SGS Geological Services · SIX:SGSN

SGS Geological Services — SGS — H1 2020 Earnings Presentation

50 slides from SGS Geological Services's earnings presentation, Jul 21, 2020

  1. Slide 1: SGS Group Results: 2020 Half Year Results Presentation

    SGS GROUP RESULTS 2020 HALF YEAR RESULTS PRESENTATION

  2. Slide 2: Disclaimer

    DISCLAIMER Certain matters discussed in this presentation may constitute forward-looking statements that are neither historical facts nor guarantees of future performance. Because these statements involve risks and uncertainties that are beyond control or estimation of SGS, there are important facto

  3. Slide 3: Highlights

    HIGHLIGHTS FINANCIAL REVIEW BUSINESS REVIEW OUTLOOK Q&A APPENDIX A selection of winning entries from SGS employee children’s creative drawing contest during lockdown.

  4. Slide 4: Covid-19 Action Plan: Employee Health and Safety Is Paramount

    COVID-19 ACTION PLAN: EMPLOYEE HEALTH AND SAFETY IS PARAMOUNT · Additional measures adopted by Operational Integrity (work from home, cleaning stations, additional hygiene and disinfection procedures, social distancing) · Ensuring availability of Personal Protective Equipment for all employees globa

  5. Slide 5: Resilient Adjusted Operating Income and Strong Free Cash Flow

    RESILIENT ADJUSTED OPERATING INCOME AND STRONG FREE CASH FLOW H1 2020 HIGHLIGHTS CHF 2.6 BN CHF 330 MIO CHF 310 MIO 18.7% -14.9% CCY1 -26.8% CCY1 +43.5% -5.0 pp -10.4% ORGANIC* 3.11 4511 310 23.7 2.6 18.7 330 216 2020 2019 2020 2019 2020 2019 2020 2019 ADJUSTED RETURN ON REVENUE OPERATING INCOME* FR

  6. Slide 6: Continuing the Portfolio Evolution

    CONTINUING THE PORTFOLIO EVOLUTION H1 2020 ACQUISITIONS DISPOSALS CTA GALLET PEST MANAGEMENT AND FUMIGATION Business line: GIS Business line: AFL Country: FRANCE Country: BELGIUM AND THE NETHERLANDS THOMAS J. STEPHENS & ASSOCIATES, INC. Business line: CRS Country: USA HALF YEAR RESULTS PRESENTATION

  7. Slide 7: Covid-19 Action Plan: Service Delivery Evolution

    COVID-19 ACTION PLAN: SERVICE DELIVERY EVOLUTION · Service delivery evolution to help our customers address their operation and supply chain challenges: – Remote inspection, audit and training have all accelerated significantly – Joined International Chamber of Commerce and International SOS' AOKpas

  8. Slide 8: Financial Review

    HIGHLIGHTS FINANCIAL REVIEW BUSINESS REVIEW OUTLOOK Q&A APPENDIX Safety first in mining operations, SGS Chile.

  9. Slide 9: Resilient Revenue and Adjusted Operating Income Performance

    RESILIENT REVENUE AND ADJUSTED OPERATING INCOME PERFORMANCE H1 2020 FINANCIAL HIGHLIGHTS JUNE 2019 Change in (CHF million) JUNE 2020 JUNE 2019 Change in % CCY1 CCY1 % REVENUE 2 650 3 341 (20.7) 3 115 (14.9) OPERATING INCOME (EBIT) 302 636 (52.5) 594 (49.2) OPERATING INCOME (EBIT) MARGIN 11.4% 19.0%

  10. Slide 10: Financial Review: Revenue

    HIGHLIGHTS FINANCIAL REVIEW REVENUE ADJUSTED OPERATING INCOME BALANCE SHEET CASH FLOW FINANCIAL SUMMARY BUSINESS REVIEW OUTLOOK Q&A APPENDIX Safety first in mining operations, SGS Chile.

