14.1%
OGC

19.1%

MIN

AGRI

5.0%

18.4%

10.0%

12.1%

14.8%

15.8%

15.0%

19.9%

20.3%

20.0%

21.6%

25.0%

26.6%

26.7%

30.0%

H2 - 2013


24

Not updated

BUSINESS OVERVIEW

BUSINESS OVERVIEW


25

AGRICULTURAL SERVICES (AGRI)
CHF million

Revenue

December December December
2013
2012
2012
2
Pro-forma Restated3
381.3

Adj. Operating Inc. (1)
Change in %

Margin %1

17.1

(1)

3.2

59.4

7.2

16.4

16.5

Before amortisation of acquisition intangibles, restructuring, transaction
and integration- related costs
(2)
Restated figures on a constant currency basis
(3)



60.9

9.9

65.3

369.5

5.5

Change in %

361.3

 Overview 2013





Restated figures due to IAS 19, IFRS 11

Organic growth of 3.8% despite difficult trading
conditions in the Black Sea and Danube Corridor in
H1 as well as in Asia Pacific in H2.
Additional growth from acquisitions closed in 2012:
Gravena (Brazil) and WareCare (Netherlands), both
performing ahead of expectations.
Seed and Crop and fumigation services continue to
deliver double digit growth.
Solid growth and margin improvement in North
America due to deregulation of the Canadian Wheat
Board and Canadian Grain Commission as well as
successful cost saving initiatives.

 Outlook






Positive H2 2013 trading trends in Eastern Europe
and North America to continue into H1 2014,
partially offset by challenging market conditions in
Asia Pacific.
Increased lab capabilities in Central & Eastern
Europe expected to come online in H2.
Solid growth in Seed and Crop to continue as
expansion efforts in South America and Africa gain
traction.
26

MINERALS SERVICES (MIN)
CHF million

Revenue

2013
2012
2012
2
Pro-forma Restated3
791.9

Change in %

Margin %1

15.6

(1)

(8.8)

156.0

162.1

(20.9)

123.4

868.0

(5.2)

Change in %

835.1

(23.9)

18.7




18.7

(2)
(3)

 Overview 2013






Challenging market conditions throughout the year
resulted in a revenue decline and pressure on
margins.
Trade business delivered double-digit growth from
geographic expansion and increased market share.
Mining and exploration companies significantly
reduced their expenditure on exploration impacting
Geochem and Metallurgy.
Sample load into the Commercial Geochem network
declined significantly versus prior year.
Restructuring activity undertaken in order to align
the cost base.

 Outlook






Market conditions not expected to improve in 2014.
Trade inspections will continue to grow as producers
maximise output from existing operations.
Continued low volumes and price pressure in
commercial Geochem as competitors seek to fill
available capacity.
Benefits from restructuring will improve margin.
Additional revenues from 7 laboratories opened in
2013 and from 5 new laboratories starting in 2014.
27

OIL, GAS & CHEMICALS SERVICES (OGC)
CHF million

Revenue

2013
2012
2012
2
Pro-forma Restated3
1,139.9

Change in %

Margin %1

13.5

(1)

9.0

135.6

137.1

13.6

154.0

1,046.0

10.3

Change in %

1,033.8

12.3

13.1



13.1

(2)
(3)

 Overview 2013





Upstream Services delivered outstanding growth
across whole portfolio (Australia and Middle East,
Asia, Eastern Europe).
Continued growth in Plant and Terminal Operations
specifically in the USA and Canada.
Growth in Oil Condition Monitoring from the Herguth
acquisition in the USA and expansion into new
geographies.
Slowdown in trade-related activities in Europe and
North America offsetting growth in other
geographies.


