SGS GROUP RESULTS FIRST HALF 2010 · Financial community – 15 July 2010 5 FINANCIAL HIGHLIGHTS...

SGS GROUP RESULTSFIRST HALF 2010Presentation to the Financial Community

Geneva, 15 July 2010

2Financial community – 15 July 2010

BU

SIN

ESS

OVE

RVI

EWCONTENT

FINANCIAL HIGHLIGHTS2010 Highlights

Revenue Analysis

Operating Income Analysis

Cash Flows

Currency Analysis

BUSINESS OVERVIEW

FIN

AN

CIA

L H

IGH

LIG

HTS


HIGHLIGHTS

1st semester 2010 results• Constant currency revenue growth of 1.7% to CHF 2.4 billion

– 1.0% at historical rates• Adjusted EBITDA(1) margin at 21.2% (+ 30 bps)

– Adjusted EBITDA(1) up 2.7% to CHF 499 million• Adjusted Operating income(1) margin at 16.5% (+ 20 bps)

– Adjusted Operating income(1) up 2.0% to CHF 388 million• Net Profit for the period of CHF 270 million• Basic EPS CHF 35.67 per share

Outlook 2010• SGS maintains its full year forecast of a solid year 2010 with

both revenues and earnings above 2009 levels

(1) Before amortisation of acquisition intangibles, restructuring and transaction-related costs


FINANCIAL HIGHLIGHTS


CHF million 2010June

2009June

Δ%

Revenue - historical rates 2,352 2,327 1.0 % Revenue - constant rates 2,352 2,314 1.7 %

Adjusted EBITDA(1) 499 486 2.7 % Adjusted EBITDA Margin 21.2 % 20.9 %

Adjusted Operating Income(1) 388 380 2.0 % Adjusted Operating Income Margin 16.5 % 16.3 %

Operating Income (EBIT) 383 361 6.1 % Operating Income Margin 16.3 % 15.5 %

Net income 270 255 5.9 %

Basic EPS 35.67 33.98 5.0 % Diluted EPS 35.51 33.89 4.8 % Period end no. of employees (incl. acquisitions) 59,837 56,674 5.6 %




REVENUE

1,300

1,600

1,900

2,200

2,500

CHF million

1,845 2,089 2,298 2,327 2,352

JUN 06 JUN 07 JUN 08 JUN 09 JUN 10

6.26% CAGR

Adjusted OPERATING INCOME(1)

160

220

280

340

400

CHF million


283 326 373 380 388

8.19% CAGR

Adjusted EBITDA(1)

250

320

390

460

530

CHF million

363 418 473 486 499


8.26% CAGR

NET PROFIT

265

100

170

240

310

380

CHF million


215 234 378 255 270

5.86% CAGR




Adjusted EBITDA MARGIN(1)

14.0%

16.0%

18.0%

20.0%

22.0% JUN 06 JUN 07 JUN 08 JUN 09 JUN 10

19.7% 20.0% 20.6% 20.9% 21.2%

Adjusted OPERATING INCOME MARGIN(1)

10.0%

12.0%

14.0%

16.0%

18.0%JUN 06 JUN 07 JUN 08 JUN 09 JUN 10

15.4% 15.6% 16.2% 16.3% 16.5%


SERVICE PORTFOLIO



REVENUE GROWTH COMPOSITION

RevenuesJune 09 Organic Acquisitions Disposals

Currencyimpact

RevenuesJune 10

2,327

22 16

(13)

2,352

1.0% 0.7% 0.0% (0.7)% 1.0%

Constant currency growth: 1.7%


LOCAL CURRENCY GROWTH BY BUSINESS

(3.3)%

7.8%

5.6%

(3.1)%

1.0%

1.2%

(25.0)%

10.6%

5.6%

3.8%

(4.4)%

0.4%

2.9%

2.7%

0.7%TOTAL

GIS

AUTO

ENVI

IND

SSC

CTS

LIFE

OGC

MIN

AGRI

Organic Acquisition Disposal

(3.1)%

6.0%

3.8%

1.2%

5.6%

7.8%

(0.4)%

(1.7)%

(25.0)%

10.6%

1.7%


REVENUE GROWTH AND HEADCOUNT CHANGE BY REGION

Δ in EOP headcount 2010June

2009June

Δ

Group Headcount 59,837 56,674 3,163

Organic Business Growth 2,873

Acquisitions 290

Disposals -

Increase in Group Headcount 3,163

By Region Headcount Δ

Headcount Δ%

Revenues Δ%

Europe / Africa / Middle Eas 835 3.3 % 1.1 %

Americas 53 0.4 % (4.1)%

Asia / Pacific 2,275 12.0 % 7.6 %

TOTAL 3,163 5.6% 1.7%

1.0%

7.2%

(4.3)%

0.1%

0.7%

0.2%

1.0%

0.4%

TOTAL GROUP

Asia / Pacific

Americas

Europe / Africa &Middle East

Organic Acquisition Disposal

1.1%

(4.1)%

7.6%

1.7%


ADJUSTED OPERATING INCOME(1) GROWTH


Op. IncomeJune 09 Organic Acquisitions Disposals

Currencyimpact

Op. IncomeJune 10

380

9 2

(3)