  11. Slide 11: Organic Decline Reflecting Impact of Covid-19

    ORGANIC DECLINE REFLECTING IMPACT OF COVID-19 H1 2020 REVENUE COMPOSITION CHF MIO (10.4%) 1.1% (5.6%) (5.8%) (20.7%) 3 341 (323) 34 (176) (226) 2 650 Constant currency (14.9%) REVENUE ORGANIC ACQUISITIONS DISPOSALS CURRENCY REVENUE JUNE 2019 IMPACT JUNE 2020 HALF YEAR RESULTS PRESENTATION © SGS SA 2

  12. Slide 12: Organic Revenue Declined Across the Portfolio

    ORGANIC REVENUE DECLINED ACROSS THE PORTFOLIO H1 2020 REVENUE BY BUSINESS GROWTH1 H1 2020 (1.4%) (5.3%) 0.2% AFL (6.5%) (8.7%) MIN (8.7%) (26.8%) (7.0%) OGC (33.8%) (5.5%) 1.4% CRS (4.1%) (17.8%) 8.2% CBE (9.6%) (2.4%) (18.2%) 0.2% IND (20.4%) (11.5%) 2.9% (8.6%) EHS (17.8%) 0.4% (17.4%) GIS (5.6%)

  13. Slide 13: Asia Pacific Impacted First, North East Asia Growth Returned in Q2

    ASIA PACIFIC IMPACTED FIRST, NORTH EAST ASIA GROWTH RETURNED IN Q2 H1 2020 REVENUE1 BY REGION GROWTH1 H1 2020 (0.6%) (11.9%) 0.4% EUROPE/AFRICA/ (12.1%) MIDDLE EAST (21.8%) (11.8%) 3.8% AMERICAS (29.8%) (7.2%) ASIA/PACIFIC (7.2%) (5.6%) (10.4%) 1.1% TOTAL GROUP (14.9%) Organic Acquisitions Disposals

  14. Slide 14: Efficient Workforce Management

    EFFICIENT WORKFORCE MANAGEMENT (6.8%) (0.5%) (14.2%) 1.0% (20.5%) 1 741 (118) (9) 1 614 1 367 17 1 384 SALARIES CURRENCY RESTR. H1 20191,2 ACTIVE STRUCTURAL REMAINING H1 20202 RESTR. SALARIES AND WAGES IMPACT H1 20191 PORTFOLIO COST ORGANIC H1 2020 AND WAGES JUNE 2019 MANAGEMENT OPTIMISATION JUNE 20

  15. Slide 15: Full Time Equivalent (FTE) Decreased by 7%

    FULL TIME EQUIVALENT (FTE) DECREASED BY 7% FTE1 END OF PERIOD FTE1 AVERAGE BY REGION 93 388 342 (1 336) 96 140 (1 748) (2 646) (5 547) (2 920) 381 89 226 86 828 Decrease: (6 560) (7.0%) Decrease: (6 914) (7.2%) JUNE ACQUI. DISPOS./ COST. REMAINING JUNE JUNE EUR./AFR./ AMERICAS ASIA/ JUNE 2019 RESTR.

  16. Slide 16: Financial Review: Adjusted Operating Income

    HIGHLIGHTS FINANCIAL REVIEW REVENUE ADJUSTED OPERATING INCOME BALANCE SHEET CASH FLOW FINANCIAL SUMMARY BUSINESS REVIEW OUTLOOK Q&A APPENDIX Safety first in mining operations, SGS Chile.

  17. Slide 17: Resilient Adjusted Operating Income Performance Supported by Financial Discipline

    RESILIENT ADJUSTED OPERATING INCOME PERFORMANCE SUPPORTED BY FINANCIAL DISCIPLINE H1 2020 ADJUSTED OPERATING INCOME* CHF MIO (23.5%) 0.0% (3.3%) (5.7%) (32.5%) 489 (106) - (15) (38) 330 Constant currency (26.8%) ADJ. OP. INC. ORGANIC ACQUISITIONS DISPOSALS CURRENCY ADJ. OP. INC. JUNE 2019 IMPACT JUN

  18. Slide 18: Covid-19 Action Plan: Financial Discipline

    COVID-19 ACTION PLAN: FINANCIAL DISCIPLINE · Placement of CHF 175 million and CHF 325 million bonds at attractive pricing · Strong focus on pricing discipline · Annualized structural savings of above CHF 90 million achieved · Strong cost management leading to a dropdown ratio of 26%1 in H1 2020 · Fr

  19. Slide 19: Divisional Margin Performance

    DIVISIONAL MARGIN PERFORMANCE H1 2020 ADJUSTED OPERATING INCOME MARGIN1,* 30% 25% 23.9% 21.8% 20% 19.6% 18.3% 17.3% 15.7% 15% 14.7% 14.5% 14.0% 13.0% 12.5% 11.2% 10.7% 10% 9.0% 9.4% 8.6% 5% 4.7% 4.9% 0% AFL MIN OGC CRS CBE IND EHS GIS TOTAL GROUP June 2020 June 2019 1 1. Constant currency basis (CCY

