Analyst and investor call
November 10, 2020
Strong momentum in H2 trading
- The July-October organic revenue decline was -3.8%, with strong improvement in September and October
- Organic growth in China continued to improve, driven by the domestic business, PPE testing and connectivity services
- All businesses showed an improvement in trend apart from OGC:
- CRS growth has been very strong and AFL has returned to growth
- GIS, IND and CBE all show a strong improvement in H2
- July-OctoberAOI above prior year level supported by continuous improvement and optimising, implying a strong increase in margin
- Free Cash Flow also above prior year level supported by the focus on working capital management
- FY guidance remains withdrawn as second phase of lockdown yet to have an impact and due to the importance of the final two months of the year of trading
2
Acquisition of Synlab A&S
- A European Environmental, Food and Life Sciences testing company
- Hub-and-spokenetwork of strategically positioned laboratories
- Highly regulated, mission critical services growing structurally
- Strong organic revenue growth, margin expansion potential and strong cash generation
- Revenue of € 202m and adjusted EBITDA of € 34m in 2019
- Organic revenue growth was 5.8% in 2019 and 0.3% in 1H 2020
- Purchase consideration of c. €550m, expected to close by early Q1 at the latest
- Significant synergy potential through the integration and growth opportunities is expected to drive positive EVA in year 4 of ownership
- Consistent with SGS Group's focus on accelerating M&A and investment in attractive, higher growth sectors with scope for automation and digitization
3
Well positioned in attractive European markets
KEY HIGHLIGHTS
37 | 11 | 2,000 | Process | ||||||||
automation | |||||||||||
Laboratories | Countries | FTEs | |||||||||
A&S Revenue (€m) | |||||||||||
190.4 | 6.1%(1) | 202.0 | 3.0%(1) | ||||||||
95.7 | 98.6 | ||||||||||
2018A | 2019A | H1 2019A | H1 2020A | ||||||||
A&S EBITDA (€m) | |||||||||||
16.5% | 16.8% | 13.7% | 13.8% | ||||||||
31.5 | 7.6% | 33.9 | 3.0% | ||||||||
13.2 | 13.6 | ||||||||||
2018A | 2019A | H1 2019A | H1 2020A | ||||||||
EBITDA growth (%) | EBITDA margin (%) |
SERVICE OFFERINGS
Environment
Comprehensive suite of soil, water, air, waste and
60% hygiene consulting, inspection, monitoring and analytics services
Food
20% Full range of microbial, nutritional, contaminant and genetic testing to cover the "farm to fork" value chain
Life Science
Full range of laboratory and consulting services to
10% support the critical path of bio-pharmaceutical development
Oil Condition Monitoring | |
10% | Laboratory analysis and consultancy services for |
industrial clients
4
Source: Company information, Synlab management reports.
(1) Organic growth for 2019A and H1 2020A was 5.8% and 0.3%, respectively.
Approx. % share of 2019 Sales
A significant enhancement of SGS' European lab network
WHAT A&S BRINGS TO SGS
-
Enhances SGS' positions in European
Environment, Food, Life Sciences and Oil Conditioning markets - Adds expertise and expands our EHS, AFL and OGC laboratory networks
- Specifically increases our market share in Germany and Benelux and enables market entry into new markets in the Nordics
- Accelerates the adoption of a hub and spoke laboratory model and facilitates the optimisation of existing laboratory network
- Opens new multi-country services opportunities with key corporate customers
COMBINED ENVIRONMENTAL HUB
AND SPOKE LAB NETWORK
A&S testing hub
A&S testing spoke
A&S sales office
SGS testing hub
SGS testing spoke
SGS sales / field office
5
Strategic evolution
- The next phase of our strategic evolution is being communicated to our global network over the next few weeks
- Implementation is from January 2021
- With a purpose of enabling a better, safer and more interconnected world for all stakeholders, we will align our global network more closely to the key TIC 'mega-trends' and customer demand
- Simplified organizational structure - divisions reduced from eight to five and regrouped service lines
- Strategy supported by our capital allocation strategy and EVA-driven performance management
- Update on implementation at our FY results and a full strategy presentation at Investor Days next year
Q&A
© S GS S A 2 0 2 0
ALL RIGHTS RESERVED
Thank you
Frankie Ng - CEO
Dominik de Daniel - CFO
Toby Reeks - Investor Relations
www.sgs.com
© SGS Société Générale de Surveillance SA - 2020 - All rights reserved - SGS is a registered trademark of SGS Société Générale de Surveillance SA
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SGS SA published this content on 10 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 November 2020 10:26:01 UTC