388

2.4% 0.6% 0.0% (1.0)% 2.0%

Constant currency growth: 3.0%


ADJUSTED OPERATING MARGIN(1) BY BUSINESS


15.7

%

14.4

%

14.6

%

11.1

%

25.5

%

19.1

%

13.4

%

9.6%

14.9

%

17.3

%

13.3

%

17.7

%

13.6

%

13.0

%

25.1

%

19.3

%

12.6

%

9.2%

19.1

%

17.4

%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

AGRI

MIN

OG

C

LIFE

CTS

SSC

IND

ENV

AUTO GIS

June 09 June 10


ANALYSIS OF OPERATING INCOME


2009June

Δ%

Adjusted Operating Income(1) 388 380 2.0 % Adjusted Operating Income Margin 16.5 % 16.3 %

Amortisation of acquisition intangibles (4) (4) Restructuring costs (15) Transaction-related costs (1)

Operating Income (EBIT) 383 361 6.1 % Operating Income Margin 16.3 % 15.5 %



CASH FLOWSCHF million Jun 10 Jun 09

PROFIT FOR THE PERIOD 282 267 Non-cash items 214 206

Depreciation, amortisation and impairment 115 113 Share based payments 10 8 Tax 99 91 Other (10) (6)

(Increase) in net working capital (109) (53) Taxes paid (127) (134)

CORE CASH FLOW 260 286 Cash flows from exceptional items 2008 - (14)

OPERATING CASH FLOW 260 272 Net (purchase)/sale of fixed assets (114) (97) Acquisition and divestments of businesses (31) 7 Proceeds from sale of investments - 2 Other from investing activities 1 6

CASH FLOW FROM INVESTING ACTIVITIES (144) (82) Dividend paid to equity holders of SGS SA (455) (375) Dividend paid to non-controlling interests (12) (11) Increase/(decrease) in non-controlling interests (4) - Cash received/(paid) on treasury shares 85 25 Interest paid (7) (9) (Decrease)/increase in borrowings (254) (136)

CASH FLOW FROM FINANCING ACTIVITIES (647) (506) Currency translations 5 (7)

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (526) (323)


CAPITAL EXPENDITURE


FOREIGN CURRENCY REVENUES H1 2010

2010 2009 ChangeEUR 1.4383 1.5065 (4.5%) USD 1.0829 1.1290 (4.1%) CNY 0.1586 0.1651 (3.9%) AUD 0.9671 0.8020 20.6% CAD 1.0473 0.9366 11.8% TWD 0.0340 0.0337 0.9% GBP 1.6507 1.6816 (1.8%)

AVERAGE RATES


FOREIGN CURRENCY SENSITIVITY ANALYSIS

EURO 1.35 1.44 1.45

Revenues (48) 0 6Income (9) 0 1

USD 1.00 1.08 1.15

Revenues (26) 0 21Income (3) 0 2


ADJUSTED OPERATING INCOME MARGIN BY BUSINESS



2009June

2008June

2009December

2008December

AGRI 13.3% 15.7% 13.0% 16.0% 15.6%

MIN 17.7% 14.4% 19.4% 16.3% 18.4%OGC 13.6% 14.6% 14.7% 15.7% 15.5%LIFE 13.0% 11.1% 11.8% 14.5% 14.0%CTS 25.1% 25.5% 22.5% 25.4% 23.3%

SSC 19.3% 19.1% 18.0% 21.1% 19.2%

IND 12.6% 13.4% 14.1% 14.0% 14.4%

ENVI 9.2% 9.6% 8.9% 11.7% 10.6%

AUTO 19.1% 14.9% 17.2% 16.3% 16.7%

GIS 17.4% 17.3% 15.7% 18.4% 16.9%

TOTAL GROUP 16.5% 16.3% 16.3% 17.4% 17.0%


BUSINESS OVERVIEW


AGRICULTURAL SERVICES (AGRI)

OVERVIEW H1 2010• Lower grain trade volumes in H1 versus strong PY

partially offset by sugar and soft commodities. • Buyers stay out of the market pending price

normalisation due to over supply of grain.• Excellent growth in inland services particularly Soil

Testing and Field Trial activities both in North America and Europe.

• Crop services and seed testing gaining traction in Asia, especially China and India.