  20. Slide 20: Solid Progress with EVA-Driven Performance Management

    SOLID PROGRESS WITH EVA-DRIVEN PERFORMANCE MANAGEMENT · Continued EVA-driven performance management 150+ BUSINESS UNITS UNDER REVIEW STATUS · CLOSED Significant progression CRITICAL FOCUS made on the 150+ individual business units highlighted by the Q3 2019 assessment – 10% now closed – 40% of the u

  21. Slide 21: Financial Review: Balance Sheet

    HIGHLIGHTS FINANCIAL REVIEW REVENUE ADJUSTED OPERATING INCOME BALANCE SHEET CASH FLOW FINANCIAL SUMMARY BUSINESS REVIEW OUTLOOK Q&A APPENDIX Safety first in mining operations, SGS Chile.

  22. Slide 22: Continued Strong Balance Sheet

    CONTINUED STRONG BALANCE SHEET ASSETS EQUITY AND LIABILITIES (CHF million) JUNE 2020 DEC 2019 (CHF million) JUNE 2020 DEC 2019 Property, plant and equipment 853 926 Equity holder of SGS SA 772 1 514 Right-of-use assets 561 611 Non-controlling interests 85 81 Goodwill 1 191 1 281 EQUITY 857 1 595 Oth

  23. Slide 23: Financial Review: Cash Flow

    HIGHLIGHTS FINANCIAL REVIEW REVENUE ADJUSTED OPERATING INCOME BALANCE SHEET CASH FLOW FINANCIAL SUMMARY BUSINESS REVIEW OUTLOOK Q&A APPENDIX Safety first in mining operations, SGS Chile.

  24. Slide 24: Strong Cash Flow Generation

    STRONG CASH FLOW GENERATION H1 2020 CONDENSED CASH FLOW (CHF million) JUNE 2020 JUNE 2019 PROFIT FOR THE PERIOD 177 399 Non-cash and non-operating items 361 295 (Increase) in working capital - (205) Taxes paid (125) (148) CASH FLOW FROM OPERATING ACTIVITIES 413 341 Net purchase of fixed assets (103)

  25. Slide 25: Further Improvement of Operating NWC and Controlled Level of Capex

    FURTHER IMPROVEMENT OF OPERATING NWC AND CONTROLLED LEVEL OF CAPEX OPERATING NET WORKING CAPITAL CAPEX IN % OF THE REVENUE IN % OF LTM REVENUE1,* 4.0% 3.2% 3.5% 2.9% (0.2%) 200 4.4 % 4.4 % 3.9 % 4.1 % 5.0% 3.5% 4.5% 175 4.0% 3.0% 150 2.5% 144 3.5% 125 135 130 3.0% 2.0% 100 108 2.5% 1.5% 2.0% 75 1.0%

  26. Slide 26: Financial Review: Financial Summary

    HIGHLIGHTS FINANCIAL REVIEW REVENUE ADJUSTED OPERATING INCOME BALANCE SHEET CASH FLOW FINANCIAL SUMMARY BUSINESS REVIEW OUTLOOK Q&A APPENDIX Safety first in mining operations, SGS Chile.

  27. Slide 27: Financial Summary

    FINANCIAL SUMMARY · Revenue decline of 14.9% at CCY¹ of which 10.4% organic* · Decrease in Adjusted Operating Income* of 26.8%, Adjusted Operating Income Margin at 12.5% · Profit for the period decreased by 55.6% to CHF 177 million · Capital Investment of CHF 108 million · Free Cash flow* of CHF 310

  28. Slide 28: Business Review

    HIGHLIGHTS FINANCIAL REVIEW BUSINESS REVIEW OUTLOOK Q&A APPENDIX Safely handling testing specimens, SGS China.

  29. Slide 29: All Business Units to Show Recovery in H2

    All BUSINESS UNITS TO SHOW RECOVERY IN H2 AGRICULTURE, FOOD AND LIFE (AFL) · JUNE JUNE Change JUNE Change OVERVIEW (CHF million) 2020 2019 in % 2019 CCY1 in CCY % Despite the lockdown measures the business ·· REVENUE 460 525 (12.4) 492 (6.5) was resilient with a 5.3% organic revenue decline ADJUSTED

