SGS 2014 Half Year Results Presentation

Not updated

3

HIGHLIGHTS & OUTLOOK

1st semester 2014 results

Total revenue growth of 5.3% to CHF 2.8 billion (constant currency)

• -1.8% (reported basis)

Organic revenue growth of 4.0% at constant currency

Operating income(1) margin in line with prior year at 15.0%

(constant currency)

Restructuring expense net of tax CHF 8 million

Operating cash inflow of CHF 260 million

Outlook 2014 at constant currency

Solid revenue growth around 6%

Improvement in margin year-on-year

1)Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs Financial community – 17 July 2014

4

Financial community – 17 January 2013

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FINANCIAL HIGHLIGHTS

1) Before amortisation of acquisition intangibles, restructuring, transaction and integration-related costs 2) Constant currency basis

Financial community – 17 July 2014

CHF million 2014

June

2013

June

2013

June

Pro-forma(2)

Revenue 2,805 2,663 2,857

Change in % 5.3 % (1.8)%

Adjusted Operating Income (1) 420 400 439

Change in % 4.9 % (4.2)%

Adjusted Operating Income Margin (1) 15.0 % 15.0 % 15.4 %

Operating Income (EBIT) 397 374 411

Change in % 6.1 % (3.4)%

Adjusted Net Income (1) 275 261 288

Change in % 5.4 % (4.5)%

Net Income 255 240 265

Change in % 6.3 % (3.8)%

Adjusted Basic EPS(1) (CHF) 35.82 34.15 37.57

Basic EPS (CHF) 33.27 31.36 34.59

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SERVICE PORTFOLIO


AGRI6.4%

MIN11.4%

OGC16.0%

LIFE2.1%

CTS27.7%

SSC7.2%

IND12.1%

ENVI2.9%

AUTO7.2%

GIS7.0%

ADJUSTED OPERATING INCOME(1)

AGRI6.4%

MIN12.2%

OGC20.6%

LIFE3.8%

CTS18.2%

SSC6.9%

IND16.8%

ENVI5.4%

AUTO5.3%

GIS4.4%

REVENUE

EUROPE / AFRICA /

MIDDLE EAST

47.0%

AMERICAS24.0%

ASIA PACIFIC29.0%

REVENUE REGION

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REVENUE ANALYSIS

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REVENUE GROWTH COMPOSITION


RevenuesJune 13 Organic Acquisitions Disposals

Currencyimpact

RevenuesJune 14

2,857

105

37

(194)

2,805

4.0% 1.3% 0.0% (7.1)% (1.8)%

Constant currency growth: 5.3%

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LOCAL CURRENCY GROWTH BY BUSINESS


4.0%

2.9%

4.5%

(0.1)%

3.3%

4.4%

6.8%

7.9%

8.9%

(7.6)%

8.1%

1.3%

0.8%

2.2%

5.0%

1.3%

0.5%

1.6%

TOTAL

GIS

AUTO

ENVI

IND

SSC

CTS

LIFE

OGC

MIN

AGRI

Organic Acquisition Disposal

8.1%

(6.0)%

8.9%

7.9%

7.3%

5.7%

8.3%

2.1%

5.3%

2.9%

5.3%

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REVENUE GROWTH AND HEADCOUNT

CHANGE BY REGION


4.0%

5.5%

5.2%

2.4%

1.3%

1.4%

2.0%

1.1%

TOTAL GROUP

Asia / Pacific

Americas

Europe / Africa & Middle East

Organic Acquisition Disposal

3.5%

7.2%

6.9%

5.3%

Δ in EOP headcount 2014

June

2013

June

Δ

Group Headcount 83,592 80,233 3,359

Organic Business Growth 3,023

Acquisitions 336

Disposals -

Increase in Group Headcount 3,359

By Region Headcount

Δ

Headcount

Δ%

Revenues

Δ%

Europe / Africa / Middle East 1,209 3.7 % 3.5 %

Americas 507 2.7 % 7.2 %

Asia / Pacific 1,643 5.6 % 6.9 %

TOTAL 3,359 4.2% 5.3%

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OPERATING INCOME ANALYSIS

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ADJUSTED OPERATING INCOME(1) GROWTH


Op. IncomeJune 13 Organic Acquisitions Disposals

Currencyimpact

Op. IncomeJune 14

439

14

6

(39)

420

3.5% 1.4% 0.0% (9.1)% (4.2)%

Constant currency growth: 4.9%

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ADJUSTED OPERATING MARGIN(1) BY BUSINESS