• Market Research and Information Services products developed during the period and brought to market.

OUTLOOK 2010• Trade Services will improve during H2, driven by

new harvest volumes.• Availability of trade finance will have positive impact

on trade and stimulate Collateral Management activity.

• Growth of inland activities inline with H1. Both the service portfolio and geographical coverage expected to expand rapidly.

• Introduction of Forestry service offering will start to generate revenue with excellent growth potential.

CHF million June2010

June2009

Revenue 170.2 176.3 Change % (3.5)

Change due toVolume & Prices % (3.1)Acquisitions/(Disposals) % - Currency Translation % (0.4)

Adjusted Operating Inc.(1) 22.6 27.7 Change % (18.4)

Margin % 13.3 15.7 (1) Before amortisation of acquisition intangibles, restructuring and transaction-related costs


MINERALS SERVICES (MIN)

OVERVIEW H1 2010• Minerals delivered 5.6% organic growth with

stronger than expected Q2 revenue. • Margin improved by 330 basis points based on

increased revenue and the restructuring undertaken in 2009.

• Good performance in traditional trade inspection business as trade volumes increase for all major bulk commodities.

• Recovery in metallurgical and geochem businesses in North America and Australia. Added 5 new mine site laboratories in H1.

• Completed the acquisition of Verilab in Chile and Assayers Canada in Vancouver to deliver geochem services to these two key markets.

OUTLOOK 2010• Solid project pipeline for all business sectors.• Additional 6 mine site labs expected in H2.• Strong demand for commodities in China, India,

Indonesia will be partially offset by continued weakness in European markets.

• Recovery in the mining and associated service sectors has already produced a very competitive and challenging HR environment.


June2009

Revenue 291.1 261.5 Change % 11.3

Change due toVolume & Prices % 5.6 Acquisitions/(Disposals) % 0.4 Currency Translation % 5.3

Adjusted Operating Inc.(1) 51.4 37.6 Change % 36.7



OIL, GAS & CHEMICALS SERVICES (OGC)

OVERVIEW H1 2010• Crude Oil prices remain steady due to balanced

supply and demand pattern resulting in growth of traded volumes.

• Recovery seen in market with pick up in chemicals sector and reduced arbitrage in petroleum products.

• Client personnel growth restrictions led to outsourcing opportunities in Port and Terminal Operations especially in North America.

• Heavy flooding negatively impacted upstream activities in Australia – full deployment only started in June.

OUTLOOK 2010• Largest oil consumers indicate higher growth than

originally expected – positive outlook to year end.• New SGS Well Test packages to be deployed in

July expanding SGS’ footprint in the upstream arena.

• Lube Condition Monitoring to grow significantly due to start-ups in South America and Turkey.

• Demand for Laboratory Outsourcing and Port and Terminal Operation activities remain strong.


June2009

Revenue 480.2 468.6 Change % 2.5

Change due toVolume & Prices % 3.8 Acquisitions/(Disposals) % - Currency Translation % (1.3)




LIFE SCIENCE SERVICES (LIFE)

OVERVIEW H1 2010• Positive growth over prior year.• Strong interest from key accounts in R&D/QC lab

network, biotech and Asia labs capabilities.• Clinical Research profit stable despite decreasing

revenue and increased cancellation rate.• R&D / QC laboratories:

– Europe: moderate growth but profit improved.– North America: due capacity expansions over-

performed prior year.– Asia: lower profit impacted by change in

service portfolio mix.

OUTLOOK 2010• Sales reorganisation towards efficiency, cross-

selling initiatives implemented to improve backlog.• Leverage expanded capacity in North America. GMP

labs in Asia catching up.• Bioanalysis growth driven by high demand for value-

added services (immuno-analysis) and mass spectrometry.

• Biopharmaceutical testing key factor of future growth with investments planned.

• Long-term preferred partnership with Global Key Accounts.


June2009

Revenue 98.0 100.3 Change % (2.3)





CONSUMER TESTING SERVICES (CTS)

OVERVIEW H1 2010• Good growth over prior year despite slowdown in

CPSIA related testing. Softlines, Food and Automotive key drivers.

• Asian affiliates, particularly China, India and Bangladesh as well as Turkey continue to be strong performers.

• New initiatives related to Sustainability Services and Reach performing according to plan.

• Volumes in Western Europe and USA impacted by adverse economic conditions.

OUTLOOK 2010• Overall expectation for a solid year despite difficult

market conditions in Western Europe and USA.• Good backlog heading into H2.• Regulatory requirements will continue to be a

positive driver, particularly in restricted substances testing and services.

• Service expansion in key affiliates will create additional growth momentum.

• Programs for laboratory efficiency improvement will be further introduced during H2.