  30. Slide 30: Moderate Improvement Expected in H2

    MODERATE IMPROVEMENT EXPECTED IN H2 MINERALS (MIN) · JUNE JUNE Change JUNE Change OVERVIEW (CHF million) 2020 2019 in % 2019 CCY1 in CCY % Covid-19 containment measures resulted in declines · REVENUE 313 375 (16.5) 343 (8.7) in most strategic business units ADJUSTED Energy Minerals impacted by reduc

  31. Slide 31: Industry Challenges to Persist in H2

    INDUSTRY CHALLENGES TO PERSIST IN H2 OIL, GAS AND CHEMICALS (OGC) · JUNE JUNE Change JUNE Change OVERVIEW (CHF million) 2020 2019 in % 2019 CCY1 in CCY % Revenue decline was mostly related to prior year · REVENUE 388 620 (37.4) 586 (33.8) disposals of Plant and Terminal Operations ADJUSTED Low deman

  32. Slide 32: Certification to Recover in H2

    CERTIFICATION TO RECOVER IN H2 CERTIFICATION AND BUSINESS ENHANCEMENT (CBE) · JUNE JUNE Change JUNE Change OVERVIEW (CHF million) 2020 20192 in % 2019 CCY1 in CCY % Certification was least impacted, remaining a priority · REVENUE 188 221 (14.9) 208 (9.6) for customers ADJUSTED All other activities d

  33. Slide 33: Inspections Challenged by Covid-19 Restrictions

    INSPECTIONS CHALLENGED BY COVID-19 RESTRICTIONS INDUSTRIAL (IND) · JUNE JUNE Change JUNE Change OVERVIEW (CHF million) 2020 20192 in % 2019 CCY1 in CCY % Resilience in Statutory activities, despite a significant · REVENUE 407 558 (27.1) 511 (20.4) overall organic decline, especially in Oil & Gas ADJ

  34. Slide 34: Accelerating Digital Transition

    ACCELERATING DIGITAL TRANSITION GOVERNMENTS AND INSTITUTIONS (GIS) · JUNE JUNE Change JUNE Change OVERVIEW (CHF million) 2020 20192 in % 2019 CCY1 in CCY % Revenue decreased in all strategic business units REVENUE 185 243 (23.9) 224 (17.4) apart from Border Solutions. Vehicle inspections ·· ADJUSTED

  35. Slide 35: FY Growth Expected to Be Ahead of Group Level

    FY GROWTH EXPECTED TO BE AHEAD OF GROUP LEVEL ENVIRONMENT, HEALTH AND SAFETY (EHS) ·· JUNE JUNE Change JUNE Change OVERVIEW (CHF million) 2020 2019 in % 2019 CCY1 in CCY % A strong start was impacted by the global pandemic REVENUE 223 261 (14.6) 244 (8.6) Health & Safety experienced significant decl

  36. Slide 36: Resilient Performance Should Improve in H2

    RESILIENT PERFORMANCE SHOULD IMPROVE IN H2 CONSUMER AND RETAIL (CRS) · JUNE JUNE Change JUNE Change OVERVIEW (CHF million) 2020 20192 in % 2019 CCY1 in CCY % Electrical and Electronics (E&E) was relatively REVENUE 486 538 (9.7) 507 (4.1) resilient as product safety testing and wireless · ADJUSTED 10

  37. Slide 37: Outlook

    HIGHLIGHTS FINANCIAL REVIEW BUSINESS REVIEW OUTLOOK Q&A APPENDIX Safety procedures with the SGS mascot, Less the Bear, SGS Singapore.

  38. Slide 38: 2020 Outlook

    2020 OUTLOOK · 2020 guidance has been withdrawn · The TIC sector’s long-term role in society has become more relevant in certain key areas (laboratory testing, hygiene inspection and supply chain security) · SGS is well positioned to maintain industry leadership role HALF YEAR RESULTS PRESENTATION ©

  39. Slide 39: Q&A

    HIGHLIGHTS FINANCIAL REVIEW BUSINESS REVIEW OUTLOOK Q&A APPENDIX Social distancing made fun, SGS Germany.

  40. Slide 40: To Register for Questions

    TO REGISTER FOR QUESTIONS PRESS* AND 1 ON YOUR TELEPHONE

  41. Slide 41: Appendix

    HIGHLIGHTS FINANCIAL REVIEW BUSINESS REVIEW OUTLOOK Q&A APPENDIX Social distancing, SGS Romania.