13.5

%

15.3

%

12.2

%

14.4

%

22.7

%

16.5

%

10.0

%

8.1

%

21.4

%

23.0

%

14.9

%

14.1

%

11.6

%

8.4

%

22.7

%

15.7

%

10.8

%

8.0

%

20.5

% 23.8

%

5.0%

10.0%

15.0%

20.0%

25.0%

AG

RI

MIN

OG

C

LIF

E

CT

S

SS

C

IND

EN

V

AU

TO

GIS

June 13 June 14

14

CASH FLOW


CHF million Jun 14 Jun 13

PROFIT FOR THE PERIOD 273 285

Depreciation, amortisation and impairment 144 145

Share based payments 7 8

Tax 101 105

Other 12 20

Non-cash items 264 278

(Increase)/decrease in working capital (180) (139)

Taxes paid (97) (108)

OPERATING CASH FLOW 260 316

Purchase of land, building, equipment and other assets (130) (170)

Sales of land, building, equipment an other intang. assets 7 7

Acquisition of businesses (17) (68)

Other from investing activities 1 11

CASH FLOW FROM INVESTING ACTIVITIES (139) (220)

Dividend paid to equity holders of SGS SA (499) (444)

Dividend paid to non-controlling interests (2) (2)

Net cash received/(paid) on treasury shares 31 25

Interest paid (28) (26)

Net flows on interest rate swaps 5 5

Increase/(decrease) in borrowings 359 8

CASH FLOW FROM FINANCING ACTIVITIES (134) (434)

Currency translations (5) 5

(DECREASE) IN CASH AND CASH EQUIVALENTS (18) (333)

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CAPITAL EXPENDITURE


AGRI6.2%

MIN10.8%

OGC20.0%

LIFE4.6%CTS

32.3%

SSC1.5%

IND10.8%

ENVI6.9%

AUTO5.4%

GIS1.5%

CAPEX BUSINESS

EUROPE / AFRICA /

MIDDLE EAST

42.3%

AMERICAS22.3%

ASIA PACIFIC35.4%

CAPEX REGION

100

200

300

400

500

Capital Expenditure Depreciation & amortisation

2009 2010 2011 2012 2013 2014

ANNUAL CAPEXCHF million

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FOREIGN CURRENCY REVENUES H1 2014


EUR28.7%

USD13.7%

CNY10.4%

AUD4.8%

CAD3.4%

BRL3.3%

GBP3.2%

TWD3.0%

CLP2.3%

Other27.2%

2014 2013 Change

EUR 1.2214 1.2297 (0.7)%

USD 0.8907 0.9366 (4.9)%

CNY 0.1445 0.1513 (4.5)%

AUD 0.8144 0.9511 (14.4)%

CAD 0.8126 0.9225 (11.9)%

BRL 0.3882 0.4614 (15.9)%

GBP 1.4867 1.4469 2.8 %

TWD 0.0295 0.0316 (6.6)%

CLP 0.0016 0.0020 (17.7)%

HKD 0.1148 0.1207 (4.9)%

AVERAGE RATES

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FOREIGN CURRENCY SENSITIVITY ANALYSIS


EURO 1.20 1.22 1.25

Revenues (14) 0 19

Income (2) 0 2

USD 0.85 0.89 0.95

Revenues (18) 0 26

Income (1) 0 2

CNY 0.13 0.14 0.16

Revenues (29) 0 31

Income (8) 0 9

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BUSINESS OVERVIEW

BU

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IEW

Not updated


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AGRICULTURAL SERVICES (AGRI)

Overview H1 2014

Strong organic growth from Trade inspection and

Laboratory activities due to favorable export

programs for cereals and oilseeds.

North America continues to benefit from grain

market deregulation and successful cost saving

initiatives.

Slower start to the year for Seed and Crop in North

America and Australia, while Brazil and Africa

continue to deliver double digit growth.

2012 acquisitions Gravena and Warecare continue

to perform well.

Outlook 2014

Seasonal market forecasts for 2014/15 show a slight

decline in global grain exports. No material impact

expected in H2.

Recent investments in lab capabilities in Central and

Eastern Europe to come online in H2.

New services around precision farming and

agronomy to ramp up in coming months.

Further expansion and diversification of our farm

verification services.

CHF million June

2014

June

2013

June

2013

Pro-forma2

Revenue 180.5 167.0 179.1

Change in % 8.1 0.8

Adj. Operating Inc.(1) 26.9 22.3 24.2

Change in % 20.6 11.2

Margin %1 14.9 13.4 13.5

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

and integration- related costs(2)

Constant currency basis


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MINERALS SERVICES (MIN)

Overview H1 2014

Revenues declined as challenging market

conditions continued throughout the semester.

Geochem and Metallurgy sample volumes

remained at low levels.

Additional restructuring undertaken to rationalise

capacity and increase operational efficiency.

