SGS 2013 Full Year Results Presentation

2 Financial community – 21 January 2014

B

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CONTENT

FINANCIAL HIGHLIGHTS

2013 Highlights

Revenue Analysis

Operating Income Analysis

Cash Flows

Currency Analysis

Second half 2013

BUSINESS OVERVIEW

F

INA

NC

IAL

HIG

HL

IGH

TS

3

2013 HIGHLIGHTS

FIN

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CIA

L H

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LIG

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Not updated

Financial community – 21 January 2014

4

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 Financial community – 21 January 2014

5

FINANCIAL HIGHLIGHTS

1) Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs 2) Constant currency and restated for IAS 19 / IFRS 11 3) Restated for IAS 19 / IFRS 11


CHF million 2013

December

2012

December

2012

December

Pro-forma(2) Restated(3)

Revenue 5,830 5,473 5,569

Change in % 6.5 % 4.7 %

Adjusted Operating Income (1) 977 913 931

Change in % 6.9 % 4.9 %

Adjusted Operating Income Margin (1) 16.8 % 16.7 % 16.7 %

Operating Income (EBIT) 912 816 834

Change in % 11.8 % 9.4 %

Adjusted Net Income (1) 652 606 617

Change in % 7.6 % 5.7 %

Net Income 600 533 545

Change in % 12.6 % 10.1 %

Adjusted Basic EPS(1) (CHF) 85.27 79.51 81.06

Basic EPS (CHF) 78.43 69.95 71.52

6

SERVICE PORTFOLIO

1) Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs Financial community – 21 January 2014

AGRI6.7%

MIN12.6%

OGC15.8%

LIFE2.8%

CTS26.4%

SSC7.5%

IND11.0%

ENVI3.5%

AUTO6.7%

GIS7.0%

ADJUSTED OPERATING INCOME(1)

AGRI6.5%

MIN13.6%

OGC19.6%

LIFE3.5%CTS

17.9%

SSC6.9%

IND16.5%

ENVI5.6%

AUTO5.2%

GIS4.7%

REVENUE

EUROPE / AFRICA /

MIDDLE EAST

46.2%

AMERICAS24.8%

ASIA PACIFIC29.0%

REVENUE REGION

7

REVENUE ANALYSIS

FIN

AN

CIA

L H

IGH

LIG

HT

S

Not updated


8

REVENUE GROWTH COMPOSITION


RevenuesDecember 12 Organic Acquisitions Disposals

Currencyimpact

RevenuesDecember 13

5,569

239

117 (95)

5,830

4.4% 2.1% 0.0% (1.8)% 4.7%

Constant currency growth: 6.5%

1) Restated for IFRS 11

1

9

LOCAL CURRENCY GROWTH BY BUSINESS


4.4%

11.1%

10.4%

(0.3)%

2.1%

3.9%

11.2%

0.1%

9.4%

(7.8)%

3.8%

2.1%

1.0%

3.3%

6.2%

0.2%

0.8%

2.1%

0.9%

2.6%

1.7%

TOTAL

GIS

AUTO

ENVI

IND

SSC

CTS

LIFE

OGC

MIN

AGRI

Organic Acquisition Disposal

5.5%

(5.2)%

10.3%

2.2%

12.0%

4.1%

8.3%

3.0%

11.4%

11.1%

6.5%

Prior year restated for IFRS 11

10

REVENUE GROWTH AND HEADCOUNT

CHANGE BY REGION


4.4%

8.2%

6.0%

1.3%

2.1%

0.8%

4.5%

1.7%

TOTAL GROUP

Asia / Pacific

Americas

Europe / Africa & Middle East


3.0%

10.5%

9.0%

6.5%

Δ in EOP headcount 2013

December

2012

December

Δ

Group Headcount 81,948 79,208 2,740

Organic Business Growth 1,542

Acquisitions 1,198

Disposals -

Increase in Group Headcount 2,740

By Region Headcount

Δ

Headcount

Δ%

Revenues

Δ%

Europe / Africa / Middle East 292 0.9 % 3.0 %

Americas 260 1.4 % 10.5 %

Asia / Pacific 2,188 7.8 % 9.0 %

TOTAL 2,740 3.5% 6.5%


11

OPERATING INCOME ANALYSIS

FIN

AN

CIA

L H

IGH

LIG

HT

S

Not updated


12

ADJUSTED OPERATING INCOME(1) GROWTH


Op. IncomeDecember 12 Organic Acquisitions Disposals

Currencyimpact

Op. IncomeDecember 13

931

44

20

(18)

977

4.8% 2.1% 0.0% (2.0)% 4.9%


1) Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs 2) Restated for IAS 19 / IFRS 11

2

13

HISTORICAL RESTATED MARGINS

Financial community – 21 January 2014 1) Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs and prior years restated for IAS 19 / IFRS 11