  42. Slide 42: Acronyms and Other Abbreviations

    ACRONYMS AND OTHER ABBREVIATIONS AI Artificial Intelligence CAPEX Capital Expenditure EVA Economic Value Added FTE Full Time Equivalent Employees NIRT Non-Inspection Related Testing NWC Net Working Capital OGC Oil, Gas and Chemicals OPEX Operational Expenditure TIC Testing, Inspection and Certificat

  43. Slide 43: Long-Term Shareholder Value Creation

    LONG-TERM SHAREHOLDER VALUE CREATION H1 REVENUE H1 ADJUSTED H1 FREE CASH FLOW* OPERATING INCOME* 3.3 3.3 481 489 310 2.9 3.0 428 411 242 2.6 210 216 176 330 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 H1 RETURN ON H1 NET PROFIT INVESTED CAPITAL* 23.7% 399 20.8% 19.7% 1

  44. Slide 44: Well-Balanced Portfolio

    WELL-BALANCED PORTFOLIO H1 2020 REVENUE PORTFOLIO Change 1 Change 1 7.0% (0.2%) 1.6% 17.4% GIS AFL 8.4% 0.6% 0.8% 11.8% EHS MIN 15.4% (1.0%) (4.2%) 14.6% IND OGC 7.1% 0.4% 2.0% 18.3% CBE CRS 1. Constant currency basis HALF YEAR RESULTS PRESENTATION © SGS SA 2020 44 21 JULY 2020 ALL RIGHTS RESERVED

  45. Slide 45: Well-Balanced Contribution

    WELL-BALANCED CONTRIBUTION H1 2020 ADJUSTED OPERATING INCOME1 PORTFOLIO Change 1, 2 Change 1, 2 9.7% (0.1%) 2.9% 18.2% GIS AFL 3.3% (2.4%) 1.9% 13.9% EHS MIN 5.8% (4.0%) (1.6%) 10.6% IND OGC 6.4% (2.0%) 5.3% 32.1% CBE CRS 1. Before amortization of acquired intangibles and other non-recurring items –

  46. Slide 46: EUR, CNY and USD Represent 50% of 2020 Revenue

    EUR, CNY AND USD REPRESENT 50% OF 2020 REVENUE H1 2020 FOREIGN CURRENCY REVENUES 25.2% 14.8% EUR CNY 9.9% USD 29.8% 2.4% OTHER KRW 3.6% CAD 2.3% 2.8% RUB AUD 4.5% TWD 2.4% 2.3% GBP CLP HALF YEAR RESULTS PRESENTATION © SGS SA 2020 46 21 JULY 2020 ALL RIGHTS RESERVED

  47. Slide 47: CHF Strengthened in H1 2020 Against All Main Currencies

    CHF STRENGTHENED IN H1 2020 AGAINST ALL MAIN CURRENCIES FOREIGN CURRENCY AVERAGE RATE CHANGE H1 2020 VERSUS H1 2019 RATE 5.0% 0.0% (0.2%) (5.0)% (3.3%) (5.8%) (5.4%) (5.7%) (6.8%) (10.0)% (8.1%) (8.6%) (9.9%) (15.0)% (20.0)% (19.6%) (25.0)% EUR CNY USD TWD CAD AUD GBP KRW RUB CLP JUNE 2020 1.0645 0.

  48. Slide 48: Upcoming Investor Relations Event Dates

    UPCOMING INVESTOR RELATIONS EVENT DATES 2020 FULL YEAR RESULTS Thursday, 28 January 2021 ANNUAL GENERAL MEETING OF SHAREHOLDERS Tuesday, 23 March 2021 Geneva, Switzerland INVESTOR DAYS – EUROPE Thursday and Friday 27 – 28 May 2021 HALF YEAR RESULTS PRESENTATION © SGS SA 2020 48 21 JULY 2020 ALL RIGH

  49. Slide 49: Investor Relations Information

    INVESTOR RELATIONS INFORMATION SGS SA CORPORATE OFFICE MEDIA RELATIONS 1 place des Alpes Daniel Rufenacht P.O. Box 2152 SGS SA CH – 1211 Geneva 1 1 place des Alpes t +41 (0)22 739 91 11 P.O. Box 2152 f +41 (0)22 739 98 86 CH – 1211 Geneva 1 e sgs.investor.relations@sgs.com t +41 (0)22 739 94 01 www.

  50. Slide 50: © SGS Group Management SA – 2020 – All rights reserved – SGS is

    © SGS Group Management SA – 2020 – All rights reserved – SGS is a registered trademark of SGS Group Management SA. WWW.SGS.COM

SGS — H1 2020 Earnings Presentation on 6ix