Increased market share for Outsourced laboratories

and Trade inspections.

7 outsourced laboratories commenced in H1 2014.

Time Mining acquisition fully integrated with a

healthy pipeline of projects.

Outlook 2014

Market expected to remain difficult due to low

exploration spending.

Capacity and network adjustments undertaken in H1

to help address pressure on margins.

Stable growth in Coal and non-ferrous trade

inspection volumes.

5 new onsite laboratories expected in H2 2014.

Continued focus on productivity, efficiency and cost

control.

CHF million June

2014

June

2013

June

2013

Pro-forma2

Revenue 341.1 362.9 410.0

Change in % (6.0) (16.8)


Change in % (12.9) (23.7)

Margin %1 14.1 15.2 15.3





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OIL, GAS & CHEMICALS SERVICES (OGC)

Overview H1 2014

Very strong growth in Upstream Services with new

assets deployed in Australia and Middle East and

contract wins in Middle East and Mexico.

Outstanding growth in Laboratory Outsourcing with

projects executed in Spain, UK and India.

Trade related growth impacted by soft petroleum

markets in Europe and constantly changing trading

pattern, but successful offset by new contract wins.

Plant and Terminal Operations benefitted from

changes in logistics infrastructure in the USA (crude

transportation by rail).

Outlook 2014

Continued growth in Upstream Services from new

assets deployed coming on line.

Completion of laboratory commissioning projects

and new outsourcing contract wins.

Plant and Terminal Operations geographical

expansion into China and additional opportunities

from new terminals built in the USA and Canada.

Trade Related services delivering steady but modest

growth.

CHF million June

2014

June

2013

June

2013

Pro-forma2

Revenue 576.2 529.0 558.5

Change in % 8.9 3.2


Change in % 6.7 (1.3)

Margin %1 11.6 11.9 12.2





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LIFE SCIENCE SERVICES (LIFE)

Overview H1 2014

Adjusted for the winding-down of the Paris clinical

activities, organic revenue growth reached 10%.

Slow start in Laboratory services due to contract

delays in Biologics.

Continued high growth in India and China.

Good start to the year in Clinical Research driven by

the Antwerp clinical unit.

Margins negatively impacted by general pricing

pressures in Clinical Research and project delays in

Biologics.

Outlook 2014

Laboratory growth and margin to improve due to

significant new business opportunities following

investments made in 2013 and global key account

management activities.

Operational excellence initiatives implemented to

further drive margin improvement.

Clinical Research to continue delivering profitable

growth in a very competitive environment.

CHF million June

2014

June

2013

June

2013

Pro-forma2

Revenue 107.5 99.6 102.3

Change in % 7.9 5.1


Change in % (35.7) (38.8)

Margin %1 8.4 14.1 14.4




CHF million June

2014

June

2013

June

2013

Pro-forma2

Revenue 107.5 99.6 102.3

Change in % 7.9 5.1


Change in % (35.7) (38.8)

Margin %1 8.4 14.1 14.4





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CONSUMER TESTING SERVICES (CTS)

Overview H1 2014

Overall resilient growth despite difficult market

conditions.

Achieved high double digit growth in Wireless /

Mobile Devices and Automotive Parts testing,

especially in Asia and North America.

Lower growth with the retail sector as clients attempt

to optimize their testing spend due to the prolonged

challenging economic environment.

Good momentum in food testing driven by Asian

domestic and export markets.

Completed two acquisitions in Electrical &

Electronics to extend our global footprint.

Outlook 2014

Solid growth in Electrical & Electronics (E&E) and

Automotive related activities.

Expect challenging market conditions to continue for

Softlines and Toys & Juvenile Products.

Investments planned to enhance capabilities and

expand geographical coverage in South East Asia to

align with changing supply chain patterns.

CHF million June

2014

June

2013

June

2013

Pro-forma2

Revenue 511.0 476.3 501.7

Change in % 7.3 1.9


Change in % 8.7 1.9

Margin %1 22.7 22.4 22.7





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SYSTEMS & SERVICES CERTIFICATION (SSC)

Overview H1 2014

Overall performance negatively impacted by

Western Europe where business conditions remain

difficult but compensated by strong double digit

growth in Eastern Europe, Middle East, Africa and

Asia Pacific regions.

Performance Assessment and training both showing

double digit growth.

Successful roll out of web-based Learning

Management System in eight countries.

Hart aviation services gradually rolled out in

particular in South America.

Outlook 2014

Market conditions are expected to remain

unchanged during H2 2014.

Growth in food to strengthen following the

introduction of new services in areas such as

allergens and food fraud prevention.

Large contracts gained during H1 with the

Automotive and Hospitality industries to bring

additional growth.