5.0%

10.0%

15.0%

20.0%

25.0%

Adjusted EBITDA MARGIN(1)

DEC 09 DEC 10 DEC 11 DEC 12 DEC 13

21.8% 22.2% 21.2% 21.2% 21.5% -

5.0%

10.0%

15.0%

20.0%

Adjusted OPERATING MARGIN(1)

DEC 09 DEC 10 DEC 11 DEC 12 DEC 13

17.3% 17.6% 16.8% 16.7% 16.8%

14

ADJUSTED OPERATING MARGIN(1) BY BUSINESS


16.5

%

18.7

%

13.1

%

8.5

%

24.8

%

18.3

%

11.2

%

10.6

%

22.0

%

21.0

%

17.1

%

15.6

%

13.5

%

13.2

%

24.8

%

18.3

%

11.2

%

10.3

%

21.6

%

24.8

%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

AG

RI

MIN

OG

C

LIF

E

CT

S

SS

C

IND

EN

V

AU

TO

GIS

December 12 December 13

1) Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs 2) Restated for IAS 19 / IFRS 11

2

15

RESTRUCTURING COSTS


EUROPE / AFRICA /

MIDDLE EAST84.3%

AMERICAS4.8%

ASIA PACIFIC10.9%

RESTRUCTURING 2013 BY REGIONAGRI

0.6% MIN9.7%

OGC2.7%

LIFE18.7%

CTS10.6%

SSC3.0%

IND47.1%

ENVI7.0%

AUTO0.6%

RESTRUCTURING BY BUSINESS

16

CASH FLOW

Financial community – 21 January 2014 1) Restated for IAS 19 / IFRS 11

CHF million Dec 13 Dec 12

PROFIT FOR THE PERIOD 638 579

Depreciation, amortisation and impairment 298 280

Share based payments 5 14

Tax 236 214

Other 13 (7)

Non-cash items 552 501

(Increase)/decrease in working capital (29) (73)

Taxes paid (213) (209)

OPERATING CASH FLOW 948 798

Net (purchase) / sale of fixed assets (333) (376)

Acquisition of businesses (108) (182)

Other from investing activities 16 1

CASH FLOW FROM INVESTING ACTIVITIES (425) (557)

Dividend paid to equity holders of SGS SA (444) (497)

Dividend paid to non-controlling interests (27) (24)

Net cash received/(paid) on treasury shares 4 76

Interest paid (46) (46)

Net flows on interest rate swaps 2 37

Increase/(decrease) in borrowings (5) (12)

CASH FLOW FROM FINANCING ACTIVITIES (516) (466)

Currency translations (13) (5)

(DECREASE) IN CASH AND CASH EQUIVALENTS (6) (230)

1

17

CAPITAL EXPENDITURE


AGRI4.2%

MIN16.8%

OGC19.0%

LIFE4.5%

CTS25.5%

SSC1.4%

IND9.0%

ENVI6.2%

AUTO7.0%

GIS6.4%

CAPEX BUSINESS

EUROPE / AFRICA /

MIDDLE EAST

46.0%

AMERICAS20.7%

ASIA PACIFIC33.3%

CAPEX REGION

100

200

300

400

500

Capital Expenditure Depreciation & amortisation

2008 2009 2010 2011 2012 2013

ANNUAL CAPEXCHF million

18

FOREIGN CURRENCY REVENUES 2013


EUR27.7%

USD13.2%

CNY10.6%

AUD5.1%

CAD4.1%

TWD2.9%

GBP2.9%

BRL2.9%

CLP2.7%

Other27.9%

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)%

AVERAGE RATES

19

FOREIGN CURRENCY SENSITIVITY ANALYSIS


EURO 1.20 1.23 1.25

Revenues (41) 0 25

Income (4) 0 3

USD 0.89 0.93 0.96

Revenues (31) 0 27

Income (3) 0 2

CNY 0.14 0.15 0.16

Revenues (44) 0 38

Income (13) 0 11

20

SECOND HALF 2013


21

FINANCIAL HIGHLIGHTS (H2)

Financial community – 21 January 2014 1) Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs 2) Constant currency and restated for IAS 19 / IFRS 11 3) Restated for IAS 19 / IFRS 11

CHF million 2013

H2

2012

H2

2012

H2

Pro-forma(2) Restated(3)

Revenue 2,978 2,813 2,922

Change in % 5.9 % 1.9 %

Adjusted Operating Income (1) 539 503 523

Change in % 7.2 % 3.1 %

Adjusted Operating Income Margin (1) 18.1 % 17.9 % 17.9 %

Operating Income (EBIT) 501 445 465

Change in % 12.6 % 7.7 %

Adjusted Net Income (1) 365 334 347

Change in % 9.3 % 5.2 %

Net income 335 292 306

Change in % 14.7 % 9.5 %

22

REVENUE GROWTH COMPOSITION H2

Financial community – 21 January 2014 1) Restated for IFRS 11

1 RevenuesH2 2012 Organic Acquisitions Disposals

Currencyimpact

RevenuesH2 2013

2,922

107

58 (109)