 Outlook






Upstream Services growth to remain strong
capitalising on new contracts and pre-qualifications
achieved as well as footprint expansion.
Strong pipeline of laboratory commissioning and
outsourcing projects.
Trade related activities to deliver moderate growth
despite reduced ethanol export volumes in Brazil.
Better efficiency due to implementation of integrated
execution platform and back office improvements.
28

LIFE SCIENCE SERVICES (LIFE)
CHF million

Revenue

2013
2012
2012
2
Pro-forma Restated3
205.0

Change in %

Margin %1

13.2

(1)

16.9

59.4

8.5

(2)
(3)



17.0

8.4



2.9

60.4

27.1

199.3

2.2

Change in %

200.6

 Overview 2013
Adjusted for the winding-down of the Paris clinical
trial activities, revenue growth reached 11.1%.
Strong performance in laboratory services:
 Europe supported by UK biologics capabilities.
 North America supported by investments in capacity
expansion completed 2012 investments.
 Asia supported by global key accounts.





Clinical Research delivered limited growth due to
market difficulties and continued price pressures.
Margin improvement due to winding-down of Paris
clinical activities and profitable double-digit growth in
laboratory activities.

 Outlook






Laboratory growth and margin to continue improving
thanks to investments in the network and global key
account management activities.
Biologics testing to remain a strong driver of top and
bottom line improvement with highest margins.
Execution excellence & higher quality service
delivery remain top priority areas.
Clinical Research to improve sales performance and
drive operational efficiency.
29

CONSUMER TESTING SERVICES (CTS)
CHF million

Revenue

2013
2012
2012
2
Pro-forma Restated3
1,041.9

Change in %

Margin %1

24.8

11.3

231.7

232.4

11.5

258.3

936.2

12.0

Change in %

930.6

11.1

24.9

24.8

 Overview 2013





(1)

(2)
(3)

Double-digit organic revenue growth primarily driven
by Eastern Asia, South America, Eastern Europe
and Middle East across all business segments.
Achieved market share gains thanks to targeted
investments in E&E and Automotive parts testing
Secured new strategic accounts in Softlines and
Toys testing.
Pressure on the margins remains, resulting from
operational cost increases in Asia and the timing of
new investments in capacity expansion in Asia and
North America.


 Outlook






Asia and South America will continue generating
solid growth; Europe performance to improve.
Network expansion in key geographies and
increased capacity in high growth segments will
contribute to continued growth.
Further development of existing service portfolio into
new geographies.
Enhancement of IT systems to deliver more effective
supply chain solutions.
30

SYSTEMS & SERVICES CERTIFICATION (SSC)
CHF million

Revenue

2013
2012
2012
2
Pro-forma Restated3
401.6

Change in %

Margin %1

18.3

(1)

1.7

70.1

1.5

18.2

18.3

(2)
(3)




72.2

4.6

73.3

394.9

4.1

Change in %

385.7

 Overview 2013






Revenue growth significantly impacted by the
difficult economic environment in Europe and Japan
throughout the year.
Cost saving programs implemented in Europe and
Japan, as well as operational efficiency initiatives
protected margins.
Hart Aviation acquisition expanded the service
offering to the aviation industry.
Strong demand for medical device certification and
food safety schemes.
Good performance of Training with SGS Academy
gradually implemented in all regions.

 Outlook






Margins expected to remain stable thanks to
restructuring and further efficiency gains.
Double-digit growth expected in Performance
Assessment and Training.
Food and Medical Devices will remain major growth
drivers in certification.
Further development of new services such as
Access Control Solution, Health and Safety
compliance and aviation safety certification.
31

INDUSTRIAL SERVICES (IND)
CHF million

Revenue

2013
2012
2012
2
Pro-forma Restated3
960.3

Change in %

Margin %1

11.2

6.9

99.0

100.2

8.4

107.3

898.6

8.3

Change in %

886.5

11.2




7.1

11.2

 Overview 2013




(1)

(2)
(3)

Organic revenue growth and margins impacted by
soft market conditions in Europe.
Double-digit organic growth in most regions outside
Europe.
Continued restructuring and repositioning to meet
new market conditions across Europe and protect
margins.
Acquisition of four laboratories in line with the
strategy to increase testing activities in the portfolio:
Labmat in Brazil, MSi in USA, CQA in Australia and
MIS Testing in the UK.


