SGS : 2021 Half Year Results Report PDF / 887.18 KB

2021 HALF YEAR RESULTS

REVENUEADJUSTED OPERATING INCOME*

CHF 3.1 BN	CHF 457 MIO
+16.8%¹	+17.9%2				+40.6%2
+12.4% organic*
	PROFIT FOR THE PERIOD			ADJUSTED OPERATING INCOME MARGIN*
CHF 290 MIO		14.8%
+63.8%						+2.4 pp2,3
	BASIC EARNINGS PER SHARE			FREE CASH FLOW*
CHF 36.29		CHF 93 MIO
+ 59.1%					(57.7)%
	RETURN ON INVESTED CAPITAL*			CASH FLOW FROM OPERATIONS
17.8%				CHF 342 MIO
(0.9) pp3					(17.2)%

• Alternative Performance Measures (APM), refer to the '2021 Half Year APM' document
  1. Historical currency
  2. Constant currency (CCY) - Definition in APM
  3. Percentage points

SGS | 2021 Half Year Results

July 2021

SGS | 2021 Half Year Results

2021 HALF YEAR						1
RESULTS
Financial Highlights
				Change in	June 2020	Change in
(CHF million)	June 2021	June 2020	%	CCY2		CCY²%
REVENUE	3 094	2 650	16.8	2 625	17.9
OPERATING INCOME (EBIT)	430	302	42.4	299	43.8
OPERATING INCOME MARGIN	13.9%	11.4%		11.4%
ADJUSTED OPERATING INCOME*	457	330	38.5	325	40.6
ADJUSTED OPERATING INCOME MARGIN*	14.8%	12.5%		12.4%
EBITDA*	678	576	17.7	572	18.5
ADJUSTED EBITDA*	686	542	26.6	536	28.0
PROFIT FOR THE PERIOD	290	177	63.8
PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF SGS SA	272	171	59.1
BASIC EPS (CHF)	36.29	22.81	59.1
DILUTED EPS (CHF)	36.27	22.74	59.5
CASH FLOW FROM OPERATING ACTIVITIES	342	413	(17.2)
FREE CASH FLOW*	93	220	(57.7)
RETURN ON INVESTED CAPITAL*	17.8%	18.7%
WEIGHTED AVERAGE NUMBER OF SHARES ('000)	7 485	7 506
AVERAGE FTE1	92 143	89 226	3.3

• Alternative Performance Measures (APM), refer to the '2021 Half Year APM' document
  1. Full Time Equivalent (FTE) employees
  2. Constant currency (CCY) - Definition in APM

SGS | 2021 Half Year Results

2		2021 HALF YEAR
	RESULTS

A STRONG FIRST HALF

"I am proud to announce the strong operating performance delivered by our global network in H1 2021. This set of results highlights the resilience of our network and the dedication and dynamism of our employees. The overall recovery of the TIC industry continues to be affected by Covid-19 related challenges. This is impacting part of our network and the daily life of our colleagues whose safety remains our paramount priority.

The progressive market recovery, the evolution of TIC end-markets and customer demand confirm our strategic evolution, our journey to becoming a more sustainable, data-driven company and our commitment to enabling a better, safer and more interconnected world for all our stakeholders." Frankie Ng, Chief Executive Officer of SGS

OUR COMMITMENT TO SUSTAINABILITY

Our commitment to supporting our customers on their journey to sustainability is critical to all our stakeholders. To highlight our commitment to sustainability we have:

• Introduced our Sustainability Solutions framework, unifying our comprehensive range of services aligned with the UN Sustainable Development Goals (SDGs). This increases the visibility, quantifies the revenue and supports the measurement of our value to society of these services. We subsequently launched the first major new service under the framework Sustainability Assurance.
• Launched our corporate Sustainability Ambitions 2023 and 2030, which raise the bar for industry standards and support our culture of sustainability at SGS.
• Increased the accountability for our sustainability objectives by including sustainability KPIs in both our short-term and long-term management incentivization.

STRATEGIC MILESTONES ACHIEVED IN H1 2021

Our strategic ambitions, including becoming a data-driven and the most digital company in the TIC sector, progressed in H1

2021 with:

• The acquisition of Brightsight, the leading cybersecurity evaluation laboratory network. This materially accelerates our global strategy to become the global TIC leader in cybersecurity and complements our Total Solution Service, supporting our customers at every stage of their product's life cycle in Connectivity & Products.
• Digicomply, our AI-poweredend-to-end digital regulatory compliance platform, continued its strong growth trajectory and is increasingly being adopted by food industry leaders with increased scope, contents and functionality.
• The evolution to harmonized Laboratory Information Management Systems (LIMS), which improves customer experience and drives operational efficiencies, is fully on track. For example, 45% of global Geochem sample volume in Natural Resources was processed through the latest generation of LIMS (G6) in May.
• Our commitment to World Class Services (WCS)**, delivering continuous improvement in operational safety, efficiency and excellence, has progressed well. In H1 2021, four additional laboratories passed their first WCS audit including the first laboratories in three regions. To date, 35% of WCS laboratories have passed their first audit, reducing the number of non-value-added activities by 10-25%.