Learning System to be rolled out in more countries.

CHF million June

2014

June

2013

June

2013

Pro-forma2

Revenue 193.6 183.1 194.1

Change in % 5.7 (0.3)


Change in % 2.4 (5.0)

Margin %1 15.7 16.2 16.5





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INDUSTRIAL SERVICES (IND)

Overview H1 2014

Organic revenue growth of 3.3% impacted by

continued soft market conditions in Europe and

revenue streams terminated as part of the 2013

restructuring.

Double-digit organic growth achieved outside

Europe, especially in South America and Asia.

Good growth in the USA partly offset by timing of

large projects in Mexico.

Margin improvement from restructuring in 2013 and

strong performance in China and South America.

Acquisitions concluded in 2013 all performed in line

with expectations.

Outlook 2014

Situation in Europe expected to remain difficult and

the structure will be continuously adjusted to current

market demand.

Continued growth expected from Oil & Gas segment

mainly in North America and Asia Pacific.

Focus remains on developing testing activities either

through green field development or acquisitions.

CHF million June

2014

June

2013

June

2013

Pro-forma2

Revenue 472.3 436.0 462.8

Change in % 8.3 2.1


Change in % 19.2 10.2

Margin %1 10.8 9.8 10.0





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ENVIRONMENTAL SERVICES (ENVI)

Overview H1 2014

Overall growth impacted by mining sector slowdown

especially in Australia, Africa and Canada.

Collapse of carbon market in China and India.

Strong growth and improved margins in Europe as a

result of restructuring, laboratory network

optimization and successful acquisition of MIS UK.

High performance in South America (air monitoring

activities) and USA (shale gas and dioxin testing).

Global contract wins in Health & Safety and

Sustainability secured thanks to unequalled

geographical network.

Outlook 2014

Europe and South America expected to continue

delivering at higher margins following recent

restructuring and new global contracts.

Negative impact of mining sector expected to

continue affecting growth.

Decision to withdraw from CDM market (carbon

projects) expected to deliver margin improvement.

Continued global key account approach expected to

accelerate growth with strong H2 execution.

CHF million June

2014

June

2013

June

2013

Pro-forma2

Revenue 152.4 149.3 159.8

Change in % 2.1 (4.6)


Change in % 8.0 (5.4)

Margin %1 8.0 7.6 8.1





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AUTOMOTIVE SERVICES (AUTO)

Overview H1 2014

Statutory inspection business provided solid results

in Europe, Africa, North America and South

America.

New York statutory program ended in December

2013 negatively impacting organic growth and

margin.

New statutory vehicle inspection operations

established in Ecuador and Mauritius.

Expanded our laboratory testing capabilities through

the acquisition of ATE and CAS in the USA.

Commercial inspection volumes remaining stable.

Outlook 2014

Overall statutory inspection activities will continue to

provide solid results.

Statutory vehicle inspections margin expected to be

impacted by the liberalisation in Canary Islands.

Chile statutory inspection program expected to end

by December 2014.

Acquisition strategy will focus on enhancing

capabilities & footprint for engine & vehicle testing.

CHF million June

2014

June

2013

June

2013

Pro-forma2

Revenue 147.4 140.0 155.8

Change in % 5.3 (5.4)


Change in % (1.0) (9.3)

Margin %1 20.5 21.8 21.4





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GOVERNMENTS AND INSTITUTIONS SERVICES (GIS)

Overview H1 2014

Strong growth in Local Solutions however fully

offset by the expected termination of two major

contracts (PSI Angola and Scanning Nigeria).

Excellent TradeNet growth in Ghana, Mozambique.

2 new PCA (Burundi, Rwanda) and 2 new selective

PCA in Indonesia (cosmetics & wheat flour).

Strong growth of TransitNet thanks to business

recognition and new routes in the Balkans.

PSI Mauritania and Burundi discontinued Q1 2014

but Burundi replaced by a PCA contract.

SGS Omnis: New tracking service initiated in Ghana.

Outlook 2014

PSI likely to further decline (WCO/WTO guidance).

TradeNet: Increase in volume anticipated in

Madagascar following return to political stability.

Continued growth expected in Ghana, Mozambique.

PCA will remain a key driver of top line growth.

TransitNet: Additional routes expected to be opened

in Eastern Europe in H2.

Strong pipeline of new mandates for Scanning,

SGS Layer4 (Telecom) and SGS Omnis (Tracking).

CHF million June

2014

June

2013

June

2013

Pro-forma2

Revenue 123.2 119.7 132.8

Change in % 2.9 (7.2)


Change in % 16.7 (4.2)

Margin %1 23.8 21.0 23.0





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Documents

SGS 2014 Half Year Results Presentation