June2009






SYSTEMS & SERVICES CERTIFICATION (SSC)

OVERVIEW H1 2010• Revenue growth led by market share gains in

Eastern Europe, Middle East, China / Hong Kong and the Americas.

• Sustainability related audit services and second party audit services delivering higher than average growth rates.

• Demand for global certification contracts remains strong in spite of the current economic climate.

• New IT initiatives rolled out to further increase efficiency and productivity in service delivery.

OUTLOOK 2010• Focus remains on market share gains in key

geographies and new service segments.• Continued investment in new services to obtain

growth in chosen markets.• Stronger competitive landscape and continued price

pressure will be offset by improved efficiency.• Expanding key account management structure to

meet demand from multinational customers.


June2009






INDUSTRIAL SERVICES (IND)

OVERVIEW H1 2010• Challenging first semester as economic conditions in

Western Europe, USA and Middle East slowed organic growth.

• Statutory inspection market conditions remain tight and competitive in Europe.

• The three material testing acquisitions in H1 are performing well, with the acquired higher value services being rolled out in Europe.

• Growing demand for NDT in-service work and large project wins in Africa and Eastern Europe.

• Continuing development of automated inspection tools to further standardise processes and extract efficiencies.

OUTLOOK 2010• Volume decline expected to reverse in H2.• Government infrastructure investment in power and

transport will drive growth in Eastern Europe.• Large client capex budget spend still slow in USA

and Middle East. Large projects now committed in South America and Asia for H2.

• Renewable energy sector growing offshore in Europe and onshore in China.

• China wind turbine blade testing centre will open in Q4.


June2009

Revenue 368.2 371.3 Change % (0.8)

Change due toVolume & Prices % (3.3)Acquisitions/(Disposals) % 2.9 Currency Translation % (0.4)




ENVIRONMENTAL SERVICES (ENVI)

OVERVIEW H1 2010• Extreme weather in first quarter impacted revenues

in Northern Hemisphere.• Good growth in developing markets from mix of new

services (e.g. Green Building) and new locations (Madagascar, Mozambique, Colombia, Laos).

• Economic situation creating challenging market in Spain (lower volumes from public authorities) and Germany (low pricing on public tenders).

• Positive impact of EKO-Projekt acquisition in Poland.

OUTLOOK 2010• Second half expected to see recovery in established

markets, with good level of current bid activity. • H2 traditionally better due to seasonality.• Carbon market developing with strong interest in

Carbon foot-printing and Green Buildings.• Cost and sales initiatives combine to deliver stronger

H2. • Continued push to extend geography to developing

markets.


June2009

Revenue 136.5 140.2 Change % (2.6)

Change due toVolume & Prices % (4.4)Acquisitions/(Disposals) % 2.7 Currency Translation % (0.9)




AUTOMOTIVE SERVICES (AUTO)

OVERVIEW H1 2010• Ireland concession handover impacted revenues,

with only taxi testing remaining.• New program for testing speed camera implemented

in France.• Higher margin following successful restructure in

North America, gains in efficiency in Europe and higher fees in Latin America.

• All statutory vehicle inspection programs are performing as expected, in particular:

– California contract improved performance– Capacity expansions for African contracts

• Growth in remarketing inspection services but slow recovery in new cars in Europe.

OUTLOOK 2010• Statutory business continues to provide solid results

with newly awarded contracts progressively coming on line.

• Remarketing inspection services developing through new clients across geographies.

• Several greenfield and privatisation opportunities being pursued in the statutory field in many geographies.

• New car business expected to continue to be slow.


June2009

Revenue 99.9 138.5 Change % (27.9)

Change due toVolume & Prices % (25.0)Acquisitions/(Disposals) % - Currency Translation % (2.9)




GOVERNMENTS AND INSTITUTIONS SERVICES (GIS)

OVERVIEW H1 2010• Product Conformity Assessment (PCA) leading the

growth of Local Solutions with excellent start to the year.

• New PCA program signed in Syria • Global solutions seeing declining volumes of imports

due economic slowdown• Strong performance for TradeNet in Ghana and

Madagascar. • Ivory Coast has started full service delivery.• Mozambique new program under implementation.• Scanners: Contract renewed in Uruguay and new

contract signed in Capo Verde.

OUTLOOK 2010• PSI volume recovery expected in H2• New PCA mandates expected to be signed in H2• Deployment of TradeNet applications and scanning

solutions to remain the focus in H2 • Continued implementation and roll-out of new

mandates in DRC and Cameroon (Forestry), Ghana (IRS)

• Successful leverage of Liberian contract as best practice reference for Forestry

• New scanning opportunities in Asia and Europe


June2009





SGS GROUP RESULTS FIRST HALF 2010 · Financial community – 15 July 2010 5 FINANCIAL HIGHLIGHTS...

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