FINANCIAL DISCIPLINE

We have strengthened our balance sheet, reinforced strict pricing controls and proactively managed our cost base and working capital in H1. In addition:

• We delivered a strong operational performance leading to an organic* revenue growth of 12.4% and an adjusted operating income margin* increase from 12.5% in prior year to 14.8% in H1 2021, driven by strong cost discipline and by economic value-added performance management.
• We continued investing in the implementation of our 'Level Up' finance, IT and operations initiatives. This includes accelerating the coverage and capability of our shared service centers, progress on our IT transformation and digital laboratories, billing centralization and improving our reporting data intelligence.
• We continue to invest in our strategic priority areas supported by our focused capital allocation strategy. These include wireless, 5G, semiconductors, mobility, biopharma, food testing and investment into our IT systems to increase productivity and support our target of becoming data-driven and the most digital TIC company.
• Six acquisitions were completed, further aligning our portfolio with our focus megatrends and the integration of SGS Analytics (formerly Synlab Analytics & Services) is progressing according to schedule, accelerating the footprint of our hub-and-spoke laboratory model.

• Alternative Performance Measures (APM), refer to the '2021 Half Year APM' document
• World Class Services is an initiative to drive efficiencies and reduce waste in our laboratories

SGS | 2021 Half Year Results

2021 HALF YEAR	3
RESULTS

DOUBLE DIGIT ORGANIC REVENUE AND ADJUSTED OPEARTING INCOME GROWTH IN H1

Total revenue reached CHF 3.1 billion up 16.8% (17.9% at constant currency*) notably driven by the ongoing recovery following the Covid-19 pandemic and by a significant contribution from acquired revenue. Organic revenue* increased by 12.4%.

Operating income increased from CHF 302 million in prior year to CHF 430 million in 2021 led by the revenue increase and by improved productivity.

Adjusted operating income* increased from CHF 330 million in prior year to CHF 457 million in 2021, an increase of 38.5% (40.6% at constant currency*).

Adjusted operating income margin* increased from 12.5% in prior year (12.4% at constant currency*) to 14.8% in 2021, benefiting from the additional efficiency measures implemented in 2020.

Net financial expenses decreased from CHF 31 million in prior year to CHF 23 million in 2021. This decrease is mainly due to lower hedging costs.

Overall effective tax rate (ETR) decreased from 35% in prior year to 29% in H1 2021 due to a decrease in non-deductible items, mainly goodwill impairment and some restructuring costs.

Profit attributable to equity holders increased from CHF 171 million in prior year to CHF 272 million in 2021, an increase of 59.1% over last year.

Basic earnings per share increased from CHF 22.81 in prior year to CHF 36.29 in 2021, an increase of 59.1% over last year.

Return on invested capital (ROIC)* decreased from 18.7% in prior year to 17.8% in 2021 due to an increase of assets from acquisitions.

Free cash flow (FCF)* decreased from CHF 220 million in prior year to CHF 93 million in 2021. Cash flow was impacted by higher operating net working capital* due to the increased level of activity over last year and an exceptionally low comparable at 31 December 2020. However, the operating net working capital* as a proportion of revenue slightly increased from (0.2)% in prior year to (0.1)% in 2021 and the outflow in H1 2021 is on a similar level as H1 2019. Cash flow from operating activities decreased from CHF 413 million in prior year to CHF 342 million in 2021.

Investment activities: Capital investment was CHF 150 million (4.8% of revenue) versus CHF 108 million last year as the Group accelerated its investments into its strategic priorities. The Group completed six acquisitions for a total cash consideration of CHF 103 million.

Financing activities: In 2021, the Group paid a dividend of CHF 599 million. A Eurobond amounting to CHF 817 million was successfully issued during H1 2021.

As at 30 June 2021, Group net debt* was CHF 2 085 million (CHF 1 478 million at 31 December 2020) primarily due to the dividend payment in H1 2021.

BUSINESS GROWTH AND ADJUSTED OPERATING INCOME MARGIN H1 2021

		Growth	Organic*	Adjusted	Adjusted
		growth	operating	operating income
(CHF million)	Revenue	at CCY1	at CCY1	income*	Margin*
Connectivity & Products (C&P)	618	13.8%	13.3%	142	23.0%
Health & Nutrition (H&N)	414	35.3%	20.9%	64	15.5%
Industries & Environment (I&E)	1 033	21.2%	10.0%	99	9.6%
Natural Resources (NR)	716	5.9%	5.8%	90	12.6%
Knowledge (Kn)	313	26.2%	26.2%	62	19.8%
TOTAL	3 094	17.9%	12.4%	457	14.8%

1. Constant currency (CCY) - Definition in APM

GUIDANCE 2021

• Solid organic* growth normalizing for the impact of Covid-19
• Improving the adjusted operating income margin*
• Strong cash conversion
• Maintaining best-in-class organic return on invested capital*
• Accelerating investment into our strategic focus areas with M&A as a key enabler
• At least maintaining or growing the dividend

* Alternative Performance Measures (APM), refer to the '2021 Half Year APM' document

SGS | 2021 Half Year Results