2,978

3.8% 2.1% 0.0% (4.0)% 1.9%


23

LOCAL CURRENCY GROWTH BY BUSINESS (H2)


3.8%

12.0%

12.7%

(1.2)%

0.9%

3.2%

10.9%

(1.6)%

8.7%

(10.6)%

6.5%

2.1%

1.2%

2.6%

7.0%

0.5%

0.7%

3.2%

0.7%

TOTAL

GIS

AUTO

ENVI

IND

SSC

CTS

LIFE

OGC

MIN

AGRI


7.2%

(7.4)%

9.4%

(1.6)%

10.9%

3.7%

7.9%

1.4%

13.9%

12.0%

5.9%


24

ADJUSTED OPERATING MARGIN(1) BY

BUSINESS (H2)

Financial community – 21 January 2014 1) Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs 2) Restated for IAS 19 / IFRS 11

18.4

%

19.1

%

14.1

%

9.3

%

26.9

%

19.9

%

12.6

%

12.9

%

22.0

%

19.7

%

20.3

%

15.8

%

14.8

%

12.1

%

26.7

%

19.9

%

12.3

%

12.4

%

21.6

%

26.6

%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

AG

RI

MIN

OG

C

LIF

E

CT

S

SS

C

IND

EN

V

AU

TO

GIS

H2 - 2012 H2 - 20132

25

BUSINESS OVERVIEW

BU

SIN

ES

S O

VE

RV

IEW

Not updated


26

AGRICULTURAL SERVICES (AGRI)

Overview 2013

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.

CHF million December

2013

December

2012

December

2012

Pro-forma2 Restated3

Revenue 381.3 361.3 369.5

Change in % 5.5 3.2

Adj. Operating Inc.(1) 65.3 59.4 60.9

Change in % 9.9 7.2

Margin %1 17.1 16.4 16.5

(1) Before amortisation of acquisition intangibles, restructuring, transaction

and integration- related costs(2)

Restated figures on a constant currency basis(3)

Restated figures due to IAS 19, IFRS 11


27

MINERALS SERVICES (MIN)

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.


2013

December

2012

December

2012


Revenue 791.9 835.1 868.0

Change in % (5.2) (8.8)


Change in % (20.9) (23.9)

Margin %1 15.6 18.7 18.7






28

OIL, GAS & CHEMICALS SERVICES (OGC)

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.


2013

December

2012

December

2012


Revenue 1,139.9 1,033.8 1,046.0

Change in % 10.3 9.0


Change in % 13.6 12.3

Margin %1 13.5 13.1 13.1






29

LIFE SCIENCE SERVICES (LIFE)

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.


2013

December

2012

December

2012


Revenue 205.0 200.6 199.3

Change in % 2.2 2.9


Change in % 60.4 59.4

Margin %1 13.2 8.4 8.5






30

CONSUMER TESTING SERVICES (CTS)

Overview 2013

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.


2013

December

2012

December

2012


Revenue 1,041.9 930.6 936.2

Change in % 12.0 11.3


Change in % 11.5 11.1

Margin %1 24.8 24.9 24.8






31

SYSTEMS & SERVICES CERTIFICATION (SSC)

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.


2013

December

2012

December

2012


Revenue 401.6 385.7 394.9

Change in % 4.1 1.7


Change in % 4.6 1.5

Margin %1 18.3 18.2 18.3






32

INDUSTRIAL SERVICES (IND)

Overview 2013

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.


2013

December

2012

December

2012


Revenue 960.3 886.5 898.6

Change in % 8.3 6.9


Change in % 8.4 7.1

Margin %1 11.2 11.2 11.2






33

ENVIRONMENTAL SERVICES (ENVI)

Overview 2013

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.


2013

December

2012

December

2012


Revenue 328.0 318.5 322.7

Change in % 3.0 1.6


Change in % 0.9 (1.2)

Margin %1 10.3 10.5 10.6






34

AUTOMOTIVE SERVICES (AUTO)

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.


2013

December

2012

December

2012


Revenue 305.1 273.8 277.4

Change in % 11.4 10.0


Change in % 8.2 8.0

Margin %1 21.6 22.2 22.0






35

GOVERNMENTS AND INSTITUTIONS SERVICES (GIS)

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.


2013

December

2012

December

2012


Revenue 274.7 247.2 256.0

Change in % 11.1 7.3


Change in % 35.6 27.0

Margin %1 24.8 20.3 21.0






SGS 2013 Full Year Results Presentation

Investor Relations

Transcript of SGS 2013 Full Year Results Presentation