 Outlook







Market conditions in Europe expected to stabilise.
Gradual margin improvement anticipated in Europe
following restructuring and repositioning plan.
Growth to remain strong in other geographies.
Increase focus on lab testing: green field
development and acquisitions.
Enhance key account management and sales
structure in key sectors.
Continue expansion in high growth markets.
32

ENVIRONMENTAL SERVICES (ENVI)
CHF million

Revenue

2013
2012
2012
2
Pro-forma Restated3
328.0

Change in %

Margin %1

10.3

33.5

34.2
(1.2)

10.5

10.6




1.6

0.9

33.8

322.7

3.0

Change in %

318.5

 Overview 2013




(1)

(2)
(3)




Strong impact on performance from European
operations due to overall economic situation.
Results also affected by mining sector slow down in
the Americas, Africa and Australia, partly offset by
customer diversification and cost control plans.
Weakness of carbon price resulted in a strong
reduction of our CDM portfolio in China and India.
Continued geographical and service diversification
with market entry in some Asian and African
countries, where we experienced strong growth.
Expanded footprint in Germany and UK through
acquisition of RUK and MIS Environmental.

 Outlook






Continue diversification in Asia and the Americas to
reduce dependency on Europe.
Additional restructuring of European operations
completed in 2013 will lift overall margin.
Optimise European laboratory network through an
improved regional sample distribution model.
New revenues from global contracts signed in 2013
for Industrial Hygiene, Monitoring and Energy audits.
33

AUTOMOTIVE SERVICES (AUTO)
CHF million

Revenue

2013
2012
2012
2
Pro-forma Restated3
305.1

Change in %
1

Margin %

21.6

(1)

10.0

60.8

60.9

8.2

65.8

277.4

11.4

Change in %

273.8

8.0

22.2




22.0

(2)
(3)

 Overview 2013







Statutory inspection business provided solid results
in Europe, Africa, North America and South
America.
New road safety services rolled out in Kenya.
New vehicle and boat tax collection contract being
implemented in Ivory Coast.
Contract for Identity Authentication Services as part
of the driver’s license program started in Ireland.
Commercial inspection volumes picking up in the
USA and remained stable in Europe.
Acquisitions concluded in France and China.

 Outlook





Concession for statutory vehicle inspections in the
city of Guayaquil, Ecuador and in Mauritius will start
generating revenues as of H2 2014.
New York statutory program ended in December
2013 and Santiago concession in Chile to end in
July 2014, negatively impacting organic growth.
Acquisition strategy will focus on enhancing
capabilities & footprint for engine & vehicle testing.
34

GOVERNMENTS AND INSTITUTIONS SERVICES (GIS)
CHF million

Revenue

2013
2012
2012
2
Pro-forma Restated3
274.7

Change in %

Margin %1

24.8

(1)

7.3

50.3

53.7

35.6

68.2

256.0

11.1

Change in %

247.2

27.0

20.3




21.0

(2)
(3)

 Overview 2013






Good growth in Local Solutions with Product
Conformity Assessment (PCA) programs as main
driver.
Unexpected extension of the Destination Inspection
program in Nigeria until November 2013.
Strong performance for TradeNet in Ghana and
Madagascar as well as an excellent start in
Mozambique.
New full scale Telecom monitoring activities in
Tanzania started operating in H2.
PSI Angola and Bangladesh discontinued.

 Outlook







Continued growth from PCA programs with new
contracts.
New forestry program in Liberia.
Complete deployment of TradeNet in Mozambique.
Complete implementation of new mandate in Ghana
(Ghana Revenue Authority).
New contracts for Cargo Tracking and Telecoms
monitoring.
35

SGS 2013 Full Year Results Presentation

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SGS 2013 Full Year Results Presentation